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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1998
----------------------
[ ] 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 jurisdication of (I.R.S. Employer
incorporation or Organization) Identification Number)
9000 HARRY HINES BOULEVARD, SUITE 330, DALLAS, TEXAS 75235
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(Address of Principal Executive Offices)
(214)-353-2922
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(Issuer's Telephone Number, Including Area Code)
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(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: 10,173,352 shares of common
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stock, $.01 par value, outstanding as of August 12, 1998.
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CYTOCLONAL PHARMACEUTICS INC.
TABLE OF CONTENTS
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Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. -- Financial Statements:
Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 3
Statements of Operations for the Three Months
Ended June 30, 1997 and 1998 (unaudited)
and for the Six Months Ended June 30, 1997
and 1998 (unaudited) 4
Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998 (unaudited) 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 2. -- Changes in Securities and use of Proceeds 9
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.
BALANCE SHEETS
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JUNE 30, DECEMBER 31,
1998 1997
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ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash $ 9,031,000 $ 1,849,000
Prepaid expenses and other current assets 44,000 35,000
------------ ------------
Total current assets 9,075,000 1,884,000
Equipment, net 131,000 127,000
Patent rights, less accumulated amortization of
$502,000 and $463,000 749,000 787,000
Other assets 4,000 4,000
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T O T A L $ 9,959,000 $ 2,802,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 691,000 460,000
Deferred revenue from research and development
collaborative contract 461,000
Current portion of royalties payable 125,000 94,000
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Total current liabilities 1,277,000 554,000
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Royalties payable less current portion 1,063,000 1,125,000
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Total liabilities 2,340,000 1,679,000
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Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000 shares
authorized; 822,266 and 934,563 shares of Series A
convertible preferred issued and outstanding at
June 30, 1998 and December 31, 1997, respectively
(liquidation value $2,056,000 and $2,336,000 at
June 30, 1998 and December 31, 1997, respectively) 8,000 9,000
Common Stock - $.01 par value, 30,000,000 shares
authorized: 10,125,989 and 8,793,998 shares issued
and outstanding at June 30, 1998 and
December 31, 1997, respectively 101,000 88,000
Additional paid-in capital 23,573,000 16,130,000
Accumulated Deficit (16,063,000) (15,104,000)
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Total Stockholders' Equity 7,619,000 1,123,000
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T O T A L $ 9,959,000 $ 2,802,000
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CYTOCLONAL PHARMACEUTICS INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenue:
Licensing & research collaborative
agreement $ 789,000 -- $ 789,000 --
----------- ----------
Operating Expenses:
Research and development $ 462,000 $ 366,000 $ 822,000 $ 688,000
General and administrative 564,000 440,000 1,011,000 887,000
----------- ---------- ---------- -----------
1,026,000 806,000 1,833,000 1,575,000
----------- ---------- ---------- -----------
Operating (loss) (237,000) (806,000) (1,044,000) (1,575,000)
----------- ---------- ---------- -----------
Other (Income) expenses:
Interest (income) (68,000) (28,000) (87,000) (60,000)
Interest expense -- 1,000 2,000 2,000
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(68,000) (27,000) (85,000) (58,000)
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NET (LOSS) $ (169,000) $ (779,000) $ (959,000) $(1,517,000)
Basic and diluted
loss per common share $ (0.02) $ (0.10) $ (0.11) $ (0.21)
Weighted average number of
shares outstanding - basic and diluted 9,727,000 8,206,000 9,286,000 8,073,000
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CYTOCLONAL PHARMACEUTICS INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30,
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1998 1997
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Cash flows from operating activities:
Net (loss) $ (959,000) $(1,517,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 62,000 57,000
Value assigned to warrants and options - 12,000
Equity in loss of joint venture - 12,000
Changes in:
Other assets (9,000) (6,000)
Deferred revenue 461,000 -
Accounts payable and accrued expenses 259,000 (18,000)
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Net cash (used in) operating activities (186,000) (1,460,000)
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Cash flows from investing activities:
Purchase of equipment (56,000) (41,000)
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Net cash (used in) investing activities (56,000) (41,000)
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Cash flows from financing activities:
Net proceeds from private placement 4,838,000 -
Proceeds from exercise of options and warrants 2,617,000 500,000
Payment of royalties (31,000) -
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Net cash provided by financing activities 7,424,000 500,000
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NET INCREASE (DECREASE) IN CASH 7,182,000 (1,001,000)
Cash at beginning of period 1,849,000 2,858,000
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CASH AT END OF PERIOD $9,031,000 $ 1,857,000
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5
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CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(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, 1997. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
Through March 31, 1998, the Company was in the development stage and its
efforts had been principally devoted to research and development, capital
formation and organizational development.
(2) RESEARCH AND COLLABORATIVE AGREEMENT
In June 1998, the company entered into a license and research agreement
with Bristol-Myers Squibb ("BMS") on two technologies related to production
of paclitaxel, the active ingredient in BMS's largest selling cancer
product, Taxol-Registered Trademark-. The agreement includes fees,
milestone payments, research and development support and minimum and sales
based royalties.
