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 March 31, 1997
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _______________ to _____________________
Commission file number 0-26918
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CYTOCLONAL PHARMACEUTICS INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 75-2402409
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(State or Other jurisdication of (I.R.S. Employer
incorporation or Organization) Identification Number)
9000 Harry Hines Boulevard, Suite 330, Dallas, Texas 75235
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(Address of Principal Executive Offices)
(214)-353-2922
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
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: 8,211,944 shares of common
stock, $.01 par value, outstanding as of May 8, 1996.
Transitional Small Business Disclosure Format (check one):
Yes _____ No __X__
CYTOCLONAL PHARMACEUTICS INC.
TABLE OF CONTENTS
Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. -- Financial Statements:
Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996 3
Statements of Operations for the
Three Months Ended March 31, 1996 and 1997
(unaudited) and the Period From September
11, 1991 (Inception) Through March 31, 1997 4
Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1997
(unaudited) and the Period From September
11, 1991 (Inception) Through March 31, 1997 5
Notes to Financial Statements 6
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 2. -- Changes in Securities 9
Item 6. -- Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 11 Computation of net (loss) per share 11
Exhibit 27 Financial Data Schedule 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
BALANCE SHEETS
December 31, March 31,
1996 1997
---------- ----------
ASSETS (unaudited)
Current assets:
Cash $2,858,000 $2,657,000
Prepaid expenses and other current assets 35,000 38,000
---------- ----------
Total current assets 2,893,000 2,695,000
Equipment, net 104,000 123,000
Patent rights, less accumulated amortization of
$386,000 and $405,000 864,000 845,000
Investment in joint venture - at equity 16,000 10,000
Other assets 4,000 4,000
---------- ----------
T O T A L $3,881,000 $3,677,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 319,000 341,000
Current portion of royalties payable 31,000 62,000
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Total current liabilities 350,000 403,000
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Royalties payable less current portion 1,219,000 1,188,000
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Total liabilities 1,569,000 1,591,000
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Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000 shares authorized; 1,228,629
and 1,242,776 shares of Series A convertible preferred issued and
outstanding at December 31, 1996 and March 31, 1997, respectively
(liquidation value $3,072,000 and $3,107,000 at December 31, 1996 and March
31, 1997, respectively) 12,000 12,000
Common Stock - $.01 par value, 30,000,000 shares authorized: 7,730,546 and
8,139,187 shares issued and outstanding at December 31, 1996 and March 31,
1997, respectively 78,000 81,000
Additional paid-in capital 14,074,000 14,583,000
Deficit accumulated during the development stage (11,852,000) (12,590,000)
---------- ----------
Total Stockholders' Equity 2,312,000 2,086,000
---------- ----------
T O T A L $3,881,000 $3,677,000
========== ==========
3
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
September 11, 1991
Three Months Ended (inception)
March 31, through
---------------------------------------------- March 31,
1996 1997 1997
-------------- -------------- --------------
Operating Expenses:
Research and development $339,000 $322,000 $6,629,000
General and administrative 380,000 447,000 5,773,000
-------- -------- ----------
719,000 769,000 12,402,000
-------- -------- ----------
Other (Income) expenses:
Interest (income) (62,000) (32,000) (451,000)
Interest expense -- 1,000 560,000
-------- -------- ----------
(62,000) (31,000) 109,000
--------- --------- ------------
NET (LOSS) ($657,000) ($738,000) ($12,511,000)
========= ========= ============
Net loss per common share ($0.13) ($0.10) -
========= =========
Weighted average number of
shares outstanding 7,569,918 7,934,488 -
========= =========
4
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
September 11,
1991
Three Months Ended (Inception)
March 31, through
------------------------------------- March 31,
1996 1997 1997
----------------- ----------------- -------------
Cash flows from operating activities:
Net (loss) ($ 657,000) ($ 738,000) ($12,511,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 28,000 28,000 597,000
Amortization of debt discount -- -- 269,000
Amortization of debt costs -- -- 554,000
Value assigned to warrants and
options -- 12,000 200,000
Equity in loss of joint venture 6,000 6,000 222,000
Changes in operating assets and
liabilities:
(Increase) decrease in other assets 15,000 (3,000) (46,000)
Increase in accounts payable
and accrued expenses 88,000 22,000 331,000
------------ ------------ ---------
Net cash (used in) operating
activities (520,000) (673,000) (10,384,000)
------------ ------------ ---------
Cash flows from investing activities:
Purchase of equipment (17,000) (28,000) (224,000)
Investment in joint venture -- -- (233,000)
------------ ------------ ---------
Net cash (used in) investing
activities (17,000) (28,000) (457,000)
============ ============ =========
Cash flows from financing activities:
Net proceeds from sales of preferred and
common stock -- -- 13,750,000
Proceeds from exercise of options -- 500,000 500,000
Proceeds from bridge loans, net of expenses -- -- 2,684,000
Repayment of bridge loans -- -- (3,238,000)
Principal payments of equipment notes -- -- (76,000)
Dividends paid -- -- (122,000)
------------ ------------ ---------
Net cash provided by
financing activities -- 500,000 13,498,000
------------ ------------ ---------
NET (DECREASE) IN CASH (537,000) (201,000) --
Cash at beginning of period 5,442,000 2,858,000 --
------------ ------------
CASH AT END OF PERIOD $ 4,905,000 $ 2,657,000 2,657,000
============ ============ =========
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CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(unaudited)
(1) Financial Statement Presentation
The unaudited financial statements of Cytoclonal Pharmaceutics Inc., a
Delaware corporation (the "Company"), included herein have been
prepared in accordance with the rules and regulations promulgated by
the Securities and Exchange Commission and, in the opinion of
management, reflect all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of
operations for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements,
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations.
