<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 2000
REGISTRATION NO. 333-33838
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CYTOCLONAL PHARMACEUTICS INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C>
DELAWARE 75-2402409
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
9000 HARRY HINES BLVD., SUITE 621, DALLAS, TEXAS 75235 (214) 353-2922
(Address, including zip code, and telephone number, including area code,
of registrants's principal executive offices)
ARTHUR P. BOLLON, Ph.D.
CHAIRMAN & CHIEF EXECUTIVE OFFICER
CYTOCLONAL PHARMACEUTICS INC.
9000 HARRY HINES BLVD., SUITE 621, DALLAS TEXAS 75235
(214) 353-2922
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
ROBERT H. COHEN, ESQ.
MORRISON COHEN SINGER & WEINSTEIN, LLP
750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 735-8600
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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this form are being offered
pursuant to dividend or interest, reinvestment plans please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE> 2
SUBJECT TO COMPLETION DATED MAY 12, 2000
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
CYTOCLONAL PHARMACEUTICS INC.
1,880,240 SHARES OF COMMON STOCK
The securityholders listed on p. 12 of this prospectus are offering and
selling a total of 1,880,240 shares of Common Stock for their accounts.
Our Common Stock is currently quoted on the Nasdaq SmallCap Market System
under the symbol "CYPH."
---------------------
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS AND "DILUTION."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is May , 2000.
---------------------
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
WHERE YOU CAN FIND MORE INFORMATION......................... iii
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 4
USE OF PROCEEDS............................................. 12
SELLING SECURITYHOLDERS..................................... 12
DESCRIPTION OF SECURITIES................................... 15
PLAN OF DISTRIBUTION........................................ 15
LEGAL MATTERS............................................... 16
EXPERTS..................................................... 16
</TABLE>
i
<PAGE> 4
WHERE YOU CAN FIND MORE INFORMATION
We are a public company. We file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
document we file with the SEC at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public at the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange
Act of 1934 until the Selling Securityholders sell all of their shares of Common
Stock. This prospectus is part of a registration statement we filed with the
SEC.
1. Current Report on Form 8-K filed with the SEC on February 9, 2000;
2. Annual Report on Form 10-K for the fiscal year ended December 31,
1999;
3. Proxy statement filed with the SEC on July 15, 1999 pursuant to
Regulation 14A under the Exchange Act of 1934 ("the Exchange Act"); and
4. The description of our Common Stock set forth in our Registration
Statement filed under Section 12 of the Exchange Act on Form 8-A on October
2, 1995, and any amendment or report filed for the purpose of updating any
such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Cytoclonal Pharmaceutics Inc.
9000 Harry Hines Boulevard
Suite 621
Dallas, Texas 75235
Attention: Daniel Shusterman, Esq.
Telephone: (214) 353-2922
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The Selling Securityholders will
not make an offer of these shares of Common Stock in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any supplement is accurate as of any date other than the date on the front of
those documents.
ii
<PAGE> 5
PROSPECTUS SUMMARY
This summary is not complete and may not contain all of the information
that you should consider before investing in the securities. You should read the
entire prospectus carefully. Unless we otherwise say so, when we discuss our
outstanding securities, we exclude all of our shares of common stock issuable
upon the exercise of currently outstanding warrants and options and the
conversion of our convertible securities.
We are a biopharmaceutical company located in Dallas, Texas. Our goal is to
develop products to identify, treat and prevent cancer and other diseases. To
date, our strategy has been to license technologies in their early development
stages from research and educational institutions and further develop such
technologies to the point where we can then sublicense them to commercial
entities. Through our research and development efforts and agreements with other
research institutions and biotechnology companies, we have acquired and
developed rights to certain proprietary technology.
At the present time, we are focusing our attention and resources on a
collaboration agreement we have with Bristol-Myers Squibb Company, Inc. for the
production of Paclitaxel using fermentation and genetic engineering. Paclitaxel
is a drug which has proven to be effective in treating refractory ovarian,
breast and non-small cell lung cancer and other cancer indications in
preliminary clinical trials. Presently, however, Paclitaxel is made from the
inner bark and needles of the slow-growing Pacific yew tree. Our scientists are
working in cooperation with Bristol-Myers Squibb to develop a system for
manufacturing Paclitaxel in commercial qualities and at lower costs. Other areas
of focus include the treatment of polycystic kidney disease with Paclitaxel or
Paclitaxel Alternative, a proprietary drug design program using Quantum Core
Technology(TM), our Human Gene Discovery Program and OASIS(TM), our optimized
antisense library for regulating genes. "Anti-sense therapeutics" are drugs
designed to essentially "turn off" genes involved in different diseases and to
prevent such genes from growing or duplicating. Other programs, which involve
the production of Telomerase, the so called "immortality enzyme," the use of an
anti-estrogen peptide for breast cancer as a potential alternative to Tamoxifen
and our vaccine program are being pursued at modest levels. Such therapeutics
may help us develop future products or alternatives to our main programs if
unforeseen problems develop. However, there can be no assurance that we will be
able to develop such products or alternatives.
ORGANIZATIONAL HISTORY
We were originally incorporated in the state of Texas in September 1991
under the name Bio Pharmaceutics, Inc. In November 1991, we changed our name to
Cytoclonal Pharmaceutics Inc. We were then reincorporated in the state of
Delaware by merger into a wholly-owned Delaware subsidiary in January 1992. Our
executive offices are located at 9000 Harry Hines Boulevard, Suite 621, Dallas,
Texas 75235 and our telephone number is (214) 353-2922.
THE OFFERING
The Selling Securityholders are using this prospectus to offer Common Stock
issuable upon exercise of options and warrants, Common Stock issuable upon
exercise of Class A Warrants and Class B Warrants issued in a private placement
in 1995 and Common Stock underlying Unit Purchase Options issued to the
underwriter in our initial public offering in November 1995. Each unit consisted
of one share of our Common Stock, one Class C Warrant, and one Class D Warrant.
Each Class C Warrant is exercisable until November 2, 2000 for one share of
Common Stock and one Class D Warrant for $6.50, subject to adjustment in certain
circumstances. Each Class D Warrant is exercisable until November 2, 2000 for
one share of Common Stock for $8.75, subject to adjustment in certain
circumstances. Each Class A Warrant is exercisable until November 7, 2000 for
.40 shares of Common Stock at $3.75 per share. Each Class B Warrant is
exercisable until November 7, 2000 for .40 shares of Common Stock at $4.375 per
share. Of the 1,880,240 shares of Common Stock included in this prospectus,
891,116 are issuable upon the exercise of options and warrants, 62,500 are
issuable upon exercise of the Class A Warrants, 146,988 are issuable upon
exercise of the Class B Warrants, 194,909 are issuable upon exercise of the Unit
Purchase Options, 194,909 are issuable upon the exercise of Class C Warrants,
194,909 are issuable upon the exercise of Class D Warrants underlying such Class
C Warrants and 194,909 are issuable upon the exercise of the Class D Warrants
included in the units.
<PAGE> 6
Securities Being Offered:
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<S> <C> <C> <C>
Warrants Common Stock
and Options -- included in this
including the prospectus
Class A Warrants
and Class B
Warrants
Unit Common Stock
-- included in this
prospectus
Class C Warrant Common Stock
-- included in this
prospectus
Class D Warrant Common Stock
-- included in this
prospectus
Class D Warrant Common Stock
-- included in this
prospectus
</TABLE>
<TABLE>
<S> <C> <C>
Before this offering as of May 5, 2000:
COMMON STOCK outstanding, excluding shares of Common Stock
which are issuable upon the exercise of existing
warrants and options................................... 15,648,494
Series A Preferred Stock.................................. 734,797
Upon the completion of this offering:
COMMON STOCK outstanding, assuming (i) all of the Class C
Warrants and Class D Warrants are exercised, including
389,818 Class D Warrants issuable upon the exercise of
the 194,909 Class C Warrants and 194,909 Unit Purchase
Options and (ii) all of the Options and Warrants
included in this prospectus are exercised.............. 17,528,734
Series A Preferred Stock.................................. 734,797
RISK FACTORS:............................................... See page 4.
