UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number 0-15327
CYTRX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 58-1642740
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
154 Technology Parkway, Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)
(770) 368-9500
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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_____
Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and
outstanding as of June 30, 1996: 7,860,920.
CYTRX CORPORATION
Form 10-Q
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1996
(unaudited) and December 31, 1995 3
Condensed Consolidated Statements of Operations (unaudited)
for the Three Month and Six Month Periods
Ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Six Month Periods Ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT 11 -- Computation of Net Loss Per Share 12
2
Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 2,474,885 $16,645,570
Short-term investments 19,737,393 8,556,235
Receivables 356,567 91,077
Inventories (Note 2) 8,472 6,318
Other current assets 378,204 267,420
---------- -----------
Total current assets 22,955,521 25,566,620
Property and equipment, net 5,008,674 5,137,764
Other assets 259,404 255,599
---------- ----------
Total assets $28,223,599 $30,959,983
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 253,039 $ 266,125
Accrued liabilities 627,234 923,373
---------- ----------
Total current liabilities 880,273 1,189,498
Commitments
Stockholders' equity:
Common stock, $.001 par value, 18,750,000
shares authorized; 7,929,671 and 7,915,308
shares issued at June 30, 1996 and
December 31, 1995, respectively 7,930 7,915
Additional paid-in capital 62,584,836 62,514,691
Treasury Stock (68,750 and 58,750 shares
at June 30, 1996 and December 31, 1995,
respectively) (282,344) (242,343)
Accumulated deficit (34,967,096) (32,509,778)
---------- ----------
Total stockholders' equity 27,343,326 29,770,485
---------- ----------
Total liabilities and
stockholders' equity $28,223,599 $30,959,983
========== ==========
See accompanying notes.
3
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Ended June 30, Six Month Period Ended June 30,
--------------------------------- -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues:
Net sales $ 479,894 $ 115,825 $ 817,419 $ 251,831
Investment income, net 316,595 444,052 620,567 951,321
License fees 50,000 - 50,000 -
Other 15,667 15,811 33,452 36,275
--------- --------- --------- ---------
862,156 575,688 1,521,438 1,239,427
Expenses:
Cost of sales 367,637 10,530 480,352 21,671
Research and development 553,357 1,894,151 1,540,576 3,574,333
Selling and marketing 170,248 33,120 337,080 59,668
General, administrative and
business development 916,293 991,300 1,620,748 1,803,771
Realized loss on short-term
investments, net - 992,244 - 1,102,621
Write-off of patent costs - - - 1,395,476
--------- --------- --------- ---------
2,007,535 3,921,345 3,978,756 7,957,540
--------- --------- --------- ---------
Net loss $(1,145,379) $(3,345,657) $(2,457,318) $(6,718,113)
========= ========= ========= =========
Net loss per share $ (0.15) $ (0.42) $ (0.31) $ (0.85)
(see Exhibit 11) ========= ========= ========= =========
See accompanying notes.
4
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Period Ended June 30,
---------------------------------
1996 1995
---------- -----------
Cash flows from operating activities:
Net loss $(2,457,318) $(6,718,113)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 252,364 262,956
Write-off of patent costs - 1,395,476
Net change in assets and liabilities (691,458) 377,644
---------- ----------
Total adjustments (439,094) 2,036,076
---------- ----------
Net cash used by operating activities (2,896,412) (4,682,037)
Cash flows from investing activities:
(Increase) decrease in short-term investments (11,181,158) 25,096,284
Capital expenditures, net (123,274) (86,245)
---------- ----------
Net cash provided (used) by
investing activities (11,304,432) 25,010,039
Cash flows from financing activities:
Net proceeds from issuance of common stock 70,160 66,252
Purchase of treasury stock (40,001) -
---------- ----------
Net cash provided by financing activities 30,159 66,252
---------- ----------
Net increase (decrease) in cash and
cash equivalents (14,170,685) 20,394,254
Cash and cash equivalents at beginning of period 16,645,570 3,395,974
---------- ----------
Cash and cash equivalents at end of period $ 2,474,885 $23,790,228
========== ==========
See accompanying notes.
