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 SEPTEMBER 30, 1997 ----------------------- [ ] 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 of Incorporation (I.R.S. Employer 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: 8,743,058 shares of common stock, $.01 par value, outstanding as of November 10, 1997. Transitional Small Business Disclosure Format (check one): YES NO X ----------- ----------- CYTOCLONAL PHARMACEUTICS INC. TABLE OF CONTENTS Page(s) ------- PART I. FINANCIAL INFORMATION Item 1. -- Financial Statements: Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 3 Statements of Operations for the Three Months Ended September 30, 1996 and 1997 (unaudited) and for the Nine Months Ended September 30, 1996 and 1997 (unaudited) and the Period From September 11, 1991 (Inception) Through September 30, 1997 4 Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1997 (unaudited) and the Period From September 11, 1991 (Inception) Through September 30, 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 6. -- Exhibits and Reports on Form 8-K 9 Signatures 10 Exhibit 11 Computation of per share earnings 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, SEPTEMBER 30, 1996 1997 ------------ ------------ ASSETS (UNAUDITED) Current assets: Cash $ 2,858,000 $ 1,159,000 Prepaid expenses and other current assets 35,000 16,000 ------------ ------------ Total current assets 2,893,000 1,175,000 Equipment, net 104,000 107,000 Patent rights, less accumulated amortization of $386,000 and $444,000 864,000 806,000 Investment in joint venture - at equity 16,000 0 Other assets 4,000 4,000 ------------ ------------ T O T A L $ 3,881,000 $ 2,092,000 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 319,000 $ 307,000 ------------ ------------ Current portion of royalties payable 31,000 70,000 ------------ ------------ Total current liabilities 350,000 377,000 ------------ ------------ Royalties payable less current portion 1,219,000 1,156,000 ------------ ------------ Total liabilities 1,569,000 1,533,000 ------------ ------------ Stockholders' equity: Preferred stock - $.01 par value, 10,000,000 shares authorized; 1,228,629 and 1,101,513 shares of Series A convertible preferred issued and outstanding at December 31, 1996 and September 30, 1997, respectively (liquidation value $3,072,000 and $2,754,000 12,000 11,000 at December 31, 1996 and September 30, 1997, respectively) Common Stock - $.01 par value, 30,000,000 shares authorized: 7,730,546 and 8,300,450 shares issued and outstanding at December 31, 1996 and September 30, 1997, 78,000 83,000 respectively Additional paid-in capital 14,074,000 14,779,000 Deficit accumulated during the development stage (11,852,000) (14,314,000) ------------ ------------ Total Stockholders' Equity 2,312,000 559,000 ------------ ------------ T O T A L $ 3,881,000 $ 2,092,000 ------------ ------------ ------------ ------------ 3 CYTOCLONAL PHARMACEUTICS INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS (UNAUDITED) SEPTEMBER 11, 1991 THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION) SEPTEMBER 30, SEPTEMBER 30, THROUGH ------------------------ --------------------------- SEPTEMBER 30, 1996 1997 1996 1997 1997 ----------- ---------- ------------ ------------ ------------ Operating Expenses: Research and development $ 454,000 $ 362,000 $1,183,000 $ 1,050,000 $ 7,357,000 General and administrative 403,000 603,000 1,110,000 1,490,000 6,816,000 ----------- ---------- ------------ ------------ ------------ 857,000 965,000 2,293,000 2,540,000 14,173,000 ----------- ---------- ------------ ------------ ------------ Other (Income) expenses: Interest (income) (49,000) (20,000) (165,000) (80,000) (499,000) Interest expense 0 0 0 2,000 561,000 ----------- ---------- ------------ ------------ ------------ (49,000) (20,000) (165,000) (78,000) 62,000 ----------- ---------- ------------ ------------ ------------ NET (LOSS) $(808,000) $(945,000) $(2,128,000) $(2,462,000) $(14,235,000) ----------- ---------- ------------ ------------ ------------ ----------- ---------- ------------ ------------ ------------ Net loss per common share $(0.12) $(0.12) $(0.31) $(0.33) ----------- ---------- ------------ ------------ ----------- ---------- ------------ ------------ Weighted average number of shares outstanding 7,687,000 8,261,000 7,631,000 8,136,000 ----------- ---------- ------------ ------------ ----------- ---------- ------------ ------------
