CYTOCLONAL PHARMACEUTICS INC /DE
10QSB, 2000-08-14
PHARMACEUTICAL PREPARATIONS
Previous: BURNHAM SULLIVAN & ASSOCIATES/, 13F-HR, 2000-08-14
Next: CYTOCLONAL PHARMACEUTICS INC /DE, 10QSB, EX-27, 2000-08-14



<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   JUNE 30, 2000
                               ---------------

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ______________ TO _______________

COMMISSION FILE NUMBER  0-26918
                      ---------------------------------------------------------

                          CYTOCLONAL PHARMACEUTICS INC.
        ----------------------------------------------------------------
        (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 621, DALLAS, TEXAS 75235
--------------------------------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


                                 (214)-353-2922
--------------------------------------------------------------------------------
                (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
    ---        ---

                      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: 15,769,052 SHARES OF COMMON
STOCK, $.01 PAR VALUE, OUTSTANDING AS OF AUGUST 9, 2000.



<PAGE>   2


                          CYTOCLONAL PHARMACEUTICS INC.


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                  Page(s)
                                                                                                  -------
PART I.  FINANCIAL INFORMATION
<S>         <C>        <C>                                                                        <C>
            Item 1. -- Financial Statements:

                       Balance Sheets as of June 30, 2000 (unaudited)
                         and December 31, 1999                                                       3

                       Statements of Operations for the Three Months
                         Ended June 30, 2000 and 1999 and for the Six
                         Months Ended June 30, 2000 and 1999 (unaudited)                             4

                       Statements of Cash Flows for the Six Months
                         Ended June 30, 2000 and 1999 (unaudited)                                    5

                       Notes to Financial Statements                                                 6

            Item 2. -- Management's Discussion and Analysis of Financial
                         Condition and Results of Operations                                         8


PART II.  OTHER INFORMATION

            Item 2. -  Changes in Securities and use of Proceeds                                    12

            Item 6. -- Exhibits and Reports on Form 8-K                                             12

Signatures                                                                                          12
Exhibit 27  Financial Data Schedule                                                                 13
</TABLE>


<PAGE>   3


                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

                          CYTOCLONAL PHARMACEUTICS INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                        JUNE 30,      DECEMBER 31,
                                                                          2000           1999
                               ASSETS                                 (UNAUDITED)
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
Current assets:

   Cash (pricipally money market)                                     $ 38,801,000    $  3,213,000

   Prepaid expenses and other current assets                               151,000         135,000
                                                                      ------------    ------------

          Total current assets                                          38,952,000       3,348,000

Equipment, net                                                             280,000         285,000

Patent rights, less accumulated amortization of
    $707,000 and $654,000                                                  727,000         780,000

Notes receivable-officer/stockholder-9.75% due April 30, 2003              137,000          74,000

Other assets                                                                 4,000           4,000
                                                                      ------------    ------------

          T O T A L                                                   $ 40,100,000    $  4,491,000
                                                                      ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

   Accounts payable and accrued expenses                              $    725,000    $    682,000

   Deferred revenue from research and development
     collaborative contract                                                 67,000         207,000

   Current portion of royalties payable                                    125,000         135,000
                                                                      ------------    ------------

           Total current liabilities                                       917,000       1,024,000
                                                                      ------------    ------------

Royalties payable less current portion                                     812,000         875,000
                                                                      ------------    ------------

          Total liabilities                                              1,729,000       1,899,000
                                                                      ------------    ------------

Stockholders' equity:

    Preferred stock - $.01 par value, 10,000,000 shares
     authorized; 694,236 and 728,903 shares of Series A
     convertible preferred issued and outstanding at
     June 30, 2000 and December 31, 1999, respectively
     (liquidation value $1,736,000 and $1,822,000 at
     June 30, 2000 and December 31, 1999, respectively)                      7,000           7,000

    Common Stock - $.01 par value, 30,000,000 shares
     authorized: 15,731,668 and 10,377,453 shares issued
     and outstanding at June 30, 2000 and December 31,
     1999, respectively                                                    157,000         104,000