USE OF PROCEEDS:
We will receive the proceeds when, and if the Options,
Warrants, Unit Purchase Options, Class C Warrants, and
Class D Warrants are exercised, however, there can be
no assurance that such options and warrants will be
exercised. We intend to utilize the proceeds from the
exercise of the Options, Warrants, Unit Purchase
Options, the Class C Warrants and the Class D Warrants
to fund our research and development and general
corporate purposes including paying royalties and
licensing fees, and working capital and operating
expenses............................................... See "Use of
Proceeds."
DIVIDEND POLICY:
We currently intend to retain all future earnings
development and growth of our business. We do not
anticipate paying cash dividends....................... See "Dividend
Payment"
NASDAQ SMALLCAP MARKET SYMBOLS:
Common Stock -- CYPH
</TABLE>
2
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following selected financial data has been derived from our audited
financial statements. Our historical financial statements as of December 31,
1999 and 1998 and for each of the years in the three year period December 31,
1999, including the notes thereto, have been audited by Richard A. Eisner &
Company, LLP, our independent auditors, and are incorporated in this prospectus
by reference to our annual report on Form 10-K. The following data should be
read in conjunction with such financial statements.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1998 1999
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<S> <C> <C> <C>
Revenue....................................... $ 1,183,000 $ 1,375,000
Research and development expenses............. $ 1,469,000 1,692,000 2,332,000
General and administrative expenses........... 1,888,000 2,500,000 3,194,000
Net interest expense (income)................. (105,000) (281,000) (216,000)
Cumulative effect of a change in accounting
principle on prior years.................... (422,000)
----------- ----------- -----------
Net (loss).................................... (3,252,000) (2,728,000) (4,357,000)
=========== =========== ===========
Net (loss) per share of common stock.......... $ (.42) $ (.30) $ (.44)
Weighted average number of shares............. 8,268,000 9,742,000 10,333,000
=========== =========== ===========
</TABLE>
The following table provides a summary of our balance sheet at December 31,
1999:
- on a historical basis;
- on an as adjusted basis to reflect:
- the issuance of 891,116 shares of Common Stock upon the exercise of
Options and Warrants by the Selling Securityholders;
- the issuance of 194,909 shares of Common Stock, 194,909 Class C Warrants
and 194,909 Class D Warrants upon exercise of the Unit Purchase Options;
- the issuance of 62,500 shares of Common Stock upon the exercise of the
Class A Warrants and 146,988 shares of Common Stock upon the exercise of
the Class B Warrants.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1999
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HISTORICAL AS ADJUSTED
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 2,324,000 $16,917,000
Total assets............................................... 4,491,000 19,084,000
Total liabilities.......................................... 1,899,000 1,899,000
Accumulated deficits....................................... 22,189,000 22,189,000
Total stockholders' equity................................. 2,592,000 17,185,000
</TABLE>
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<PAGE> 8
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of the Company's Common
Stock, Class C Warrants and Class D Warrants being offered by the Selling
Securityholders.
INVESTORS WILL EXPERIENCE A LOSS IN THE BOOK VALUE OF THEIR COMMON STOCK DUE TO
OUR ACCUMULATED DEFICIT.
We had an accumulated deficit of $22,189,000 as of the fiscal year ended
December 31, 1999. Our statement of operations for the fiscal year ended
December 31, 1999 shows net losses of $4,357,000, which means a loss of $.44 per
share of common stock. Our statement of operations for the fiscal year ended
December 31, 1998 shows net losses of $2,728,000, which means a loss of $.30 per
share of common stock. Investors purchasing shares of our common stock will
experience a loss in the book value of their shares due to our net losses.
BECAUSE WE CONTINUE TO EXPERIENCE LOSSES DUE TO OUR RESEARCH AND DEVELOPMENT
ACTIVITIES, WE MAY HAVE DIFFICULTY IN RAISING CAPITAL AND OUR STOCKHOLDERS COULD
EXPERIENCE A DECREASE IN THE VALUE OF THEIR INVESTMENT.
From our formation in 1991 to the date of this prospectus, we have been
experiencing substantial operating losses due to our increasing research and
development activities and general and administrative expenditures. We expect to
have additional losses in the future. Although we had revenue in 1999 from our
research and development and license agreement with Bristol-Myers Squibb, it was
and remains our sole source of revenue. We cannot say with any certainty that we
will have any future revenue or, if we do have revenue, that it will be
profitable. Our failure to become profitable may make it more difficult for us
to raise additional capital on favorable terms, if at all. Such failure could
have a material adverse effect on our business.
WE WILL NEED SUBSTANTIAL FUNDS IN THE FUTURE, AND WE MAY HAVE TO ISSUE
ADDITIONAL SECURITIES TO DO SO, WHICH WILL RESULT IN DILUTION TO THE VALUE OF
OUR SECURITYHOLDERS' INVESTMENT.
Since our formation in 1991, we have relied on loans, private financings,
and our November 1995 initial public offering to allow us to continue our
operations. Our cash requirements in the future may be significantly different
from our current estimates because of changes in our research and development
programs, increased competition, advances in technology and other factors. We
cannot say with any certainty that required financing will be available to us on
favorable terms, if at all. If we decide to raise additional money by issuing
more of our securities, securityholders will experience a dilution to the value
of their securities at the time of issuance.
WE DO NOT HAVE ANY PRODUCTS TO DATE AND RELY HEAVILY ON OUR LICENSE
AGREEMENTS -- THE LOSS OF ANY OF WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS AND CAUSE A DECREASE IN THE VALUE OF OUR SECURITYHOLDERS'
INVESTMENT.
We have key license and collaborative agreements with several
pharmaceutical companies and research institutions, including, but not limited
to, Bristol-Myers Squibb, Enzon, the Research & Development Institute at Montana
State University, the Washington State University Research Foundation, the
University of California at Los Angeles, and the University of Texas at Dallas.
We have also entered into a joint venture agreement with Pestka Biomedical
Laboratories, Inc. In general, we have annual milestone and royalty fee
obligations under these agreements. Although we are currently compliant under
these agreements and do not foresee any future noncompliance, our industry is
extremely competitive and volatile. Generally, if we fail to satisfy such
obligations or cure any other default listed in such agreements, the other
parties may terminate them. Also, we cannot give any assurance that the other
parties to our agreements will honor their obligations, or that we will be able
to extend any of the agreements if they expire. We also cannot give any
assurance that we will be able to enter into new collaborative agreements with
existing or new partners. If we are unable to make the other parties to our
agreements honor their contractual obligations or to extend our current
agreements or if we fail to enter into any additional arrangements, we may
require additional money to
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continue our current activities. The termination or breach of our agreements or
licenses, or our failure to enter into additional agreements and licenses may
have a material adverse effect on our business.
ALTHOUGH WE DO NOT HAVE ANY PRODUCTS TO DATE, EVEN IF WE DO HAVE THEM IN THE
FUTURE, THEY MIGHT NOT WORK OR THEY MIGHT BE TOXIC, DIFFICULT TO PRODUCE ON A
COMMERCIAL SCALE OR DISLIKED BY OUR CUSTOMERS. THIS COULD MATERIALLY ADVERSELY
AFFECT OUR BUSINESS AND CAUSE OUR SECURITYHOLDERS TO LOSE THEIR INVESTMENT.
Research and development of anti-cancer drugs is a lengthy and costly
process. We cannot say with any certainty that we will be able to develop or
produce any products or, if we do, that they will work as intended, be
non-toxic, that customers will like them or that they will be capable of being
manufactured on a large scale. Furthermore, our products will be in the
biotechnology field which has historically had a large number of unsuccessfully
developed products, or if developed, such products have been commercially,
scientifically or medically unacceptable. Any of these impediments could have a
material adverse effect on our business and cause a decrease in the value of our
securityholders' investment.
WE MIGHT NOT HAVE ENOUGH RESOURCES TO COMPETE WITH THE BIOTECHNOLOGY LEADERS,
AND INVESTORS COULD LOSE THEIR MONEY.
We have less than 20 employees in the heavily regulated, competitive and
quickly changing biotechnology industry. Most of our competitors have more
personnel, research and development experience, experience in getting
governmental approval and money than us. Our business may be materially
adversely affected if our competitors develop products before us or produce
superior products to ours.
