<PAGE> 1
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 September 30, 1999
---------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
for the transition period from to
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COMMISSION FILE NUMBER 0-26918
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CYTOCLONAL PHARMACEUTICS INC.
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(Exact Name of Registrant 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 627, Dallas, Texas 75235
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(214)-353-2922
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(Registrant'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: 10,373,050 shares of common
-----------------------------
stock, $.01 par value, outstanding as of November 10, 1999.
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CYTOCLONAL PHARMACEUTICS INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. -- Financial Statements:
Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998 3
Statements of Operations for the Three Months
Ended September 30, 1999 and 1998 and the
Nine Months Ended September 30, 1999 and
1998(unaudited) 4
Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited) 5
Notes to Financial Statements 6
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. -- Exhibits and Reports on Form 8-K 8
Signatures 8
Exhibit 11 Computation of per share earnings 9
Exhibit 27 Financial Data Schedule 10
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYTOCLONAL PHARMACEUTICS INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1999 1998
ASSETS (unaudited)
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<S> <C> <C>
Current assets:
Cash (principally money market) $ 4,323,000 $ 6,826,000
Prepaid expenses and other current assets 303,000 85,000
------------ ------------
Total current assets 4,626,000 6,911,000
Equipment, net 312,000 121,000
Patent rights, less accumulated amortization of
$625,000 and $540,000 809,000 710,000
Other assets 4,000 4,000
------------ ------------
T O T A L $ 5,751,000 $ 7,746,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 593,000 461,000
Deferred revenue from research and development
collaborative contract 317,000 67,000
Current portion of royalties payable 125,000 156,000
------------ ------------
Total current liabilities 1,035,000 684,000
------------ ------------
Royalties payable less current portion 937,000 1,000,000
------------ ------------
Total liabilities 1,972,000 1,684,000
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Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000 shares authorized; 728,903 and
746,864 shares of Series A convertible preferred issued and outstanding at
September 30, 1999 and December 31, 1998, respectively (liquidation value
$1,822,000 and $1,872,000 at September 30, 1999 and December 31, 1998,
respectively) 7,000 7,000
Common Stock - $.01 par value, 30,000,000 shares authorized: 10,373,050 and
10,209,844 shares issued and outstanding at September 30, 1999 and December
31, 1998, respectively 104,000 102,000
Additional paid-in capital 24,525,000 23,785,000
Unearned compensatory cost (101,000)
Accumulated Deficit (20,756,000) (17,832,000)
------------ ------------
Total Stockholders' Equity 3,779,000 6,062,000
------------ ------------
T O T A L $ 5,751,000 $ 7,746,000
============ ============
</TABLE>
3
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CYTOCLONAL PHARMACEUTICS INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Licensing & research collaborative
agreement $ 267,000 $ 194,000 $ 750,000 $ 983,000
------------ ------------ ------------ ------------
Operating Expenses:
Research and development $ 640,000 $ 351,000 $ 2,022,000 $ 1,173,000
General and administrative 689,000 919,000 1,828,000 1,930,000
------------ ------------ ------------ ------------
1,329,000 1,270,000 3,850,000 3,103,000
------------ ------------ ------------ ------------
Operating (loss) (1,062,000) (1,076,000) (3,100,000) (2,120,000)
------------ ------------ ------------ ------------
Other (Income) expenses:
Interest (income) (50,000) (100,000) (179,000) (187,000)
Interest expense -- -- 3,000 2,000
------------ ------------ ------------ ------------
(50,000) (100,000) (176,000) (185,000)
------------ ------------ ------------ ------------
NET (LOSS) $ (1,012,000) $ (976,000) $ (2,924,000) $ (1,935,000)
Basic and diluted
loss per common share $ (0.10) $ (0.10) $ (0.30) $ (0.22)
Weighted average number of
shares outstanding - basic and
diluted 10,361,000 10,172,000 10,318,000 9,585,000
</TABLE>
4
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CYTOCLONAL PHARMACEUTICS INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($ 2,924,000) ($ 1,935,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 119,000 93,000
Value assigned to warrants and options 386,000 197,000
Changes in:
Other assets (218,000) (73,000)
Deferred revenue 250,000 267,000
Accounts payable and accrued expenses 132,000 41,000
------------ ------------
Net cash (used in) operating activities (2,255,000) (1,410,000)
------------ ------------
Cash flows from investing activities:
Purchase of equipment (225,000) (69,000)
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Net cash (used in) investing activities (225,000) (69,000)
------------ ------------
Cash flows from financing activities:
Net proceeds from private placement -- 4,838,000
Proceeds from exercise of options and warrants 71,000 2,640,000
Payment of royalties (94,000) (47,000)
------------ ------------
Net cash (used in) provided by
financing activities (23,000) 7,431,000
------------ ------------
NET INCREASE (DECREASE) IN CASH (2,503,000) 5,952,000
Cash at beginning of period 6,826,000 1,849,000
------------ ------------
CASH AT END OF PERIOD $ 4,323,000 $ 7,801,000
============ ============
</TABLE>
5
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CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(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-K for the fiscal year ended December 31, 1998. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
Through June 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(R). 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) REVENUE RECOGNITION
Revenue from licensing and research agreements is recognized as the
expenses for research and development activities performed under the
terms of the agreements are incurred. Revenues from nonrefundable
licenses and up front fees are 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.
