10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 14, 1996
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
-----------------
[ ] 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 jurisdiction (I.R.S. Employer
of incorporation or Organization) Identification Number)
9000 Harry Hines Boulevard, Suite 330, 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: 7,687,932 shares of common
stock, $.01 par value, outstanding as of August 9, 1996.
Transitional Small Business Disclosure Format (check one):
Yes No X
--------------- ----------------
CYTOCLONAL PHARMACEUTICS INC
TABLE OF CONTENTS
2
Item 1. Financial Statements
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
BALANCE SHEETS
3
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
STATEMENT OF OPERATIONS
(unaudited)
4
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
5
CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
(1) Financial Statement Presentation
The unaudited financial statements of Cytoclonal Pharmaceutics Inc.
(the "Company") herein have been prepared pursuant to the rules and
regulations of the Securities and exchange Commission(SEC) and, in the
opinion of management, reflect all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the results of
operations for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements,
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations.
However, management believes that the disclosures are adequate to make
the information presented not misleading. These financial statements
and the notes thereto should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) New Agreements
In February 1996, the Company entered into two license agreements with
the Regents of the University of California, granting to the Company
exclusive rights to: (1) a pending patent, entitled Inhibition of Cyst
Formation by Cytoskeletal Specific Drugs that makes use of various
drugs, one of which is Taxol and (2) technology in the field of
Pharmacological Treatment of Polycystic Kidney Disease. Pursuant to the
agreements, the Company paid license issue fees and must pay yearly
license maintenance fees until the Company is commercially selling a
product based on the technology, at which time a royalty based on net
sales will be due.
In July 1996, the Company entered into an agreement with the Washington
State University Research Foundation ("WSURF") whereby the Company
received an exclusive, world-wide license to technology related to
genes for enzymes in the biosynthetic pathway for Taxol. The Company is
required to pay WSURF a yearly license fee as well as royalties on
commercial sales.
(3) R & D Agreement Extended
The June 1992, agreement between the Company and the University of
Texas at Dallas ("UTD") has been extended through May 1998. Pursuant to
the amended agreement, UTD performs certain research and development
activities relating to anti-sense compounds and related technology for
use in humans as therapeutic and diagnostic products.
6
(4) Stock Option Plan
In April 1996, the Board of Directors of the Company adopted the
Cytoclonal Pharmaceutics Inc. 1996 Stock Option Plan (the 1996 Plan)
subject to shareholder approval. The 1996 Plan, which was approved by a
majority of shareholders on June 3, 1996, provides for 750,000 shares
of common stock to be reserved for issuance to officers, employees,
consultants and advisors of the Company. Each Director of the Company
was granted 50,000 options to purchase shares at an exercise price of
$4.125 per share. As of August 10, 1996, 550,000 shares are available
for future grant and options to acquire 200,000 remain outstanding
under the 1996 Plan. The Plan provides for the grant of incentive stock
options intended to qualify as such under Section 422 of the Internal
Revenue Code of 1986, as amended, and nonstatutory stock options which
do not so qualify.
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Cytoclonal Pharmaceutics Inc. (the "Company") was organized and
commenced operations in September 1991. The Company is in the development stage,
and its efforts have been principally devoted to research and development
activities and organizational efforts, including the development of products for
the treatment of cancer and infectious diseases, recruiting its scientific and
management personnel and advisors and raising capital.
The Company's plan of operation for the next 12 months will consist of
research and development and related activities aimed at:
o further increasing the Taxol yield from the Fungal Taxol
Production System using alternative fermentation technologies,
inducers, media and strain improvements using Taxol specific
genes.
o further development of a diagnostic test using the LCG gene
and related MAb to test in vitro serum, tissue or respiratory
aspirant material for the presence of cells which may indicate
a predisposition to, or early sign of, lung or other cancers.
o developing a humanized antibody specific for the protein
associated with the LCG gene and, if successful, submission of
an IND for clinical trials.
o testing the TNF-PEG technology as an anti-cancer agent in
animal studies.
o further development of proprietary vectors which have been
constructed for the expression of specific proteins that may
be utilizable for vaccines for different diseases.
o initiating animal studies of IL-T and IL-P and, if successful,
submission of an IND for clinical trials.
o continuing the funding of the research on anti-sense
technology currently being conducted at the University of
Texas at Dallas and testing of an idealized anti-sense
algorithm under development.
o development of technology licensed from the University of
California, Los Angeles for taxol treatment of polycystic
kidney disease.
o making modest improvements to the Company's laboratory
facilities.
o hiring approximately three additional research technicians
and a financial vice president.