However, management believes that the disclosures are adequate to make
the information presented not misleading. These financial statements
and the notes thereto should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1996. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) 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 stockholder approval. The 1996 Plan, which was approved by a
majority of stockholders on June 3, 1996, authorizes 750,000 shares of
common stock to be reserved for issuance to the Company's officers,
employees, consultants and advisors. As of May 12, 1997, options to
acquire 365,000 shares of common stock are available for future grant
and options to acquire 385,000 shares of common stock remain
outstanding pursuant to the 1996 Plan. The 1996 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.
(3) Placement Agent Purchase Option Exercise
On February 21, 1997, the Company received aggregate proceeds of
$500,000 from the exercise of outstanding placement agent purchase
options and, in connection therewith, issued 50,000 shares of its
preferred stock and 250,000 shares of its common stock.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto
included in this report. This discussion contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
report, the words "anticipate," "believe," "estimate," "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from those expressed in, or
implied by, these forward-looking statements. Historical operating results are
not necessarily indicative of the trends in operating results for any further
period.
Cytoclonal Pharmaceutics Inc., a Delaware corporation (the "Company"),
was duly organized and commenced operations in September 1991. 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 optimizing the Paclitaxel production from the Fungal
Paclitaxel Production System using alternative fermentation
technologies, inducers, strain improvements and using
Paclitaxel-specific genes.
o further development of a diagnostic test using the patented LCG
gene and related MAb to test in vitro serum, tissue or
respiratory aspirant material for the presence of cells which may
indicate a predisposition to, or early sign of, lung or other
cancers.
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-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.
o making modest improvements to the Company's laboratory
facilities.
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o hiring additional research technicians and a financial vice
president.
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 January 1, 1997 to March 31, 1997, the Company
incurred a net loss of $738,000. The Company expects to incur additional losses
in the foreseeable future.
The Company incurred a net loss of $657,000 for the three months ended
March 31, 1996. The increase from the previous year was attributable to
increased operating expenses and decreased interest income.
The Company incurred general and administrative expenses of $380,000
and $447,000 for the three months ended March 1996 and March 1997, respectively.
The increase from the previous year was attributable to increased technology
marketing costs, consulting fees and legal and professional fees. The increase
in legal and professional fees was primarily attributable to increased patent
expenses.
The Company incurred research and development expenses of $339,000 and
$322,000 for the three months ended March 1996 and March 1997, respectively. The
decrease was attributable to completion of its funding obligation to Research
and Development, Inc. under the collaboration agreement, partially offset by an
increase in research salaries.
The Company believes that the net proceeds from its initial public
offering of November 1995 and the exercise of the placement agent purchase
options in February 1997 will be sufficient to finance the Company's plan of
operation through the end of 1997. 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.
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PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
In January 1997, the Company issued 122,788 shares of Series A
Preferred Stock as full payment of the dividend due on the Series A Preferred
Stock for the year ended December 31, 1996 to the holders of such preferred
stock. Such issuance was pursuant to Section 3(a)(9) promulgated under the
Securities Act of 1993, as amended, based on the fact that it involved an
exchange by the issuer exclusively with its existing security-holders and no
commission or other remuneration was paid or given directly or indirectly for
soliciting such exchange.
In February 1997, the Company issued 250,000 shares of Common Stock and
50,000 shares of Preferred Stock upon the exercise of placement agent purchase
options and in April 1997, the 250,000 shares of Common Stock were registered
pursuant to the Securities Act of 1933, as amended. Such issuances were made in
reliance upon an exemption from the registration provisions of the Securities
Act of 1933, as amended, set forth in Section 4(2) thereof relative to sales by
an issuer not involving any public offering.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Computation of net (loss) per share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOCLONAL PHARMACEUTICS INC.
Date: May 15, 1997 /s/ Daniel M. Shusterman
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Daniel M. Shusterman
Vice President of Operations,
Treasurer and Chief Financial
Officer
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