IF COMPETITORS ARE SUCCESSFUL IN THEIR CHALLENGE OF BRISTOL-MYERS SQUIBB'S
PATENT, WE COULD BE INDIRECTLY HURT UNDER OUR LICENSE AGREEMENT WITH
BRISTOL-MYERS SQUIBB, AND OUR SECURITYHOLDERS COULD EXPERIENCE A DECREASE IN THE
VALUE OF THEIR INVESTMENT.
In June 1998, we entered into a license agreement with Bristol-Myers
Squibb, an industry leader, for the development of a Paclitaxel production
system. To date, this license agreement has been our sole source of revenue. In
June 1991, the National Cancer Institute entered into a collaborative research
and development agreement with Bristol-Myers Squibb to develop Paclitaxel, and
it granted Bristol-Myers Squibb the exclusive use of the Institute's clinical
data in Bristol-Myers' search for FDA approval until December 1997. This
significantly shortened the approval process and prevented any other party from
obtaining the Food & Drug Administration's approval using the Institute's data.
Although Bristol-Myers Squibb has since lost its right of exclusivity under the
agreement, it has patented its method of delivering Paclitaxel intravenously to
a patient. Such patent has in fact kept the Institute's data exclusive and has
put other companies at a competitive disadvantage by effectively preventing them
from using the data. Other companies are currently contesting the exclusivity of
this data in the courts. If such competitors are successful in their challenge,
Bristol-Myers Squibb could suffer which in turn would decrease the value of our
license agreement with them and our securityholders could experience a decrease
in the value of their investment.
WE RELY ON BROAD PATENT PROTECTION FOR OUR TECHNOLOGY BUT WE MAY NOT HAVE ENOUGH
RESOURCES TO CONDUCT OR DEFEND OURSELVES FROM LONG AND EXPENSIVE LITIGATION
CLAIMS REGARDING THE BREADTH OF PATENTS, AND OUR SECURITYHOLDERS COULD
EXPERIENCE A DECREASE IN THE VALUE OF THEIR INVESTMENT.
Our success will depend on our ability to get patent protection for our
products and processes in the United States and elsewhere. We have filed and
intend to continue to file patent applications as we need them. We cannot say
with any certainty, however, that any additional patents will issue from any of
these applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect our technology. Also, we cannot say with any
certainty that any patents issued to us, or licensed by us, can withstand
challenges made by others or that we will able to protect our rights. Our
business may be materially adversely affected if we are unable to obtain or
enforce patent protection.
To date, we have not been sued or threatened by parties claiming that we
have infringed their patents. Further, we do not believe that any of our patents
have been infringed by other parties, and, accordingly, we
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<PAGE> 10
have not taken any action to date. However, we are aware of patent applications
and issued patents belonging to our competitors, and we are uncertain whether
any of these, or of any patent applications which we do not know about, will
require us to alter or cease our potential products or processes. We cannot say
with any certainty that we will be able to obtain any licenses to technology
that we will require or, if obtainable, that the cost of them will be
reasonable. Our failure to obtain any necessary licenses to any technology could
substantially hurt our business. Expensive and drawn-out litigation may also be
necessary for us to assert any of our rights or to determine the scope and
validity of rights claimed by other parties. Litigation could be too expensive
for us to pursue without great cost and uncertainty as to the outcome. Our
failure to pursue litigation could result in the loss of our rights which could
substantially hurt our business.
WE ARE IN DIRECT COMPETITION WITH OTHER BIOPHARMACEUTICAL COMPANIES TO DEVELOP
AND PRODUCE ANTI-CANCER PRODUCTS. OUR BUSINESS WOULD BE MATERIALLY ADVERSELY
AFFECTED IF OUR TRADE SECRETS AND CONFIDENTIAL INFORMATION WERE DISCLOSED TO OUR
COMPETITORS, AND INVESTORS COULD EXPERIENCE A DECREASE IN THE VALUE OF THEIR
INVESTMENTS.
We also rely on trade secrets and confidential information which we try to
protect by entering into confidentiality agreements with other parties. We
cannot say with any certainty that any of the confidentiality agreements will be
honored or, if breached, we would have enough remedies to protect the
confidential information, or that our competitors will not independently learn
our trade secrets. The loss of our trade secrets would substantially hurt our
business.
WE ARE A SMALL COMPANY WITH LITTLE REVENUE, AND WE MAY NOT HAVE THE HUMAN AND
FINANCIAL RESOURCES TO WITHSTAND THE REQUIRED LENGTHY FDA TESTING AND APPROVAL
PROCESSES.
The Food & Drug Administration and other similar agencies in foreign
countries have lengthy and detailed laboratory testing and approval requirements
for therapeutic and diagnostic pharmaceutical and biological products. It often
takes companies several years and large sums of money to satisfy these
requirements, depending on the complexity and novelty of the products. Since we
are a small company with limited personnel and financial resources, we might not
be able to withstand the rigorous and time consuming FDA approval process as
compared to our larger competitors. Furthermore, since we are in the highly
competitive biopharmaceutical industry, any failure or delay in obtaining any
FDA approvals could substantially hurt our company, and investors could lose
their money. We cannot say with any certainty that the FDA or other regulatory
agencies will grant us approval for any of our products on a timely basis, if at
all.
WE HAVE LITTLE REVENUE AND MAY NOT HAVE THE FINANCIAL RESOURCES TO COMPLY WITH
OSHA, EPA AND OTHER AGENCIES' REQUIREMENTS.
We have to comply with the Occupational Safety and Health Administration,
Environmental Protection Agency, Toxic Substances Control Act, Resource
Conservation and Recovery Act and other regulatory laws. In the future, we could
also be subject to other federal, state or local regulations. OSHA or the EPA
may establish regulations which could affect our research and development
programs. We are unable to predict whether any agency will adopt any rule which
could substantially hurt our business.
OUR PRODUCTS, IF ANY, WILL BE INNOVATIVE AND MAY NOT BE COVERED BY INSURANCE
COMPANIES OR OTHER THIRD-PARTY PAYERS WHICH MAY MAKE OUR PRODUCTS LESS
MARKETABLE TO OUR CUSTOMERS AND CAUSE A DECREASE IN THE VALUE OF OUR
SECURITYHOLDERS' INVESTMENT.
Our success in developing our products may depend, in part, on whether we
will be reimbursed by government health administration authorities, private
health insurers and other organizations. There is significant uncertainty if
costs associated with newly-approved health care products will be reimbursed. If
adequate coverage and reimbursement levels are not provided by government and
third-party payers for uses of our products, it will make it very difficult for
us to market our products to doctors and hospitals because their patients might
not be able to pay for the products without any insurance coverage or
reimbursement. We cannot say with any certainty whether sufficient insurance
coverage will be available for us to establish and maintain price levels
sufficient to realize an appropriate return on developing new products.
Government and
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other third-party payers are attempting to contain health care costs by limiting
both coverage and the level of reimbursement of new therapeutic and diagnostic
products approved for marketing by the FDA and by refusing, in some cases, to
provide any coverage of uses of approved products for disease indications for
which the FDA has not granted marketing approval. Such refusal by insurance
companies and third-party payers to reimburse the costs of, expenses associated
with, our products might have a material adverse effect on our business.
OUR LICENSE AGREEMENT WITH BRISTOL-MYERS SQUIBB, AN INDUSTRY LEADER, HAS, TO
DATE, BEEN OUR SOLE SOURCE OF REVENUE. OUR SECURITYHOLDERS COULD EXPERIENCE A
DECREASE IN THE VALUE OF THEIR INVESTMENTS IF SUCH AGREEMENT IS TERMINATED OR
CEASES TO GENERATE REVENUE.
In June 1998, we entered into a license agreement and a research and
development agreement with Bristol-Myers Squibb. Through December 31, 1999, we
have recognized $2,558,000 in revenue from the agreement. Such agreement has
been our sole source of revenues to date. Under the license agreement, we
granted to Bristol-Myers Squibb exclusive sublicenses under our agreements with
the Research & Development Institute at Montana State University and the
Washington State University Research Foundation relating to technologies for the
production of Paclitaxel. Our license agreement with Bristol-Myers Squibb
requires them to pay us royalty and milestone payments. The term of our license
agreement with Bristol-Myers Squibb ends on the later ten (10) years from the
first commercial sale of the licensed products or such time as neither the
making, use nor sale at the time by Bristol-Myers Squibb, its affiliates or
sublicensees does not infringe any U.S. or foreign patents or patent
applications, copyrights or trademarks owned and licensed by the Research &
Development Institute and the Washington State University Research Foundation.