Additional paid-in capital                                              66,062,000      24,759,000

Unearned compensatory cost                                              (1,209,000)        (89,000)

Accumulated Deficit                                                    (25,903,000)    (22,189,000)

Treasury stock, 102,700 shares of common stock,
    at cost June 30, 2000                                                 (743,000)             --
                                                                      ------------    ------------
          Total Stockholders' Equity                                    38,371,000       2,592,000
                                                                      ------------    ------------

          T O T A L                                                   $ 40,100,000    $  4,491,000
                                                                      ============    ============
</TABLE>

See notes to financial statements


                                        3


<PAGE>   4
                          CYTOCLONAL PHARMACEUTICS INC.

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                        Three Months Ended                          Six Months Ended
                                                             June 30,                                  June 30,
                                                ---------------------------------         ---------------------------------
                                                    2000                 1999                 2000                 1999
                                                ------------         ------------         ------------         ------------
                                                                       (note 4)                                  (note 4)
<S>                                             <C>                  <C>                  <C>                  <C>
Revenue:
  Licensing & research collaborative
     agreement                                  $    343,000         $    250,000         $    687,000         $    483,000
                                                ------------         ------------         ------------         ------------
Operating Expenses:
  Research and development                      $    608,000         $    510,000         $  1,185,000         $  1,382,000
  General and administrative                       1,464,000              626,000            3,729,000            1,139,000
                                                ------------         ------------         ------------         ------------
                                                   2,072,000            1,136,000            4,914,000            2,521,000
                                                ------------         ------------         ------------         ------------

Operating (loss)                                  (1,729,000)            (886,000)          (4,227,000)          (2,038,000)
                                                ------------         ------------         ------------         ------------

Other (Income) expenses:
  Interest (income)                                 (435,000)             (60,000)            (516,000)            (129,000)
  Interest expense                                     1,000                1,000                3,000                3,000
                                                ------------         ------------         ------------         ------------
                                                    (434,000)             (59,000)            (513,000)            (126,000)

NET (LOSS)                                      $ (1,295,000)        $   (827,000)        $ (3,714,000)        $ (1,912,000)
Preferred stock dividend                        $    (43,000)             (45,000)        $    (87,000)             (89,000)
                                                ------------         ------------         ------------         ------------

Net loss attributable to
  common shareholders                             (1,338,000)            (872,000)          (3,801,000)          (2,001,000)
                                                ------------         ------------         ------------         ------------

Net loss per share-basic and diluted            $      (0.09)        $      (0.08)        $      (0.29)        $      (0.19)
                                                ============         ============         ============         ============

Weighted average number of
  shares outstanding - basic and
  diluted                                         15,197,000           10,342,000           13,177,000           10,305,000
                                                ============         ============         ============         ============
</TABLE>



See notes to financial statements




                                       4


<PAGE>   5



                         CYTOCLONAL PHARMACEUTICS INC.


                            STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>


                                                                 SIX MONTHS ENDED
                                                                    JUNE 30,
                                                          ------------    ------------
                                                              2000            1999
                                                          ------------    ------------
<S>                                                       <C>             <C>
Cash flows from operating activities:
   Net (loss)                                             $ (3,714,000)   $ (1,912,000)
   Adjustments to reconcile net (loss) to net
      cash used in operating activities:
      Depreciation and amortization                             85,000          80,000
      Value assigned to common shares and options            1,813,000         291,000
      Changes in:
        Other assets                                           (16,000)       (206,000)
        Deferred revenue                                      (140,000)         16,000
        Accounts payable and accrued expenses                   43,000         (35,000)
                                                          ------------    ------------
          Net cash used in operating activities             (1,929,000)     (1,766,000)
                                                          ------------    ------------

Cash flows from investing activities:
   Notes receivable - officer/shareholder                      (63,000)
   Purchase of equipment                                       (27,000)       (187,000)
                                                          ------------    ------------
          Net cash used in investing activities                (90,000)       (187,000)
                                                          ------------    ------------