8
o seeking to establish strategic partnerships for the
development, marketing, sales and manufacturing of the
Company's proposed products.
The actual research and development and related activities of the
Company may vary significantly from current plans depending on numerous factors,
including changes in the cost of such activities from current estimates, the
results of the Company's research and development programs, the results of
clinical studies, the timing of regulatory submissions, technological advances,
determinations as to commercial potential and the status of competitive
products. The focus and direction of the Company's operations will also be
dependent upon the establishment of collaborative arrangements with other
companies, the availability of financing and other factors.
For the period from April 1, 1996 to June 30, 1996, the Company
incurred a net loss $663,000 compared to a net loss of $667,000 for the same
period in 1995. For the period from January 1, 1996 to June 30, 1996, the
Company incurred a net loss of $1,320,000. The Company incurred a net loss of
$1,432,000 for the six months ended June 30, 1995. The decrease from the
previous year was attributable to an increase in interest income generated from
the proceeds of the Company's initial public offering of November 1995 and a
decrease in interest expense, partially offset by an increase in research and
development expenses and general and administrative expenses. The Company
expects to incur additional losses in the foreseeable future.
The Company incurred general and administrative expenses of $262,000
and $327,000 for the three months ended June 1995 and June 1996, respectively
and $615,000 and $707,000 for the six months ended June 1995 and June 1996,
respectively. The increase was attributable to increased public relations and
technology marketing costs, legal and professional fees and travel expenses, as
well as, to the acquisition of Directors and Officers liability insurance.
The Company incurred research and development expenses of $286,000 and
$390,000 for the three months ended June 1995 and June 1996, respectively and
$599,000 and $729,000 for the six months ended June 1995 and June 1996,
respectively. The increase was attributable to an increase in the purchase of
laboratory supplies, an increase in research salaries and an increase in license
fees paid.
The Company believes that the net proceeds remaining from its initial
public offering of November 1995 will be sufficient to finance the Company's
plan of operation for approximately 18 months. There can be no assurance that
the Company will generate sufficient revenues to fund its operations after such
period or that any required financings will be available, through bank
borrowings, debt or equity offerings, or otherwise, on acceptable terms or at
all.
9
PART II -- OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 3, 1996, the stockholders of the Company held their annual
meeting in Dallas, Texas. The holders of 5,320,197 shares of Common Stock and
643,573 shares of Preferred Stock were present or represented by proxy and,
accordingly, a quorum was present and matters were voted on as follows:
a. The following persons were re-elected directors of the Company:
b. The vote to ratify the 1996 Stock Option Plan passed. Votes totaling
4,230,030 shares Common Stock and 567,808 shares Preferred Stock were in favor
of the ratification, 120,850 shares Common Stock and 63,560 shares Preferred
Stock were against it, and 27,150 shares Common Stock and 12,205 shares
Preferred Stock abstained.
c. The vote to ratify the reappointment of Richard A.Eisner & Company as
independent auditors for the year ending December 31, 1996 also passed. Votes
totaling 5,288,097 shares Common Stock and 631,368 shares Preferred Stock were
in favor of the ratification, 7,700 shares Common Stock and 6,987 shares
Preferred Stock were against it, and 24,400 shares Common Stock and 5,218 shares
Preferred Stock abstained.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Computation of per share earnings
(b) Reports on Form 8-K - None
10
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, 1996 /s/ Daniel M. Shusterman
-------------------------
Daniel M. Shusterman
Vice President of Operations,
Treasurer and Chief Financial
Officer
11