Bristol-Myers Squibb may terminate the license agreement upon 90 days notice. We
cannot say with any certainty that Bristol-Myers Squibb will successfully
manufacture or market the licensed property, if at all, or that we will be able
to maintain our agreements with the Research & Development Institute or the
Washington State University Research Foundation. Although we do not have any
reason to believe Bristol-Myers Squibb is unwilling to work with us under our
license agreement with them, it is a possibility that Bristol-Myers Squibb
might, in the future, decide not to utilize our technology, use other technology
they find superior or enter into a license agreement or agreements with another
party or parties, thereby decreasing their need to utilize our technology under
our license agreement with them or even cause them to terminate the license
agreement. Our loss of the license agreement with Bristol-Myers Squibb could
have a material adverse effect on our business and stockholders could experience
a decrease in the value of their investments.
WE LACK MANUFACTURING EXPERIENCE AND FACILITIES, AND IF WE HAVE TO EXPEND
RESOURCES TO BUILD FACILITIES OR IF WE FAIL TO HIRE COMPETENT OUTSIDE
MANUFACTURERS, OUR SECURITYHOLDERS COULD EXPERIENCE A DECREASE IN THE VALUE OF
THEIR INVESTMENT.
We currently do not have facilities or personnel capable of manufacturing
any products in commercial quantities. In the future, we may establish our own
manufacturing facilities to manufacture products if it becomes economically
attractive to do so. Building and operating production facilities would require
substantial additional funds and other resources as well as interrupt our daily
operations. We cannot be sure, however, whether sufficient funds to build
satisfactory manufacturing facilities would be available on favorable terms to
us, if at all. If we cannot obtain sufficient financing, we will most likely
have to retain outside manufacturers. We cannot be sure, however, whether we
will be able to retain competent manufacturers at affordable rates, or that the
manufacturers will be able to produce and deliver our products pursuant to our
instructions concerning quality, quantity and time as well as other factors. If
we are unable to manufacture our products, if any, or have them manufactured by
others, our business would be materially adversely affected and our
securityholders would experience a decrease in the value of their investment.
7
<PAGE> 12
WE LACK MARKETING EXPERIENCE. IF WE FAIL TO RETAIN COMPETENT MARKETING PERSONNEL
OR OUTSIDE MARKETERS, OR IF WE HAVE INSUFFICIENT RESOURCES TO MARKET OUR
PRODUCTS, OUR SECURITYHOLDERS COULD EXPERIENCE A DECREASE IN THE VALUE OF THEIR
INVESTMENT.
As of December 31, 1999, we had 19 employees, none of whom have any
experience in marketing pharmaceutical products. We would have to spend
significant funds and dedicate a significant amount of management resources to
develop our own sales force. We cannot say with any certainty that any funds or
resources for such purposes will be available on favorable terms, if at all.
Further, we cannot say with any certainty that, with a sales force, we would
successfully penetrate the markets for any of our products. For certain products
under development, we may seek to enter into marketing agreements with other
entities which would grant them exclusive marketing rights in return for
royalties based on sales, if any. Under some of these agreements, the other
entity may have the responsibility for all or a significant part of the
development and obtaining regulatory approval. In the event that the marketing
and development partner fails to develop a marketable product or fails to
successfully market a product, our business could be substantially hurt. The
sale of certain products outside the United States will also be dependent upon
the successful completion of arrangements with future partners, licensees or
distributors in each territory. We cannot give any assurance, however, that we
will successfully establish any additional collaborative arrangements or that,
if established, such future partners will successfully commercialize any
products, if at all.
WE ARE A SMALL COMPANY AND HEAVILY DEPEND UPON OUR OFFICERS, DIRECTORS AND
SCIENTISTS WHO ARE HIGHLY SKILLED IN BIOPHARMACOLOGY, ESPECIALLY OUR CHIEF
EXECUTIVE OFFICER AND PRESIDENT, ARTHUR P. BOLLON, PH.D. OUR BUSINESS WOULD BE
MATERIALLY ADVERSELY AFFECTED BY THE LOSS OF ANY SUCH PERSONS, AND
SECURITYHOLDERS COULD EXPERIENCE A DECREASE IN THE VALUE OF THEIR INVESTMENT.
Much of our success depends upon the continued contributions of our
executive officers, scientific and technical personnel and consultants. We are
particularly dependent upon Arthur P. Bollon, Ph.D., the Chairman of our Board
of Directors, Chief Executive Officer and President, and Daniel Shusterman, the
Vice President of Operations, Treasurer and Chief Financial Officer, Dorit Arad,
Ph.D., our Vice President of Drug Design, as well as our senior scientists,
Susan L. Berent, Ph.D., Hakim Labidi, Ph.D., Rajinder S. Sidhu, Ph.D. and
Richard M. Torczynski, Ph.D. As of December 31, 1999, we had 19 full-time
employees, 16 of whom are engaged directly in research and development
activities, including 7 Ph.D.s, and 3 of whom are in executive and
administrative positions. Our employees are not governed by any collective
bargaining agreement, and we believe that our relationship with our employees is
good. We currently have an employment agreement with Dr. Bollon which expires on
November 6, 2003. Although we maintain "key person" life insurance which
provides that upon the death or incapacity of Dr. Bollon, we will receive $2
million, Dr. Bollon's death or incapacity could substantially hurt our business.
The competition for qualified personnel is intense, and the loss of services of
certain key personnel could substantially hurt our business.
OUR SCIENTISTS WORK FOR OTHER COMPANIES AND INSTITUTIONS, AND WE MAY NOT HAVE
THE RIGHT TO THEIR INVENTIONS AND DISCOVERIES, WHICH MIGHT HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
Our scientific collaborators and advisors are employed by companies and
institutions other than us, and some of them have consulting or other advisory
arrangements with other entities and institutions which could conflict or
compete with their obligations to us. Inventions or processes discovered by such
persons will not necessarily become our property but may remain the property of
such persons or of such persons' full-time employers. Our failure to
successfully assert our rights to any inventions or processes discovered by our
scientists might have a material adverse affect on our business.
IF WE CANNOT OBTAIN SATISFACTORY PRODUCT LIABILITY INSURANCE FOR OUR FUTURE
PRODUCTS, IF ANY, WE MAY NOT BE ABLE TO ENTER INTO MATERIAL AGREEMENTS WHICH
REQUIRE US TO HAVE SUCH INSURANCE, AND INVESTORS COULD, THEREFORE, EXPERIENCE A
DECREASE IN THE VALUE OF THEIR INVESTMENT.
To date, we have not had any product liability claims filed or threatened
against us. In the future, however, when and if we develop products, our
products could expose us to product liability claims. Although we intend to
obtain product liability insurance for our ongoing clinical trials, we cannot
say with any certainty
8
<PAGE> 13
that we will be able to obtain, maintain or increase our insurance coverage in
the future on terms favorable to us, if at all, or that any claims against us
will not be greater than the amount of such coverage. Distributors of
pharmaceutical and biological products often require minimum product liability
insurance coverage as a condition before they start purchasing or accepting
products for distribution. Our failure to satisfy such insurance requirements
could decrease our ability to achieve broad distribution of our proposed
products and have a material adverse effect on our business and investors could
experience a decrease in the value of their investment.
THE VALUE OF OUR SECURITYHOLDERS' INVESTMENT MAY BE SUPPRESSED BECAUSE OUR
COMPANY MAY BE A LESS ATTRACTIVE TAKEOVER CANDIDATE DUE TO THE FACT THAT A
MAJORITY OF OUR STOCK IS OWNED BY AFFILIATES.
Our current officers, directors and stockholders who own more than 5% of
our securities beneficially own or control approximately 24.3% of our
outstanding shares of common stock, which represents approximately 23.2% of our
total outstanding voting securities. Such officers, directors and principal
stockholders may, therefore, be able to elect all of our directors, to determine
the outcome of most corporate actions requiring stockholder approval, and
otherwise to control the direction of our business which may cause the price of
our common stock to be suppressed.
ALTHOUGH WE DO NOT PAY DIVIDENDS ON OUR COMMON STOCK, WE PAY ANNUAL DIVIDENDS ON
OUR SERIES A PREFERRED STOCK BY GIVING THE HOLDERS THEREOF MORE SERIES A
PREFERRED STOCK. OUR SERIES A PREFERRED STOCK IS CONVERTIBLE INTO COMMON STOCK,
AND SUCH CONVERSION WILL DILUTE THE BOOK VALUE OF THE COMMON STOCK PURCHASED IN
THIS OFFERING.
Since 1991, we have not paid any dividends on our common stock. We intend
to retain future earnings, if any, to provide funds for the operation of our
business and, accordingly, do not anticipate paying any cash dividends on our
common stock in the future. Furthermore, the terms of our outstanding series A
preferred stock do not allow for the payment of cash dividends on the common
stock unless and until all accrued and unpaid dividends on the series A
preferred stock shall have been paid or set apart for payment. Historically
speaking, we have paid dividends on our series A preferred stock with
payment-in-kind. Our series A preferred stock is convertible into an equal
number of shares of common stock. As more holders of the series A preferred
stock convert their preferred stock into common stock, investors in this
offering will experience a decline in the book value of their common stock.
WE ARE OBLIGATED TO INDEMNIFY OUR OFFICERS AND DIRECTORS, ABSENT CERTAIN
CIRCUMSTANCES, WHICH MAY REQUIRE US TO SPEND TIME AND MONEY OTHERWISE ALLOCATED,
AND CAUSE A DECREASE IN THE VALUE OF OUR SECURITYHOLDERS' INVESTMENT.
We are incorporated under the laws of the state of Delaware. Our
certificate of incorporation includes certain provisions permitted under the
Delaware General Corporation Law, whereby our officers and directors are
indemnified by us against certain liabilities. Our certificate of incorporation
also limits, to the fullest extent permitted by Delaware General Corporate Law,
a director's liability for monetary damages for breach of fiduciary duty,
including gross negligence, except liability for breach of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, the unlawful payment of a dividend or unlawful stock
purchase or redemption and any transaction from which the director derives an
improper personal benefit. An insurance policy, which provides for coverage for
certain liabilities of its officers and directors has been issued to us.
However, although we do not currently know of any conduct of any officer or
director which may have a material effect on our business, if such insurance
proves to be inadequate, we will have to use funds otherwise allocated to
indemnify any director. The use of funds and resources, including management's
time and energy, to properly indemnify or otherwise prepare for the defense of
any director might have a material adverse effect on our business.
9
<PAGE> 14
IF WE FAIL TO MEET NASDAQ'S MAINTENANCE REQUIREMENTS AND ARE DELISTED FROM
NASDAQ, INVESTORS MAY HAVE DIFFICULTY SELLING THEIR SECURITIES, WHICH WOULD
CAUSE A DECREASE IN THE VALUE OF THEIR INVESTMENT.
Our common stock is currently quoted on the Nasdaq SmallCap Market System
under the symbol, "CYPH." Nasdaq has certain requirements that every company
must meet in order to have their securities quoted on the Nasdaq SmallCap
System. Although we currently meet Nasdaq's criteria for continued listing, we
cannot say with any certainty that we will continue to meet such criteria.
For continued inclusion on the Nasdaq SmallCap Market System, a company has
to maintain the following:
- either:
- net tangible assets of $2 million,
- market capitalization of $35 million or
- net income of $500,000 in the most recently completed fiscal year or in
two of the last three most recently completed fiscal years;
- a minimum bid price of $1.00 per share;
- in the case of a convertible debt security, a principal amount
outstanding of at least $5 million;
- in the case of common stock, at least 300 round lot holders; and
- 500,000 publicly held shares having a market value of at least $1
million.
If we are unable to meet the continued listing criteria of the Nasdaq
SmallCap Market System any time in the future due to our continued operating
losses or otherwise, and our securities are delisted, trading of our securities,
if any, would be conducted in the over-the-counter market in the so-called "pink
sheets" or, if available, the NASD's "Electronic Bulletin Board." As a result,
investors could find it more difficult to dispose of, or to obtain accurate
quotations as to the value of, our securities.
IF WE ARE DELISTED FROM NASDAQ, BROKER-DEALERS MAY BE UNWILLING TO SELL
INVESTORS' STOCK, AND INVESTORS WOULD EXPERIENCE A DECREASE IN THE VALUE OF
THEIR INVESTMENT.
If our securities are delisted from the Nasdaq SmallCap Market System, they
may become subject to Rule 15g-9 under the Exchange Act of 1934, which imposes
additional sales practice requirements on broker-dealers that sell such
securities. There are exceptions to Rule 15g-9 and they include transactions
meeting the safe-harbor requirements of Rules 505 or 506 under Regulation D of
the Securities Act, and transactions in which the purchaser is an institutional
accredited investor, as defined in the Securities Act, or an established
customer, as defined in the Securities Act, of the broker-dealer. For
transactions which have to comply with the requirements of Rule 15g-9 under the
Exchange Act of 1934, a broker-dealer must determine whether or not the
purchaser meets a special suitability standard, and the broker-dealer must
receive the purchaser's written consent to the transaction before the sale.
These requirements could make broker-dealers unwilling or even unable to sell
our securities which could make it more difficult for our investors to resell
their securities to other parties.
IF OUR STOCK IS DELISTED BY NASDAQ AND BECOMES A "PENNY STOCK," INVESTORS MIGHT
EXPERIENCE A DECREASE IN THE VALUE OF THEIR INVESTMENTS DUE TO THE RESTRICTIONS
ON BROKER-DEALERS IN SELLING "PENNY STOCK."
The SEC defines a "penny stock" to be any equity security that has a market
price under $5.00 per share or has an exercise price under $5.00 per share,
subject to certain exceptions. Unless exempt, the rules require the delivery,
prior to any transaction in a penny stock, of SEC material telling the purchaser
certain information about the penny stock. Purchasers must also be told about
the commissions that the broker-dealers and the registered representatives will
get and they must be told about the securities current prices. Finally,
purchasers must also be given statements every month which have to tell the
purchaser about his or her securities' recent prices and about the limitations
of the penny stock market. These penny stock
10
<PAGE> 15
restrictions will not apply to our securities if they stay quoted on the Nasdaq
SmallCap Market System, and if they have certain price and volume information
provided on a current and continuing basis or if they meet certain minimum net
tangible assets or average revenue criteria. We cannot say with any certainty,
however, that our securities will continue to meet the Nasdaq SmallCap Market
requirements in the future and if we do not, the prices of our securities could
decrease and investors could find it difficult to sell their securities. If we
were to remain exempt from the penny-stock restrictions, we still have to comply
with Section 15(b)(6) under the Exchange Act of 1934, which gives the SEC the
authority to stop any person who breaks the law when selling penny stock from
selling any more penny stock or from working with any broker-dealer.
WE HAVE GRANTED REGISTRATION RIGHTS TO SEVERAL PARTIES HOLDING OUR COMMON STOCK
OR WHO HAVE THE RIGHT TO PURCHASE OUR COMMON STOCK. THE REGISTRATION OF SUCH
SECURITIES WILL INCREASE THE NUMBER OF FREELY TRADEABLE SHARES OF OUR COMMON
STOCK AND MAY DECREASE THE BOOK VALUE OF OUR SECURITYHOLDERS' SHARES OF OUR
COMMON STOCK.
There will be 17,528,734 registered shares of our common stock outstanding
upon the completion of this offering. All of these shares will be freely
transferrable without restriction if we continue to comply with the SEC and
certain states' registration requirements. Certain of our other outstanding
securities are not registered with the SEC, and are considered to be "restricted
securities" as that term is defined in Rule 144 under the Securities Act and may
only be sold in certain circumstances.
We have also granted certain investors demand and piggy-back registration
rights to have their common stock registered with the SEC. We will have to pay
for the expense of registration if one or more of these groups exercise their
demand registration rights or "piggy-back" registration rights. The expense
could be high. Also, because there would be a high number of shares outstanding,
we could find it more difficult to obtain future financing.
The sale, or availability for sale, of substantial amounts of common stock
in the public market pursuant to Rule 144 or registration could cause the market
price of the common stock and our other securities to decrease which could hurt
our ability to raise additional money through the sale of our securities or
through debt financing. Also, to the extent that outstanding options and
warrants are exercised, securityholders' ownership interest will drop. Also, if
and to the extent that we reduce the exercise price of outstanding warrants or
options, our stockholders could experience additional dilution.
THE VALUE OF THE SECURITYHOLDERS' INVESTMENT MAY BE SUPPRESSED BECAUSE OUR
COMPANY MAY BE A LESS ATTRACTIVE TAKEOVER CANDIDATE DUE TO THE FACT THAT OUR
BOARD OF DIRECTORS HAS THE DISCRETION TO ISSUE 10,000,000 SHARES OF PREFERRED
STOCK SUPERIOR TO OUR COMMON STOCK WITHOUT STOCKHOLDER APPROVAL.
Our certificate of incorporation authorizes our board of directors to issue
a maximum of 10,000,000 shares of preferred stock on terms which may be
determined by them without getting stockholder approval. Of these 10,000,000
shares, 4,000,000 shares have already been designated as Series A Preferred
Stock of which 745,031 remain outstanding as of March 28, 2000. The Series A
Preferred Stock may be converted by the holder into an equal number of shares of
common stock. Also, the terms of the Series A Preferred Stock include dividend
and liquidation preferences which could also hurt the rights of holders of the
common stock being offered hereby. Each share of Series A Preferred Stock is
entitled to one vote on all matters on which the common stock has the right to
vote. Holders of Series A Preferred Stock are entitled to vote as a separate
class on any proposed adverse change in their rights, preferences or privileges
and any increase in the number of authorized shares of Series A Preferred stock.
Further, the terms of any additional series of preferred stock, which may also
include priority claims to assets and dividends, as well as special voting
rights, could hurt the rights of the holders of the common stock being offered
hereby. Other than the Series A Preferred Stock, we have not issued any other
preferred stock, and we do not plan to issue any additional preferred stock
other than payment-in-kind dividends. Investors should also know that if too
much preferred stock is outstanding, it could make it more difficult for a third
party to take control of our business or to remove our board of directors and
executive officers. Hostile bids for control of a company usually result in the
market prices for a company's securities to increase. It would also dilute or
subordinate the rights of holders of common stock and cause the market price of
the common stock to drop.
11
<PAGE> 16
INVESTORS WILL BE PREVENTED FROM RESELLING THEIR SECURITIES IF WE FAIL TO MEET
APPLICABLE FEDERAL AND STATE REGISTRATION REQUIREMENTS OR FIND EXEMPTIONS FROM
SUCH REQUIREMENTS.
The Common Stock offered in this offering can be resold by the investors
only if a current registration statement relating to them is in effect with the
SEC under the Securities Act, and if they are registered, qualified, or exempt
therefrom, under the applicable state blue sky laws. We cannot say with any
certainty that we will be able to meet the SEC and states' registration or
exemption requirements. If we cannot meet the requirements, the investors will
be unable to resell their common stock.
USE OF PROCEEDS
We will not receive any of the proceeds from the Selling Securityholders'
sale of their Common Stock. However, we will receive the proceeds when the
Selling Securityholders exercise their Unit Purchase Options and their Class C
Warrants and Class D Warrants. We will use the proceeds we receive when the
Selling Securityholders exercise their Unit Purchase Options and their Class C
Warrants and Class D Warrants for research and development and general corporate
purposes.
SELLING SECURITYHOLDERS
The Selling Securityholders are offering and selling a total of up to
1,880,240 shares of our Common Stock.
RMA is a former market-maker in our securities and is a Selling
Securityholder that holds an aggregate of 290,856 of the shares of Common Stock
included in this offering. 72,714 of which are issuable upon the exercise of the
unit purchase option, 72,714 of which are issuable upon the exercise of the
Class C Warrants underlying unit purchase option 72,714 of which are issuable
upon exercise of the Class D Warrants underlying the Class C Warrants and 72,714
of which are issuable upon exercise of the Class D Warrants underlying the Unit
Purchase Price. RMA is also deemed to beneficially own the securities held by
Bruce Meyers, a 100% stockholder, executive officer and director of the
corporate general partner of RMA. RMA has also acted as private placement agent
for our private placement completed in 1995 (the "1995 Private Placement") and
1998 Private Placement and was one of the syndicate managers in our IPO. As of
March 28, 2000 there were 12,788,040 shares of Common Stock and 745,031 shares
of Series A Preferred Stock outstanding. RMA beneficially owns a total of
2,099,464 shares of Common Stock, which represents 15.7% of the total number of
outstanding Common Stock before the completion of this offering. RMA will
beneficially own 1,707,304 shares of Common Stock, which will represent 12.1% of
the total number of outstanding shares of Common Stock upon the completion of
this offering. RMA also beneficially owns 26,600 shares of our Series A
Preferred Stock, which represents 3.6% of the total number of outstanding Series
A Preferred Stock. When combining RMA's ownership of Common Stock and Series A
Preferred Stock, RMA beneficially owns 15.0% of all of our outstanding voting
securities before the completion of this offering and will own 11.7% of all our
outstanding voting securities upon the completion of this offering.
Besides RMA if not otherwise indicated below by footnote, we have no
material relationships with any of the Selling Securityholders nor have any such
material relationships existed within the past three years.
<TABLE>
<CAPTION>
COMMON STOCK
WHICH MAY
COMMON STOCK BE SOLD COMMON STOCK PERCENTAGE (%)
NAME OF BENEFICIALLY PURSUANT BENEFICIALLY OF COMMON
SELLING OWNED BEFORE TO THIS OWNED AFTER STOCK OWNED
SECURITYHOLDER THIS OFFERING(1) PROSPECTUS OFFERING(2) AFTER OFFERING(3)
- -------------- ---------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Roan/Meyers Associates, L.P.(4)........... 2,099,462 290,856 1,808,606 12.9%
Bruce Meyers(5)........................... 1,656,278 101,304 1,554,979 10.6
Peter Janssen(6).......................... 720,679 217,264 503,415 3.9
Jacqueline M. Goode(7).................... 22,080 22,080 0 0
Rickel & Associates(8).................... 41,668 41,668 0 0
Gregg Smith(9)............................ 50,748 50,748 0 0
</TABLE>
12
<PAGE> 17
<TABLE>
<CAPTION>
COMMON STOCK
WHICH MAY
COMMON STOCK BE SOLD COMMON STOCK PERCENTAGE (%)
NAME OF BENEFICIALLY PURSUANT BENEFICIALLY OF COMMON
SELLING OWNED BEFORE TO THIS OWNED AFTER STOCK OWNED
SECURITYHOLDER THIS OFFERING(1) PROSPECTUS OFFERING(2) AFTER OFFERING(3)
- -------------- ---------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Kenneth Rickel(10)........................ 21,428 21,428 0 0
Richard Silverman(11)..................... 7,144 7,144 0 0
Robert Rickel(12)......................... 7,144 7,144 0 0
Victor Kashner(13)........................ 20,000 20,000 0 0
Wall Street Consultants, Inc.(14)......... 140,449 140,449 0 0
Dominick & Dominick LLC(15)............... 50,000 150,000 0 0
Washington State University Research
Foundation(16).......................... 36,000 36,000 0 0
D.H. Blair Investment Banking Corp.(17)... 370,667 239,667 131,000 *
Lea & Uriel Adar(18)(20).................. 14,208 10,000 4,208 *
Argonaut Partnership L.P.(18)............. 6,038 6,038 0 0
Tom & Noreen Axon(18)..................... 10,800 10,000 800 *
Robert Bauers(18)......................... 29,000 5,000 24,000 *
Andrew Bressman(19)....................... 10,000 10,000 0 0
David F. Burr(18)......................... 10,000 10,000 0 0
Robert V. Call, Jr.(18)(19)............... 51,000 15,000 36,000 *
Douglas M. Colbert(18)(19)................ 43,500 7,500 36,500 *
Howard Commander(18)...................... 38,175 5,000 33,175 *
Richard H. Davimos
TTEE FBO Richard H. Davimos Trust(19)... 10,000 10,000 0 0
Delaware Charter Guarantee & Trust Co.