Cash flows from financing activities:
   Proceeds from exercise of options and warrants           38,423,000          65,000
   Payment of royalties                                        (73,000)        (31,000)
   Purchase of treasury stock                                 (743,000)
                                                          ------------    ------------
          Net cash provided by financing activities         37,607,000          34,000
                                                          ------------    ------------

NET INCREASE (DECREASE) IN CASH                             35,588,000      (1,919,000)
Cash at beginning of period                                  3,213,000       6,826,000
                                                          ------------    ------------

CASH AT END OF PERIOD                                     $ 38,801,000    $  4,907,000
                                                          ============    ============


Supplemental disclosures of cash flow information:
   Noncash investing activities:
      Equipment acquired included in accounts
          payable and accrued expenses:                             --    $     15,000
</TABLE>


See notes to financial statements


                                        5
<PAGE>   6


                          CYTOCLONAL PHARMACEUTICS INC.
                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 2000
                                   (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, 1999. The
         results for the interim periods are not necessarily indicative of the
         results for the full fiscal year.


(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

         Basic and diluted 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 AND CHANGE IN ACCOUNTING PRINCIPLE

         Revenue from research support agreements is recognized as the expenses
         for research and development activities performed under the terms of
         the agreements are incurred. 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. In December 1999, the staff of the Securities and
         Exchange Commission issued an accounting bulletin on revenue
         recognition which provides, among other matters, that nonrefundable
         license fees should be recognized over the period of performance of
         related research and development activities. Accordingly, the Company
         changed its accounting policy from recognizing revenue from
         nonrefundable license fees at signing of agreement to deferring and
         recognizing such fees over the period of performance of related
         research and development activities. Effective January 1, 1999, the
         Company reflected this change in accounting principle as a cumulative
         effect on prior years of $422,000. Payments to third parties in
         connection with nonrefundable license fees are being recognized over
         the period of performance of related research and development
         activities. This change in accounting principle would


                                        6

<PAGE>   7


         have resulted in an increase in revenues and research and development
         expenses and a decrease in net loss of approximately $188,000, $47,000
         and $141,000, respectively for the six months ended June 30, 2000 if it
         was retroactively applied. The corresponding impact on net loss per
         share would be a decrease from $(0.29) to $(0.28) if this change in
         accounting principle were retroactively applied.

(5)      STOCKHOLDERS' EQUITY

         On February 7, 2000, the Company gave notice to the holders of our
         Class C Warrants that it was exercising its right of redemption
         effective March 9, 2000. We received approximately $12,953,000 from the
         exercise of 1,992,829 such warrants. On March 13, 2000 the Company gave
         notice to the holders of its Class D Warrants that it was exercising
         its right of redemption effective April 12, 2000. The Company received
         approximately $25,742,000 from the exercise of 2,941,905 such warrants.
         Additionally, through June 30, 2000 the Company received proceeds of
         approximately $1,311,000 from the exercise of 152,584 other warrants
         and 141,100 options.

         In January 2000 the Board of Directors approved the 2000 Employee
         Option Plan (the "Plan") authorizing up to 1,500,000 shares, subject to
         approval of the Plan by a majority of our shareholders. We granted
         176,000 options to purchase shares of Common Stock under the Plan at
         exercise prices ranging from $6.75 to $9.875 per share to officers,
         directors, employees and consultants of the Company. At the time of
         such stockholder approval, if the market value of the Company's stock
         exceeds the exercise price of the subject options noted above, the
         Company will incur a non-cash charge to earnings equal to the spread
         between the exercise price and the option and market price, times the
         number of options involved.