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. 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.
For the period from July 1, 1999 to September 30, 1999, the Company
incurred a net loss of $1,012,000 compared to a net loss of $976,000 for the
same period in 1998. For the period from January 1, 1999 to September 30, 1999,
the Company incurred a net loss of $2,924,000 compared to a net loss of
$1,935,000 for the same period in 1998. The increase for the nine-month period
from the previous year was attributable to an increase in operating expenses and
a decrease in revenue 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 $1,828,000
and $1,930,000 for the nine months ended September 1999 and September 1998,
respectively. The increase from the previous year was attributable to increased
expenditures for travel and lodging, consulting fees, rent, and taxes, partially
offset by a decrease in legal and professional expenses and public and financial
relations expenses.
The Company incurred research and development expenses of $2,022,000
and $1,173,000 for the nine months ended September 1999 and September 1998,
respectively. The increase was attributable to a large extent to a non-recurring
expense for the acquisition of the Quantum Core Technology(TM) for drug design
and for research activities in Israel. Additionally, the increase was
attributable to funding for the research programs at Research & Development
Institute, Inc. (RDI), Washington State University and the University of Texas
at Dallas, as well as, an increase in laboratory rental expenses, an increase in
contract labor costs, an increase in laboratory supplies, and an increase in
research salaries and payroll taxes. Included in research and development
expenses for the nine months ended September 1999 was a non-cash charge of
$346,000 relating to the valuations of common stock and options issued in
connection with services rendered in identifying and securing the drug design
technology.
The Company believes that it has sufficient capital to finance the
Company's plan of operation in excess of 12 months. However, there can be no
assurances that the Company will generate sufficient revenues, if any, to fund
its operations after such period or that any required financings will be
available, through bank borrowings, debt or equity offerings, or otherwise, on
acceptable terms or at all.
7
<PAGE> 8
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Computation of net (loss) per share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOCLONAL PHARMACEUTICS INC.
Date: November 15, 1999 /s/ Daniel M. Shusterman
----------------------------
Daniel M. Shusterman
Vice President of Operations,
Treasurer and Chief Financial
Officer
8
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 Computation of net (loss) per share
27 Financial Data Schedule
</TABLE>
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EXHIBIT 11
CYTOCLONAL PHARMACEUTICS INC.
COMPUTATION OF NET (LOSS) PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net (loss) ($ 1,012,000) ($ 976,000) ($ 2,924,000) ($ 1,935,000)
Add cumulative preferred dividend (46,000) (48,000) (137,000) (143,000)
------------ ------------ ------------ ------------
NET (LOSS) USED FOR COMPUTATION ($ 1,058,000) ($ 1,024,000) ($ 3,061,000) ($ 2,078,000)
Weighted average number of common
shares outstanding - basic and
diluted 10,361,000 10,172,000 10,318,000 9,585,000
------------ ------------ ------------ ------------
Net (loss) per common share -
basic and diluted ($ 0.10) ($ 0.10) ($ 0.30) ($ 0.22)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,323
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,626
<PP&E> 618
<DEPRECIATION> 306
<TOTAL-ASSETS> 5,751
<CURRENT-LIABILITIES> 1,035
<BONDS> 0
0
7
<COMMON> 104
<OTHER-SE> 3,668
<TOTAL-LIABILITY-AND-EQUITY> 5,751
<SALES> 0
<TOTAL-REVENUES> 750
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,924)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