F/B/O Beverly Levy IRA(18).............. 1,588 1,588 0 0
Kenneth Eitman IRA Rollover(18)........... 3,900 3,900 0 0
Gerstenhaber Investments
c/o David Gerstenhaber(18).............. 3,962 3,962 0 0
Ginger Huggins(18)........................ 2,500 2,500 0 0
Barry J. Jacobson c/o
Joseph P. Day Realty(18).................. 7,500 7,500 0 0
Barry J. Jacobson(18)..................... 20,000 20,000 0 0
Herbert Lerman(19)(21).................... 29,420 5,000 24,420 *
James B. Murphy(18)....................... 5,000 5,000 0 0
Denis J. Nayden(18)(19)................... 47,500 30,000 17,500 *
Omnitek, Inc(19).......................... 44,300 5,000 39,300 *
Charles Potter(19)........................ 5,000 5,000 0 0
James Rhodes(18)(22)...................... 45,534 4,000 40,534 *
Michael McNulty Rosner(18)................ 9,000 5,000 4,000 *
Barry A. Schatz(18)....................... 10,000 10,000 0 0
Mark Shnitkin(19)(23)..................... 28,126 2,500 25,626 *
Software Marketing Corporation(18)........ 5,000 5,000 0 0
Kathleen and Forrest Vander Vliet(19)..... 5,000 5,000 0 0
Gruntal & Co., L.L.C.(24)................. 200,000 300,000 0 0
Southwest Securities, Inc.(25)............ 16,667 25,000 0 0
</TABLE>
- ---------------
* Less than 1%
(1) Assumes the exercise of the Unit Purchase Options, Class C Warrants, Class
D Warrants, Class A Warrants, Class B Warrants and other options and
warrants held by the Selling Securityholders, but does not include shares
of common stock that may be acquired by the Selling Securityholders upon
13
<PAGE> 18
exercise of options which have not vested within 60 days of this prospectus
which shares, if any, will be added to the number of shares listed by one
or more supplements to this prospectus. Furthermore, the inclusion in this
prospectus of the stated number of shares does not constitute a commitment
to sell any or all of such shares. The number of shares of common stock
offered shall be determined from time to time by each Selling
Securityholder at his or her sole discretion.
(2) Assume all of the shares of Common Stock offered by this prospectus are
sold.
(3) Based on an aggregate of 17,528,734 common stock that will be issued and
outstanding upon the completion of this offering, consisting of 15,648,494
shares of common stock issued and outstanding as of May 5, 2000 and the
1,880,240 to which this prospectus relates.
(4) Mr. Bruce Meyers is a 100% stockholder and an officer and director of the
corporate general partner of RMA. Includes (i) 262,184 shares of Common
Stock issuable upon the exercise of 72,714 Unit Purchase Options and
underlying Class C and Class D Warrants granted to RMA for underwriting
services in connection with the Company's initial public offering in
November 1995 (the "IPO"), (ii) 81,530 shares of Common Stock issuable upon
the exercise of a Unit Purchase Option and underlying Class E Warrants
granted to RMA for placement agent services in connection with the
Company's April 1998 private placement (the "April 1998 Private Placement")
and (iii) the aggregate amount of shares of Common Stock and Series A
Preferred Stock beneficially owned by Mr. Meyers. See (5) below.
(5) Consists of (i) 1,332,358 shares of Common Stock, (ii) 88,567 shares of
Common Stock issuable upon the exercise of Class D Warrants, (iii) 101,304
shares of Common Stock issuable upon the exercise of 25,326 Unit Purchase
Options and underlying Class C and Class D Warrants originally granted to
RMA for underwriting services in connection with the IPO, (iv) 131,856
shares of Common Stock issuable upon the exercise of a currently
exercisable Unit Purchase Option and underlying Class E Warrants granted to
RMA for placement agent services in connection with the April 1998 Private
Placement, (v) 30,327 shares of Common Stock issuable upon the exercise of
currently exercisable Class E Warrants directly held by Mr. Meyers and (vi)
62,000 shares of Common Stock held by The Meyers Foundation of which Mr.
Meyers has voting control. See note (4) above. Does not include 26,620
shares of Common Stock issuable upon the conversion of 26,620 shares of
Series A Preferred Stock.
(6) Includes (i) 54,316 shares of Common Stock issuable upon exercise of the
Unit Purchase Option, (ii) 54,316 shares of Common Stock issuable upon
exercise of Class C Warrants, (iii) 108,632 shares of Common Stock issuable
upon exercise of Class D Warrants and (iv) 36,819 shares of Common Stock
issuable upon exercise of Class E Warrants.
(7) Includes (i) 5,520 shares of Common Stock issuable upon exercise of the
Unit Purchase Option, (ii) 5,520 shares of Common Stock issuable upon
exercise of Class C Warrants and (iii) 11,040 shares of Common Stock
issuable upon exercise of Class D Warrants.
(8) Includes (i) 10,417 shares of Common Stock issuable upon exercise of the
Unit Purchase Option, (ii) 10,417 shares of Common Stock issuable upon
exercise of Class C Warrants and (iii) 20,834 shares of Common Stock
issuable upon exercise of Class D Warrants.
(9) Includes (i) 12,687 shares of Common Stock issuable upon exercise of the
Unit Purchase Option, (ii) 12,687 shares of Common Stock issuable upon
exercise of Class C Warrants and (iii) 25,274 shares of Common Stock
issuable upon exercise of Class D Warrants.
(10) Includes (i) 5,357 shares of Common Stock issuable upon exercise of the
Unit Purchase Option, (ii) 5,357 shares of Common Stock issuable upon
exercise of Class C Warrants and (iii) 10,719 shares of Common Stock
issuable upon exercise of Class D Warrants.
(11) Includes (i) 1,786 shares of Common Stock issuable upon exercise of the
Unit Purchase Option, (ii) 1,786 shares of Common Stock issuable upon
exercise of Class C Warrants and (iii) 3,572 shares of Common Stock
issuable upon exercise of Class D Warrants.
(12) Includes (i) 1,786 shares of Common Stock issuable upon exercise of the
Unit Purchase Option, (ii) 1,786 shares of Common Stock issuable upon
exercise of Class C Warrants and (iii) 3,572 shares of Common Stock
issuable upon exercise of Class D Warrants.
14
<PAGE> 19
(13) Includes (i) 5,000 shares of Common Stock issuable upon exercise of the
Unit Purchase Option, (ii) 5,000 shares of Common Stock issuable upon
exercise of Class C Warrants and (iii) 10,000 shares of Common Stock
issuable upon exercise of Class D Warrants.
(14) Includes (i) options to purchase 100,000 shares of Common Stock at $4.25
per share, (ii) options to purchase 30,769 shares of Common Stock at $3.25
per share and (iii) options to purchase 9,680 shares of Common Stock at
$7.875 per share. The options were issued to Wall Street Consultants, Inc.
in consideration for certain public relations services provided by Wall
Street Consultants, Inc. to the Company.
(15) Includes (i) options to purchase 50,000 shares of Common Stock at $7.00 per
share which are currently exercisable and (ii) options to purchase 100,000
shares of Common Stock which will vest upon the consummation of a
transaction. The options were issued to Dominick & Dominick, LLC in
consideration for certain financial advisory services provided by Dominick
& Dominick, LLC to the Company.
(16) Includes (i) options to purchase 12,000 shares of Common Stock at $4.25 per
share which are currently exercisable and (ii) options to purchase 24,000
shares of Common Stock at $4.25 per share which are not currently
exercisable. The options were issued to Washington State University
Research foundation in connection with a license agreement entered into
with the Company.
(17) Includes (i) 37,167 shares issuable upon exercise of Warrants at a price of
$3.75 per share and (ii) 202,500 shares of Common Stock issuable upon
exercise of warrants at $3.75 per share.
(18) Represents shares of Common Stock issuable upon exercise of Class B
Warrants.
(19) Represents shares of Common Stock issuable upon exercise of Class A
Warrants.
(20) Includes 4,208 shares of Common Stock issuable upon conversion of 4,208
shares of Series A Preferred Stock.
(21) Includes 420 shares of Common Stock issuable upon conversion of 420 shares
of Series A Preferred Stock.
(22) Includes 8,745 shares of Common Stock issuable upon exercise of Class E
Warrants.