         The Company accounts for its stock-based compensation plans under
         Accounting Principles Board Opinion No. 25, "Accounting for Stock
         Issued to Employees." In October 1995, the Financial Accounting
         Standards Board issued Statement No. 123, "Accounting for Stock-Based
         Compensation" ("SFAS No. 123"), which establishes a fair value-based
         method of accounting for stock-based compensation plans. The Company
         has adopted the disclosure-only alternative under SFAS No. 123. The
         Company accounts for stock based compensation to nonemployees using the
         fair value method in accordance with SFAS No. 123 and Emerging Issues
         Task Force (EITF) 96-18. The Company has recognized deferred stock
         compensation related to certain stock option and warrant grants. During
         the six months ended June 30, 2000 the Company granted 25,000 and
         300,000 warrants to purchase shares of Common Stock at $12.00 and
         $15.00 per share, respectively in return for financial advisory
         services. The Company valued these warrants based on the Black-Scholes
         option pricing. In connection therewith the Company recorded a charge
         of $1,613,000 during the six months ended June 30, 2000. In connection
         with other option grants to consultants the Company recorded a charge
         of $200,000 during the six months ended June 30, 2000.

(6)      STOCK BUY-BACK PROGRAM

         In April 2000, the Company announced a stock buy-back program under
         which the Board of Directors authorized the purchase of up to
         $2,000,000 of its common stock. As of June 30, 2000 the Company had
         purchased 102,700 shares at a cost of approximately $742,000.


                                        7

<PAGE>   8




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. Certain of the matters and subject areas discussed in
this report that are not statements of current or historical fact are
"forward-looking statements" that convey information about potential future
circumstances and developments. These are subject to the inherent risks and
uncertainties surrounding expectations regarding future occurrences. Factors
that might cause the Company's actual future experience to differ materially
from the forward-looking statements include, but are not limited to, (i) the
Company's absence of commercialized drug products, (ii) the Company's
dependence, to an extent, on third parties for clinical development and
commercialization of potential products, (iii) the potential failure of any drug
candidates that emerge from the Company's discovery operations to progress
successfully to or through clinical development, (iv) competition, (v)
government regulation, and (vi) pharmaceutical pricing. 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.

         The strategy of the Company is to target opportunities offered by both
established drugs and new drugs. Concerning established drugs, the Company is
focusing on improvements in production and/or activity, and development of new
uses for these drugs. Regarding development of new drugs, the Company is
focusing on the use of novel technologies, including platform technologies,
targeting genes and proteins from the human genome. The Company hopes to
implement this strategy using proprietary company technology or in-licensed
technology, either alone or in combination with corporate partners.

         In the following year the company anticipates continuing its
activities for the following objectives but there can be no assurance of
successful achievement of such.

         o        Continued collaboration with Bristol-Myers Squibb on the
                  development of Paclitaxel production from Fermentation and
                  Paclitaxel-specific genes using genetic engineering.

         o        Further development for commercialization of an alternative
                  production system for glucocerebrosidase, the deficient enzyme
                  in Gaucher disease.

         o        Further development of the treatment of polycystic kidney
                  disease with Paclitaxel or related improved compound, a
                  potential new Paclitaxel indication, and establishing a
                  strategic partnership.

         o        Further development of our rational drug design program using
                  Quantum Core Technology(TM) (QCT(TM)), which targets proteins.
                  Development of QCT(TM) lead compounds for cancer and the
                  common cold and QCT(TM) library.

         o        Further development of our OASIS(TM) optimized antisense
                  genome library, which targets genes. Development of cancer
                  gene Pkc-a lead compound.

         o        Further testing of peptide from UCLA for inhibition of breast
                  cancer via estrogen receptors.

         o        Further development of diagnostic and therapeutic technologies
                  for lung cancer employing the patented LCG gene and LCG gene
                  product.

         o        Evaluation of potential new proprietary microbial anticancer
                  drugs with Bristol-Meyers Squibb.

         o        Testing proprietary vectors, which have been constructed for
                  the expression of specific proteins that may be utilizable for
                  vaccines for different diseases using Mycobacteria.




                                        8

<PAGE>   9



         o        Making improvements to the Company's laboratory facilities and
                  corporate facilities.

         o        Hiring additional technical and administrative staff.

         o        Seeking to establish strategic partnerships for the
                  development, marketing, sales and manufacturing of the
                  Company's proposed products.

         Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our 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 our operations will also be dependent upon the establishment of
collaborative arrangements with other companies, the availability of financing
and other factors. The funded research and development program, if not renewed,
terminates during the year ended December 31, 2000 and thereafter our future
revenues depend upon the achievement of certain milestones related to product
development and royalties based on product sales.

RESULTS OF OPERATIONS

Revenue

         We recognized revenues of $343,000 and $250,000 for the three months
ended June 30, 2000, and 1999, respectively and $687,000 and $483,000 for the
six months ended June 30, 2000 and 1999, respectively. The increase in revenue
from 1999 to 2000 was attributable to license and research and development
payments from our agreements with Bristol-Myers Squibb.

Research and Development Expenses

         We incurred research and development expenses of $1,185,000 and
$1,382,000 for the six months ended June 30, 2000 and 1999, respectively. For
the quarter ended June 30, 2000 and 1999, research and development expenses were
$608,000 and $510,000 respectively. The decrease in research and development
expenses in the six months ended June 30, 2000 from 1999 was due to a $46,000
decrease in laboratory supply expenses, a $34,000 decrease in funding at the
Research & Development Institute, Inc., and a $365,000 decrease in technology
costs associated with the acquisition of Quantum Core Technology(TM), partially
offset by a $22,000 increase in rent expense due to expansion of facilities, a
$56,000 increase in funding for the research program at Washington State
University, a $30,000 increase in funding for the research program at the
University of Texas at Dallas, and a $61,000 increase in research salaries due
to the growth of the scientific staff.

         We anticipate that we will incur increased research and development
expenses if we succeed in our objective to move products from pre-clinical to
clinical trials and as we expand our drug discovery efforts. We also expect to
hire additional technical staff to aid in the fulfillment of these goals.

                                        9

<PAGE>   10


General and Administrative Expenses

         We incurred general and administrative expenses of $3,729,000 and
$1,139,000 for the six months ended June 30, 2000, and 1999, respectively. For
the quarter ended June 30, 2000 and 1999, general and administrative expenses
were $1,464,000 and $626,000, respectively. The increase in general and
administrative expenses for the six months ended June 30, 2000 from 1999 was
attributable to a $2,297,000 increase in public and financial relations costs
including $1,613,000 in value assigned to warrants granted to our financial
advisors, a $17,000 increase in insurance costs, a $20,000 increase in expenses
for attendance at scientific meetings, a $34,000 increase in consulting fees, a
$61,000 increase in contract labor costs, and a $297,000 increase in legal and
professional fees.

         We anticipate that we will incur increased general and administrative
expenses as we expand our administrative staff to aid in our business
development.

Interest Income

         Interest income was $516,000 and $129,000 for the six months ended June
2000 and 1999, respectively. For the quarter, interest income was $435,000 and
$60,000 for June 2000 and 1999, respectively. The increase in interest income is
due to the increase in available cash balances resulting from the receipt of
proceeds from the exercise of warrants.

Change in accounting principle - Revenue recognition

         In December 1999, the staff of the Securities and Exchange Commission
issued an accounting bulletin on revenue recognition which provides, among other
matters, that nonrefundable license fees should be recognized over the period of
performance of related research and development activities. Accordingly, we
changed our accounting policy from recognizing revenue from nonrefundable
license fees at signing of agreement to deferring and recognizing such fees over
the period of performance of related research and development activities.
Effective January 1, 1999, we reflected this change in accounting principle as a
cumulative effect on prior years of $422,000, which is shown in the statement of
operations. Payments to third parties in connection with nonrefundable license
fees are being recognized over the period of performance of related research and
development activities.

         This change in accounting principle would have resulted in an increase
in revenues and research and development expenses and a decrease in net loss of
approximately $188,000, $47,000 and $141,000, respectively for the six months
ended June 30, 2000 if it was retroactively applied. The corresponding impact on
the net loss per share would be a decrease from $(0.29) to $(0.28) if this
change in accounting principle were retroactively applied.