4 CYTOCLONAL PHARMACEUTICS INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (UNAUDITED) SEPTEMBER 11, 1991 NINE MONTHS ENDED (INCEPTION) SEPTEMBER 30, THROUGH --------------------------- SEPTEMBER 30, 1996 1997 1997 ------------ ------------ ------------- Cash flows from operating activities: Net (loss) $(2,128,000) $(2,462,000) $(14,235,000) Adjustments to reconcile net (loss) to net cash (used in) operating activities: Depreciation and amortization 86,000 86,000 655,000 Amortization of debt discount - - 269,000 Amortization of debt costs - - 554,000 Value assigned to warrants and options 88,000 133,000 321,000 Equity in loss of joint venture 18,000 16,000 232,000 Changes in operating assets and liabilities: (Increase) decrease in other assets 15,000 19,000 (24,000) Increase (decrease) in accounts payable and accrued expenses 282,000 (2,000) 307,000 ----------- ----------- ------------ Net cash (used in) operating activities (1,639,000) (2,210,000) (11,921,000) Cash flows from investing activities: Purchase of equipment (62,000) (41,000) (237,000) Royalty payments - (24,000) (24,000) Investment in joint venture - - (233,000) ----------- ----------- ------------ Net cash (used in) investing activities (62,000) (65,000) (494,000) ----------- ----------- ------------ ----------- ----------- ------------ Cash flows from financing activities: Net proceeds from sales of preferred and common stock - - 13,750,000 Proceeds from exercise of options and warrants - 576,000 576,000 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 - 576,000 13,574,000 ----------- ----------- ------------ NET (DECREASE) IN CASH (1,701,000) (1,699,000) 1,159,000 Cash at beginning of period 5,442,000 2,858,000 - ----------- ----------- ------------ CASH AT END OF PERIOD $3,741,000 $ 1,159,000 $ 1,159,000 ----------- ----------- ------------ ----------- ----------- ------------
5 CYTOCLONAL PHARMACEUTICS INC. NOTES TO FINANCIAL STATEMENTS September 30, 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 November 7, 1997, options to acquire 85,000 shares of common stock are available for future grant and options to acquire 665,000 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. 6 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 is aimed at research and development and related activities comprising: - further development of the Paclitaxel production from the Fungal Paclitaxel Production System using fermentation technologies, strain improvements and utilizing Paclitaxel-specific genes. - further development of the Paclitaxel treatment of polycystic kidney disease, a potential new Paclitaxel indication. - 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. - further analysis of the TNF-PEG technology as an anti-cancer agent in animal studies and possible submission of IND. - testing proprietary vectors which have been constructed for the expression of specific proteins that may be utilizable for vaccines for different diseases. - further development of the anti-sense technology currently being conducted at the University of Texas at Dallas. - developing a humanized antibody specific for the protein associated with the LCG gene and, if successful, submission of an IND for clinical trials. - making modest improvements to the Company's laboratory facilities. 7 - hiring additional research technicians and a financial vice president. - 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 July 1, 1997 to September 30, 1997, the Company incurred a net loss of $945,000 compared to a net loss of $808,000 for the same period in 1996. For the period from January 1, 1997 to September 30, 1997, the Company incurred a net loss of $2,462,000 compared to a net loss of $2,128,000 for the same period in 1996. The increase from the previous year was attributable to an increase in operating expenses and a decrease in interest income. The Company expects to incur additional losses in the foreseeable future. The Company incurred general and administrative expenses of $1,110,000 and $1,490,000 for the nine months ended September 1996 and September 1997, respectively. The increase from the previous year was attributable to increased technology marketing and public relations costs, consulting fees, legal and professional fees and increased rent expenses. The Company incurred research and development expenses of $1,183,000 and $1,050,000 for the nine months ended September 1996 and September 1997, respectively. The decrease was primarily attributable to the completion of the Company's funding obligation to Research and Development, Inc., along with lower license fees, partially offset by an increase in contact research fees and an increase in salaries due to the hiring of additional research technicians. The Company believes that the net proceeds from its initial public offering of November 1995, the proceeds from the exercise of the placement agent purchase options in February 1997 aggregating $500,000 and the proceeds from the recent exercise of Class A, Class B and Class C Warrants aggregating $76,000 through September 30, 1997, along with approximately $1,142,000 additional proceeds through November 7, 1997, will be sufficient to finance the Company's plan of operation through the middle of 1998. 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. 8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11 Computation of net (loss) per share Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K - None 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. CYTOCLONAL PHARMACEUTICS INC. Date: November 13, 1997 /s/ Daniel M. Shusterman --------------------------------- Daniel M. Shusterman Vice President of Operations, Treasurer and Chief Financial Officer 10