(23) Includes 2,928 shares of Common Stock issuable upon exercise of Class E
Warrants.
(24) Represents warrants to purchase 300,000 shares of Common Stock at $15.00
per share, of which 100,000 are currently exercisable, 100,000 will vest in
May 2000 and 100,000 will vest in August, 2000. The warrants were issued to
Gruntal & Co., L.L.C. in consideration for general investment banking
services provided by Gruntal & Co., L.L.C. to the Company.
(25) Represents warrants to purchase 25,000 shares of Common Stock at $12.00 per
share, of which 16,667 are currently exercisable and 8,333 will vest in
August, 2000. The warrants were issued to Southwest Securities, Inc. in
consideration for financial advisory services and strategic advice provided
by Southwest Securities, Inc. to the Company.
We will not receive any of the proceeds from the sale of Common Stock by
the Selling Securityholders. We will, however, receive proceeds from the
exercise of (i) 194,909 Unit Purchase Options, (ii) 194,909 Class C Warrants,
(iii) 389,818 Class D Warrants underlying 194,909 Unit Purchase Options and
194,909 Class C Warrants, (v) 891,116 Options and Warrants, (vi) 156,250 Class A
Warrants and (vii) 367,470 Class B Warrants.
DESCRIPTION OF SECURITIES
The shares of Common Stock offered hereby are issuable upon exercise of (i)
Unit Purchase Options issued to the underwriters of our initial public offering
(ii) Class A Warrants and Class B Warrants and (iii) certain options and
warrants. Each Unit consisted of one share of Common Stock, one Class C Warrant
and one Class D Warrant. See "Risk Factors -- Possible Restriction on "Market
Making" Activities in the Company's Securities; Illiquidity; and Selling
Securityholders."
15
<PAGE> 20
PLAN OF DISTRIBUTION
This prospectus may be used from time to time by the Selling
Securityholders to sell their shares of Common Stock registered in this
prospectus in transactions in which they are or may be deemed to be underwriters
within the meaning of the Securities Act. The Selling Securityholders may also
sell their shares of Common Stock being registered in this prospectus to or
through brokers or dealers who may act solely as agent, or may acquire shares as
principal. The distribution of the shares of Common Stock may be effected in one
or more transactions that may take place on the Nasdaq SmallCap Market System,
ordinary broker's transactions, privately negotiated transactions or through
sales to one or more broker-dealers for resale of such securities as principals,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by these
holders in connection with such sales. In connection with such sales, the
Selling Securityholders and any participating brokers or dealers may be deemed
"underwriters" as such term is defined in the Securities Act. See "Risk
Factors -- Current Prospectus and State Registration Required to Resell Common
Stock."
RMA is a Selling Securityholder and beneficially owns 290,856 of the shares
of Common Stock included in this offering. RMA has acted as private placement
agent in our 1995 Private Placement and 1998 Private Placement and was one of
the syndicate managers in our IPO. In consideration for its services in
connection with our 1998 Private Placement, RMA received a commission of 10% of
the gross proceeds, as well as 3% non-accountable expense allowance and
reimbursement for other costs, including legal expenses relating to the 1998
Private Placement. Also, for its services, we issued RMA five-year warrants to
acquire 20% of the number of securities bought in the 1998 Private Placement.
See "Risk Factors -- Current Prospectus and State Registration Required to
Resell Common Stock."
In addition to any such number of shares of common stock sold hereunder, a
Selling Securityholder may, at the same time, sell any shares of common stock,
including the shares of common stock to which this prospectus pertains, owned by
him or her in compliance with all of the requirements of Rule 144 promulgated
under the Securities Act, regardless of whether such shares are covered by this
prospectus.
There is no assurance that any of the Selling Securityholders will sell any
or all of the shares of common stock offered hereby.
We will pay all expenses in connection with this offering other than
commissions and discounts of underwriters, dealers or agents. All selling and
other expenses incurred by individual Selling Securityholders will be borne by
such Selling Securityholders.
We have notified the Selling Securityholders of the need to deliver a copy
of this prospectus in connection with any sale of the shares of common stock.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for us
by Morrison Cohen Singer & Weinstein, LLP, New York, New York, a partner of
which holds options to acquire shares of Common Stock.
EXPERTS
The balance sheets as of December 31, 1999 and 1998 and the statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1999 included in the Annual Report
on Form 10-K which is incorporated by reference in this Prospectus have been
audited by, and are incorporated by reference herein in reliance upon the report
of Richard A. Eisner & Company, LLP, independent auditors, given on the
authority of that firm as experts in accounting and auditing.
16
<PAGE> 21
CYTOCLONAL PHARMACEUTICS INC.
1,880,240 SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
May , 2000
<PAGE> 22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
Printing Expenses......................................... $ 5,000
Accounting Fees and Expenses.............................. 10,000
Legal Fees and Expenses................................... 50,000
Registration Fee.......................................... 4,004.31
Miscellaneous Expenses.................................... 1,995.69
---------
Total........................................... $ 71,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-Laws of the Registrant provides
that the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law (the "GCL"). Section 145 of the GCL, relating
to indemnification, is hereby incorporated herein by reference.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to Directors, officers or controlling persons of the Company pursuant
to the Company's By-laws and the Delaware General Corporation Law, the Company
has been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to Delaware law whereby officers and Directors of the Company
are to be indemnified against certain liabilities. The Company's Restated
Certificate of Incorporation also limits, to the fullest extent permitted by
Delaware law, a director's liability for monetary damages for breach of
fiduciary duty, including gross negligence, except liability for (i) breach of
the director's duty of loyalty, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the unlawful payment of a dividend or unlawful stock purchase or redemption and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not eliminate a director's duty of care and this
provision has no effect on the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care. In
addition, the Company has obtained an insurance policy providing coverage for
certain liabilities of its officers and Directors.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
5.1 -- Opinion of Morrison Cohen Singer & Weinstein, LLP*
23.1 -- Consent of Morrison Cohen Singer & Weinstein, LLP*
(included in its opinion filed as Exhibit 5.1 hereto)
23.2 -- Consent of Richard A. Eisner & Company, LLP
</TABLE>
- ---------------
* Filed as an exhibit to Amendment No. 1 to a Registration Statement on Form S-3
filed with the SEC on May 11, 2000
II-1
<PAGE> 23
ITEM 17. UNDERTAKINGS
Rule 415 Offering -- Undertakings Required by Regulation S-B, Item 512(a).
The undersigned registrant hereby undertakes:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(2) That, for determining liability under the Securities Act of 1933,
each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be an initial bona fide
offering.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunder duly
authorized, in the city of Dallas, state of Texas, on May 12, 2000.
CYTOCLONAL PHARMACEUTICS INC.
By: /s/ ARTHUR P. BOLLON
----------------------------------
Arthur P. Bollon, Ph.D.,
Chairman, President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARTHUR P. BOLLON Chairman, President, Chief May 12, 2000
- ----------------------------------------------------- Executive Officer and Director
Arthur P. Bollon, Ph.D. (principal executive officer)
/s/ DANIEL SHUSTERMAN Vice President Operations, May 12, 2000
- ----------------------------------------------------- Treasurer and Chief Financial
Daniel Shusterman, J.D. Officer (principal financial
and accounting officer)
/s/ IRA GELB Director May 12, 2000
- -----------------------------------------------------
Ira Gelb, M.D.
/s/ IRWIN C. GERSON Director May 12, 2000
- -----------------------------------------------------
Irwin C. Gerson
</TABLE>
II-3
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
23.2 -- Consent of Richard A. Eisner & Company, LLP
</TABLE>
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to the
Registration Statement on Form S-3 of Cytoclonal Pharmaceutics Inc. of our
report, dated February 5, 2000 (with respect to Note J, March 13, 2000), on our
audits of the financial statements of Cytoclonal Pharmaceutics Inc. as of
December 31, 1999 and 1998 and for each of the years in the three-year period
ended December 31, 1999, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999. We also consent to the reference of our
firm under the captions "Experts" and "Summary Financial Information" included
in the Prospectus.
/s/ RICHARD A. EISNER & COMPANY,
LLP
--------------------------------------
Richard A. Eisner & Company, LLP
New York, New York
May 10, 2000
1