Net Losses

         We incurred net losses of $3,714,000 and $1,912,000 for the six months
ended June 30, 2000 and 1999, respectively. For the quarter net losses were
$1,295,000 and $827,000 for June 30, 2000 and 1999, respectively. The increase
in net losses in 2000 from 1999 was attributable to increased general and
administrative expenses, partially offset by in increase in revenue from the
Bristol-Myers Squibb license and research and development agreements and an
increase in interest income.

                                       10


<PAGE>   11


Liquidity and Capital Resources

         At June 31, 2000, we had cash of approximately $38,801,000. Since
inception we have financed our operations from debt and equity financings as
well as fees received from licensing and research and development agreements.
During the six months ended June 30, 2000, we used cash of approximately
$1,929,000 to fund our operating activities, principally caused by the net loss
of $3,714,000. In addition, during the six months ended June 2000 we used
approximately $90,000 to fund our investing activities, principally caused by a
loan to an officer/shareholder of $63,000.

         On February 7, 2000, the Company gave notice to the holders of our
Class C Warrants that it was exercising its right of redemption effective March
9, 2000. We received approximately $12,953,000 from the exercise of 1,992,829
such warrants. On March 13, 2000 the Company gave notice to the holders of its
Class D Warrants that it was exercising its right of redemption effective April
12, 2000. The Company received approximately $25,742,000 from the exercise of
2,941,905 such warrants. Additionally, through June 30, 2000 the Company
received proceeds of approximately $1,311,000 from the exercise of 152,584 other
warrants and 141,100 options.

         In January 2000 the Board of Directors approved the 2000 Employee
Option Plan (the "Plan") authorizing up to 1,500,000 shares, subject to approval
of the Plan by a majority of our shareholders. We granted 176,000 options to
purchase shares of Common Stock under the Plan at exercise prices ranging from
$6.75 to $9.875 per share to officers, directors, employees and consultants of
the Company. At the time of such stockholder approval, if the market value of
the Company's stock exceeds the exercise price of the subject options noted
above, the Company will incur a non-cash charge to earnings equal to the spread
between the exercise price and the option and market price, times the number of
options involved.

         The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which establishes a fair value-based method of accounting for stock-based
compensation plans. The Company has adopted the disclosure-only alternative
under SFAS No. 123. The Company accounts for stock based compensation to
nonemployees using the fair value method in accordance with SFAS No. 123 and
Emerging Issues Task Force (EITF) 96-18. The Company has recognized deferred
stock compensation related to certain stock option and warrant grants. During
the six months ended June 30, 2000 the Company granted 25,000 and 300,000
warrants to purchase shares of Common Stock at $12.00 and $15.00 per share,
respectively in return for financial advisory services. The Company valued these
warrants based on the Black-Scholes option pricing. In connection therewith the
Company recorded a charge of $1,613,000 during the six months ended June 30,
2000. In connection with other option grants to consultants the Company recorded
a charge of $200,000 during the six months ended June 30, 2000.

         We have agreed to fund scientific research at academic institutions and
to make minimum royalty payments for licensing and collaborative agreements of
approximately $788,000 through June 30, 2001. We do not expect these
arrangements to have a significant impact on our liquidity and capital
resources. We intend to continue to maintain and develop relationships with
academic institutions and to establish licensing and collaborative agreements.


                                       11
<PAGE>   12



         We have no material capital commitments for the year ended December 31,
2000.

         We believe our finances are adequate to meet our current capital and
operating needs.


                           PART II. OTHER INFORMATION


Item 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS


         In April and May 2000, the Company granted 60,000 options to purchase
shares of Common Stock at exercise prices ranging from $6.75 to $9.875 per
share to employees and consultants of the Company. The shares of Common Stock
were granted pursuant to the exemption afforded by Section 4(2) promulgated
under the Securities Act since such issuances did not involve a public offering.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  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: August 14, 2000                      /s/ Daniel M. Shusterman
                                           -------------------------
                                           Daniel M. Shusterman
                                           Vice President of Operations,
                                           Treasurer and Chief Financial
                                           Officer



                                       12


<PAGE>   13


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT
NUMBER              DESCRIPTION
-------             -----------
<S>                 <C>
  27                Financial Data Schedule
</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission