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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
-----------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the Transition period from ______________ to ______________
Commission file Number 0-26918
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CYTOCLONAL PHARMACEUTICS INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 75-2402409
- --------------------------------------------- ---------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification Number)
9000 Harry Hines Boulevard, Suite 330, Dallas, Texas 75235
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(214)-353-2922
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(Issuer's Telephone Number, Including Area Code)
- ------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 8,743,058 shares of common
stock, $.01 par value, outstanding as of November 10, 1997.
Transitional Small Business Disclosure Format (check one):
YES NO X
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CYTOCLONAL PHARMACEUTICS INC.
TABLE OF CONTENTS
<TABLE>
Page(s)
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. -- Financial Statements:
Balance Sheets as of September 30, 1997 (unaudited)
and December 31, 1996 3
Statements of Operations for the Three Months
Ended September 30, 1996 and 1997 (unaudited)
and for the Nine Months Ended September 30, 1996
and 1997 (unaudited) and the Period From
September 11, 1991 (Inception) Through
September 30, 1997 4
Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1997 (unaudited)
and the Period From September 11, 1991
(Inception) Through September 30, 1997 5
Notes to Financial Statements 6
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6. -- Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 11 Computation of per share earnings 11
Exhibit 27 Financial Data Schedule 12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYTOCLONAL PHARMACEUTICS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ ------------
ASSETS (UNAUDITED)
Current assets:
Cash $ 2,858,000 $ 1,159,000
Prepaid expenses and other current assets 35,000 16,000
------------ ------------
Total current assets 2,893,000 1,175,000
Equipment, net 104,000 107,000
Patent rights, less accumulated amortization of
$386,000 and $444,000 864,000 806,000
Investment in joint venture - at equity 16,000 0
Other assets 4,000 4,000
------------ ------------
T O T A L $ 3,881,000 $ 2,092,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 319,000 $ 307,000
------------ ------------
Current portion of royalties payable 31,000 70,000
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Total current liabilities 350,000 377,000
------------ ------------
Royalties payable less current portion 1,219,000 1,156,000
------------ ------------
Total liabilities 1,569,000 1,533,000
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Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000
shares authorized; 1,228,629 and 1,101,513
shares of Series A convertible preferred
issued and outstanding at December 31, 1996
and September 30, 1997, respectively
(liquidation value $3,072,000 and $2,754,000 12,000 11,000
at December 31, 1996 and September 30, 1997,
respectively)
Common Stock - $.01 par value, 30,000,000
shares authorized: 7,730,546 and 8,300,450
shares issued and outstanding at
December 31, 1996 and September 30, 1997, 78,000 83,000
respectively
Additional paid-in capital 14,074,000 14,779,000
Deficit accumulated during the development stage (11,852,000) (14,314,000)
------------ ------------
Total Stockholders' Equity 2,312,000 559,000
------------ ------------
T O T A L $ 3,881,000 $ 2,092,000
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CYTOCLONAL PHARMACEUTICS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
SEPTEMBER 11,
1991
THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, THROUGH
------------------------ --------------------------- SEPTEMBER 30,
1996 1997 1996 1997 1997
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<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development $ 454,000 $ 362,000 $1,183,000 $ 1,050,000 $ 7,357,000
General and administrative 403,000 603,000 1,110,000 1,490,000 6,816,000
----------- ---------- ------------ ------------ ------------
857,000 965,000 2,293,000 2,540,000 14,173,000
----------- ---------- ------------ ------------ ------------
Other (Income) expenses:
Interest (income) (49,000) (20,000) (165,000) (80,000) (499,000)
Interest expense 0 0 0 2,000 561,000
----------- ---------- ------------ ------------ ------------
(49,000) (20,000) (165,000) (78,000) 62,000
----------- ---------- ------------ ------------ ------------
NET (LOSS) $(808,000) $(945,000) $(2,128,000) $(2,462,000) $(14,235,000)
----------- ---------- ------------ ------------ ------------
----------- ---------- ------------ ------------ ------------
Net loss per common share $(0.12) $(0.12) $(0.31) $(0.33)
----------- ---------- ------------ ------------
----------- ---------- ------------ ------------
Weighted average number of
shares outstanding 7,687,000 8,261,000 7,631,000 8,136,000
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</TABLE>
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CYTOCLONAL PHARMACEUTICS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
SEPTEMBER 11,
1991
NINE MONTHS ENDED (INCEPTION)
SEPTEMBER 30, THROUGH
--------------------------- SEPTEMBER 30,
1996 1997 1997
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<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $(2,128,000) $(2,462,000) $(14,235,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 86,000 86,000 655,000
Amortization of debt discount - - 269,000
Amortization of debt costs - - 554,000
Value assigned to warrants and options 88,000 133,000 321,000
Equity in loss of joint venture 18,000 16,000 232,000
Changes in operating assets and
liabilities:
(Increase) decrease in other assets 15,000 19,000 (24,000)
Increase (decrease) in accounts
payable and accrued expenses 282,000 (2,000) 307,000
----------- ----------- ------------
Net cash (used in)
operating activities (1,639,000) (2,210,000) (11,921,000)
Cash flows from investing activities:
Purchase of equipment (62,000) (41,000) (237,000)
Royalty payments - (24,000) (24,000)
Investment in joint venture - - (233,000)
----------- ----------- ------------
Net cash (used in)
investing activities (62,000) (65,000) (494,000)
----------- ----------- ------------
----------- ----------- ------------
Cash flows from financing activities:
Net proceeds from sales of preferred and
common stock - - 13,750,000
Proceeds from exercise of options and warrants - 576,000 576,000
Proceeds from bridge loans, net of expenses - - 2,684,000
Repayment of bridge loans - - (3,238,000)
Principal payments of equipment notes - - (76,000)
Dividends paid - - (122,000)
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Net cash provided by
financing activities - 576,000 13,574,000
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NET (DECREASE) IN CASH (1,701,000) (1,699,000) 1,159,000
Cash at beginning of period 5,442,000 2,858,000 -
----------- ----------- ------------
CASH AT END OF PERIOD $3,741,000 $ 1,159,000 $ 1,159,000
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</TABLE>
5
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CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of Cytoclonal Pharmaceutics Inc., a
Delaware corporation (the "Company"), included herein have been prepared
in accordance with the rules and regulations promulgated by the Securities
and Exchange Commission and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the results of operations for the interim periods
presented. Certain information and footnote disclosures normally included
in financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such
rules and regulations. However, management believes that the disclosures
are adequate to make the information presented not misleading. These
financial statements and the notes thereto should be read in conjunction
with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996. The results for the interim periods are not necessarily
indicative of the results for the full fiscal year.
(2) STOCK OPTION PLAN
In April 1996, the Board of Directors of the Company adopted the
Cytoclonal Pharmaceutics Inc. 1996 Stock Option Plan (the "1996 Plan")
subject to stockholder approval. The 1996 Plan, which was approved by a
majority of stockholders on June 3, 1996, authorizes 750,000 shares of
common stock to be reserved for issuance to the Company's officers,
employees, consultants and advisors. As of November 7, 1997, options to
acquire 85,000 shares of common stock are available for future grant and
options to acquire 665,000 shares of common stock remain outstanding
pursuant to the 1996 Plan. The 1996 Plan provides for the grant of
incentive stock options intended to qualify as such under Section 422 of
the Internal Revenue Code of 1986, as amended, and nonstatutory stock
options which do not so qualify.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED IN THIS REPORT. THIS DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED IN THIS
REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND SIMILAR
EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR
IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS. HISTORICAL OPERATING RESULTS ARE
NOT NECESSARILY INDICATIVE OF THE TRENDS IN OPERATING RESULTS FOR ANY FURTHER
PERIOD.
Cytoclonal Pharmaceutics Inc., a Delaware corporation (the "Company"), was
duly organized and commenced operations in September 1991. The Company is in
the development stage, and its efforts have been principally devoted to
research and development activities and organizational efforts, including the
development of products for the treatment of cancer and infectious diseases,
recruiting its scientific and management personnel and advisors and raising
capital.
The Company's plan of operation is aimed at research and development and
related activities comprising:
- further development of the Paclitaxel production from the Fungal
Paclitaxel Production System using fermentation technologies, strain
improvements and utilizing Paclitaxel-specific genes.
- further development of the Paclitaxel treatment of polycystic kidney
disease, a potential new Paclitaxel indication.
- further development of a diagnostic test using the patented LCG gene
and related MAb to test in vitro serum, tissue or respiratory
aspirant material for the presence of cells which may indicate a
predisposition to, or early sign of, lung or other cancers.
- further analysis of the TNF-PEG technology as an anti-cancer agent in
animal studies and possible submission of IND.
- testing proprietary vectors which have been constructed for the
expression of specific proteins that may be utilizable for vaccines
for different diseases.
- further development of the anti-sense technology currently being
conducted at the University of Texas at Dallas.
- developing a humanized antibody specific for the protein associated
with the LCG gene and, if successful, submission of an IND for
clinical trials.
- making modest improvements to the Company's laboratory facilities.
7
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- hiring additional research technicians and a financial vice
president.
- seeking to establish strategic partnerships for the development,
marketing, sales and manufacturing of the Company's proposed
products.
The actual research and development and related activities of the Company
may vary significantly from current plans depending on numerous factors,
including changes in the cost of such activities from current estimates, the
results of the Company's research and development programs, the results of
clinical studies, the timing of regulatory submissions, technological advances,
determinations as to commercial potential and the status of competitive
products. The focus and direction of the Company's operations will also be
dependent upon the establishment of collaborative arrangements with other
companies, the availability of financing and other factors.
For the period from July 1, 1997 to September 30, 1997, the Company
incurred a net loss of $945,000 compared to a net loss of $808,000 for the same
period in 1996. For the period from January 1, 1997 to September 30, 1997, the
Company incurred a net loss of $2,462,000 compared to a net loss of $2,128,000
for the same period in 1996. The increase from the previous year was
attributable to an increase in operating expenses and a decrease in interest
income. The Company expects to incur additional losses in the foreseeable
future.
The Company incurred general and administrative expenses of $1,110,000 and
$1,490,000 for the nine months ended September 1996 and September 1997,
respectively. The increase from the previous year was attributable to
increased technology marketing and public relations costs, consulting fees,
legal and professional fees and increased rent expenses.
The Company incurred research and development expenses of $1,183,000 and
$1,050,000 for the nine months ended September 1996 and September 1997,
respectively. The decrease was primarily attributable to the completion of the
Company's funding obligation to Research and Development, Inc., along with
lower license fees, partially offset by an increase in contact research fees
and an increase in salaries due to the hiring of additional research
technicians.
The Company believes that the net proceeds from its initial public
offering of November 1995, the proceeds from the exercise of the placement
agent purchase options in February 1997 aggregating $500,000 and the proceeds
from the recent exercise of Class A, Class B and Class C Warrants aggregating
$76,000 through September 30, 1997, along with approximately $1,142,000
additional proceeds through November 7, 1997, will be sufficient to finance the
Company's plan of operation through the middle of 1998. There can be no
assurance that the Company will generate sufficient revenues to fund its
operations after such period or that any required financings will be available,
through bank borrowings, debt or equity offerings, or otherwise, on acceptable
terms or at all.
8
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Computation of net (loss) per share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K - None
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOCLONAL PHARMACEUTICS INC.
Date: November 13, 1997 /s/ Daniel M. Shusterman
---------------------------------
Daniel M. Shusterman
Vice President of Operations,
Treasurer and Chief Financial
Officer
10
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EXHIBIT 11
CYTOCLONAL PHARMACEUTICS INC.
COMPUTATION OF NET (LOSS) PER COMMON SHARE
(unaudited)
<TABLE>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1997 1996 1997
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<S> <C> <C> <C> <C>
Net (loss) $ (808,000) $ (945,000) $(2,128,000) $(2,462,000)
Add cumulative preferred dividend (79,000) (69,000) (238,000) (207,000)
---------- ----------- ----------- -----------
NET (LOSS) USED FOR COMPUTATION $ (887,000) $(1,014,000) $(2,366,000) $(2,669,000)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average number of
common shares outstanding 7,687,000 8,261,000 7,631,000 8,136,000
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Net (loss) per common share $(0.12) $(0.12) $(0.31) $(0.33)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,159
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,175
<PP&E> 315
<DEPRECIATION> 208
<TOTAL-ASSETS> 2,092
<CURRENT-LIABILITIES> 377
<BONDS> 0
0
11
<COMMON> 83
<OTHER-SE> 465
<TOTAL-LIABILITY-AND-EQUITY> 2,092
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,462)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
