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, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 0-26918
CYTOCLONAL PHARMACEUTICS INC.
-----------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2402409
- ---------------------------------------------- -----------------------
(STATE OR OTHER JURISDICATION OF 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: 9,677,546 SHARES OF COMMON
STOCK, $.01 PAR VALUE, OUTSTANDING AS OF MAY 7, 1996.
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 March 31, 1998 (unaudited)
and December 31, 1997 3
Statements of Operations for the Three Months
Ended March 31, 1997 and 1998 (unaudited)
and the Period From September 11, 1991
(Inception) Through March 31, 1998 4
Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1998 (unaudited)
and the Period From September 11, 1991
(Inception) Through March 31, 1998 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 and use of Proceeds 9
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, MARCH 31,
1997 1998
ASSETS (UNAUDITED)
------------- -------------
Current assets:
Cash and cash equivalents $ 1,849,000 $ 1,142,000
Prepaid expenses and other current assets 35,000 39,000
------------ ------------
Total current assets 1,884,000 1,181,000
Equipment, net 127,000 143,000
Patent rights, less accumulated amortization of
$463,000 and $482,000 787,000 768,000
Other assets 4,000 4,000
------------ ------------
T O T A L $ 2,802,000 $ 2,096,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 460,000 557,000
Current portion of royalties payable 94,000 94,000
------------ ------------
Total current liabilities 554,000 651,000
------------ ------------
Royalties payable less current portion 1,125,000 1,094,000
------------ ------------
Total liabilities 1,679,000 1,745,000
------------ ------------
Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000 shares
authorized; 934,563 and 971,410 shares of Series A
convertible preferred issued and outstanding at
December 31, 1997 and March 31, 1998, respectively
(liquidation value $2,336,000 and $2,429,000 at
December 31, 1997 and March 31, 1998, respectively) 9,000 10,000
Common Stock - $.01 par value, 30,000,000 shares
authorized: 8,793,998 and 8,862,284 issued
and outstanding at December 31, 1997 and
March 31, 1998, respectively 88,000 88,000
Additional paid-in capital 16,130,000 16,147,000
Deficit accumulated during the development stage (15,104,000) (15,894,000)
------------ ------------
Total Stockholders' Equity 1,123,000 351,000
------------ ------------
T O T A L $ 2,802,000 $ 2,096,000
------------ ------------
------------ ------------
3
CYTOCLONAL PHARMACEUTICS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
SEPTEMBER 11, 1991
THREE MONTHS ENDED (INCEPTION)
MARCH 31, THROUGH
-------------------------- MARCH 31,
1997 1998 1998
----------- ---------- ------------------
Operating Expenses:
Research and development $ 322,000 $ 360,000 $ 8,136,000
General and administrative 447,000 447,000 7,661,000
---------- ---------- ------------
769,000 807,000 15,797,000
---------- ---------- ------------
Other (Income) expenses:
Interest (income) (32,000) (19,000) (545,000)
Interest expense 1,000 2,000 563,000
---------- ---------- ------------
(31,000) (17,000) 18,000
---------- ---------- ------------
NET (LOSS) $ (738,000) $ (790,000) $(15,815,000)
---------- ---------- ------------
---------- ---------- ------------
Basic and diluted
loss per common share $ (0.10) $ (0.10) -
---------- ----------
---------- ----------
Weighted average number of shares
outstanding-basic and diluted
loss per share 7,934,488 8,840,000 -
---------- ----------
---------- ----------
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,
1997 1998 1998
----------- ---------- -------------
Cash flows from operating activities:
Net (loss) $ (738,000) $ (790,000) $(15,815,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 28,000 31,000 716,000
Amortization of debt discount - - 269,000
Amortization of debt costs - - 554,000
Value assigned to warrants and options 12,000 - 321,000
Equity in loss of joint venture 6,000 - 232,000
Changes in:
Other assets (3,000) (4,000) (47,000)
Accounts payable and accrued expenses 22,000 125,000 557,000
---------- ---------- ------------
Net cash (used in) operating activities (673,000) (638,000) (13,213,000)
---------- ---------- ------------
Cash flows from investing activities:
Purchase of equipment (28,000) (56,000) (296,000)
Investment in joint venture - - (233,000)
---------- ---------- ------------
Net cash (used in) investing activities (28,000) (56,000) (529,000)
---------- ---------- ------------
Cash flows from financing activities:
Net proceeds from sales of preferred and
common stock - - 13,750,000
Proceeds from exercise of options and warrants - 18,000 1,448,000
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)
Payment of royalties - (31,000) (62,000)
Proceeds from exercise of unit purchase option 500,000 - 500,000
---------- ------------
Net cash provided by (used in)
financing activities 500,000 (13,000) 14,884,000
---------- ---------- ------------
NET INCREASE (DECREASE) IN CASH (201,000) (707,000) 1,142,000
Cash at beginning of period 2,858,000 1,849,000 -
---------- ---------- ------------
CASH AT END OF PERIOD $2,657,000 $1,142,000 $ 1,142,000
---------- ---------- ------------
---------- ---------- ------------
5
CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(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, 1997. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128
"Earnings Per Share". Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of option, warrants and convertible
securities. Dilutive earnings per share is very similar to the previously
reported fully diluted earnings per share. In accordance with Statement
No. 128, which was adopted by the Company in 1997, basic and diluted net
loss per common share is based on the net loss increased by dividends on
preferred stock divided by the weighted average number of common shares
outstanding during the year. No effect has been given to outstanding
options, warrants or convertible preferred stock in the diluted computation
as their effect would be antidilutive.
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 for the next 12 months will consist of
research and development and related activities aimed at:
- 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 TNF-PEG technology as an anti-cancer agent in
animal studies.
- 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 or peptide 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 January 1, 1998 to March 31, 1998, the Company incurred
a net loss of $790,000. The Company expects to incur additional losses in the
foreseeable future.
The Company incurred a net loss of $738,000 for the three months ended
March 31, 1997. The increase from the previous year was attributable to
increased operating expenses and decreased interest income.
The Company incurred general and administrative expenses of $447,000 and
$447,000 for the three months ended March 1997 and March 1998, respectively.
The Company incurred research and development expenses of $322,000 and
$360,000 for the three months ended March 1997 and March 1998, respectively.
The increase was attributable to increased funding for the program at Washington
State University, partially offset by a decrease in lab supply costs.
The Company believes that the net proceeds from its initial public offering
of November 1995, the exercise of the placement agent purchase options in
February 1997, and the net procceds of approximately $4,750,000 from the private
placement in April and May 1998 will be sufficient to finance the Company's plan
of operation through the end of 1999. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January and March 1998, the Company issued 94,680 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, 1997 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 April and May 1998, the Company completed a private placement of an
aggregate of 671,035 shares of Common Stock and 335,540 Class E Warrants (each
of which warrants upon exercise entitles the holder thereof to one share of
Common Stock). The private placement, which was placed by Janssen/Meyers
Associates, LLP, was made solely to 75 accredited investors in reliance upon
Regulation D of the Securities Act of 1933. The gross proceeds of such
placement was $5,633,675 on which the placement agent received commissions of
$563,368 and a nonaccountable expense allowance of $169,010 plus accountable
expenses. In addition, the Placement Agent received options to acquire an
aggregate of 201,315 shares of Common Stock.
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: May 15, 1998 /s/ Daniel M. Shusterman
--------------------------------------
Daniel M. Shusterman
Vice President of Operations,
Treasurer and Chief Financial
Officer
10