(3) LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128
"Earnings Per Share". Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of option, warrants and convertible
securities. Dilutive earnings per share is very similar to the previously
reported fully diluted earnings per share. In accordance with Statement
No. 128, which was adopted by the Company in 1997, basic and diluted net
loss per common share is based on the net loss increased by dividends on
preferred stock divided by the weighted average number of common shares
outstanding during the year. No effect has been given to outstanding
options, warrants or convertible preferred stock in the diluted computation
as their effect would be antidilutive.
(4) PRIVATE PLACEMENT
In April and May 1998, the Company completed a private placement for an
aggregate of 671,035 shares of Common Stock and 335,540 Class E Warrants
and received net proceeds of $4,838,000.
(5) REVENUE RECOGNITION
Revenue from licensing and research agreements is recognized as the
expenses for research and development activities performed under the
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terms of the agreements are incurred. Revenues from nonrefundable
licenses and up front fees is recognized upon signing the agreement.
Revenue resulting from the achievement of milestones is recognized when
the milestone is achieved. Amounts received in advance of services to be
performed are recorded as deferred revenue.
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. To date, the
Company's 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 for the next 12 months will consist of
research and development and related activities aimed at:
- - continued collaboration with Bristol-Myers Squibb on the development of
Paclitaxel production from Microbial Fermentation and Paclitaxel-specific
genes.
- - further development of the Paclitaxel treatment of polycystic kidney
disease, a potential new Paclitaxel indication and establishing a strategic
partnership.
- - evaluation of potential new proprietary microbial anticancer drugs with
Bristol-Myers Squibb.
- - 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 TNF-PEG technology as an anti-cancer agent in animal
studies.
- - testing proprietary vectors which have been constructed for the expression
of specific proteins that may be utilizable for vaccines for different
diseases using Mycobacteria.
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- - further development and potential marketing of the anti-sense technology
currently being conducted at the University of Texas at Dallas.
- - developing a humanized antibody or peptide 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 and corporate
facilities.
- - 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 April 1, 1998 to June 30, 1998, the Company incurred
a net loss of $169,000 compared to a net loss of $779,000 for the same period
in 1997. For the period from January 1, 1998 to June 30, 1998, the Company
incurred a net loss of $959,000 compared to a net loss of $1,517,000 for the
same period in 1997. The decrease from the previous year was attributable to
revenue received from licensing and research and development agreements and
an increase in interest income The Company expects to incur additional
losses in the foreseeable future.
The Company incurred general and administrative expenses of $887,000 and
$1,011,000 for the six months ended June 1997 and June 1998, respectively.
The increase from the previous year was attributable to increased legal and
professional fees, including increased patent expenses, as well as, increased
insurance costs, partially offset by a decrease in consulting fees.
The Company incurred research and development expenses of $688,000 and
$822,000 for the six months ended June 1997 and June 1998, respectively. The
increase was attributable to increased funding for the program at Washington
State University, an increase in laboratory rental costs, and an increase in
royalty payable to Research & Development Institute, Inc. partially offset by
a decrease in laboratory supply costs.
The Company believes that the net proceeds from its initial public
offering of November 1995, the exercise of the placement agent purchase
options in February 1997, the net procceds of approximately $4,838,000 from
the private placement in April and May 1998, the approximately $2,617,000 in
proceeds from the exercise of warrants and options will be sufficient to
finance the Company's plan of operation through the end of 1999. There can be
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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.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In April and May 1998, the Company completed a private placement of an
aggregate of 671,035 shares of Common Stock and 335,540 Class E Warrants
(each of which warrants upon exercise entitles the holder thereof to one
share of Common Stock). The private placement, which was placed by
Janssen/Meyers Associates, LLP, was made solely to 75 accredited investors in
reliance upon Regulation D of the Securities Act of 1933. The gross proceeds
of such placement was $5,633,675 on which the placement agent received
commissions of $563,368 and a nonaccountable expense allowance of $169,010
plus accountable expenses. In addition, the Placement Agent received options
to acquire an aggregate of 201,315 shares of Common Stock.
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: August 14, 1998 /S/ DANIEL M. SHUSTERMAN
--------------------------------------
Daniel M. Shusterman
Vice President of Operations,
Treasurer and Chief Financial
Officer
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EXHIBIT 11
CYTOCLONAL PHARMACEUTICS INC.
COMPUTATION OF NET (LOSS) PER COMMON SHARE
(unaudited)
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<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net (loss) $(169,000) $(779,000) $ (959,000) $(1,517,000)
Add cumulative preferred dividend (51,000) (73,000) (103,000) (146,000)
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NET (LOSS) USED FOR COMPUTATION $(220,000) $(852,000) $(1,062,000) $(1,663,000)
Weighted average number of common
shares outstanding - basic and
diluted 9,727,000 8,206,000 9,286,000 8,073,000
----------- -----------
Net (loss) per common share - $ (0.02) $ (0.10) $ (0.11) $ (0.21)
basic and diluted
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,031
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,075
<PP&E> 373
<DEPRECIATION> 242
<TOTAL-ASSETS> 9,959
<CURRENT-LIABILITIES> 1,277
<BONDS> 0
0
8
<COMMON> 101
<OTHER-SE> 7,510
<TOTAL-LIABILITY-AND-EQUITY> 9,959
<SALES> 0
<TOTAL-REVENUES> 789
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (959)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