5
CYTRX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
1. DESCRIPTION OF COMPANY AND BASIS OF PREPARATION
CytRx Corporation and its subsidiaries are engaged in the development of
pharmaceutical products. Reference herein to "the Company" includes CytRx and
its wholly-owned subsidiaries -- Vaxcel, Inc., Vetlife, Inc. and Proceutics,
Inc. Vaxcel is developing the Optivax vaccine delivery system. Vetlife is
developing products to enhance food animal growth. Proceutics provides high
quality preclinical development services to the pharmaceutical industry.
The accompanying condensed consolidated financial statements at June 30,
1996 and for the three month and six month periods ended June 30, 1996 and 1995
include the accounts of CytRx and its wholly-owned subsidiaries and are
unaudited, but include all adjustments, consisting of normal recurring entries,
which the Company's management believes to be necessary for a fair presentation
of the periods presented. Interim results are not necessarily indicative of
results for a full year. The financial statements should be read in conjunction
with the Company's audited financial statements in its Form 10-K for the year
ended December 31, 1995.
2. INVENTORIES
Inventories at June 30, 1996 and December 31, 1995 are comprised of the
following:
June 30, 1996 December 31, 1995
------------- -----------------
Finished goods $ 5,903 $ 4,068
Raw materials 2,569 2,250
------ ------
$ 8,472 $ 6,318
====== ======
3. REVERSE STOCK SPLIT
All share and per share information in the accompanying condensed consolidated
financial statements and notes thereto has been retroactively adjusted to
reflect a one-for-four reverse stock split effective February 6, 1996.
6
4. NET LOSS PER COMMON SHARE
Net loss per common share is computed based on the weighted average number of
common shares outstanding during each period. Stock options and warrants
outstanding are excluded from the computation of net loss per share since their
effect is antidilutive.
5. MARKETING AND DISTRIBUTION AGREEMENT
In January 1996, Vetlife signed an agreement with Ivy Laboratories, Inc. to
market and distribute Ivy's line of FDA approved cattle growth products and
devices in North America. The newly created Vetlife Cattle Marketing Group will
begin marketing products by January 1997. In connection with the agreement,
Vetlife arranged for a letter of credit in the amount of $5 million in favor of
Ivy Laboratories. The letter of credit is collateralized by approximately $6
million of short-term investments.
7
Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition and Liquidity
At June 30, 1996 the Company had cash and short-term investments of $22.2
million and net assets of $27.3 million, compared to $25.2 million and $29.8
million, respectively, at December 31, 1995. Working capital totalled $22.1
million at June 30, 1996, compared to $24.4 million at December 31, 1995. The
Company has no material capital commitments.
During 1995 the Company formed a new subsidiary, Proceutics, Inc., to provide
preclinical development services to the pharmaceutical industry. CytRx
contributed existing property and staff resources to the venture which commenced
formal operations in January 1996. Management believes that while Proceutics
will continue to provide services to its affiliates, revenues derived from third
party resources will contribute to the Company's consolidated liquidity and
capital resources.
In January 1996 Vetlife signed an agreement with Ivy Laboratories, Inc. to
market and distribute Ivy's line of FDA approved cattle growth products and
devices in North America. Marketing and selling activities are not expected to
begin until January 1997, unless Ivy receives FDA approval in 1996 to market
certain additional products currently pending agency review.
Given its current operating plans, management believes that cash and short-term
investments on hand, combined with investment income, revenues generated by
Proceutics and Vetlife, and sales of Titermax, will be sufficient to satisfy the
Company's working capital needs for the next several years. The Company's
future cash requirements are dependent upon a number of factors, including the
progress of the Company's product development activities, the expense of
obtaining regulatory approvals, the determination of the commercial potential of
the Company's products under development and the status of competitive products.
The Company will consider additional sources of funding as appropriate and
available.
Results of Operations
The following table presents the breakdown of consolidated results of operations
by operating unit for the three month and six month periods ended June 30, 1996
and 1995. Although the subsequent discussion addresses the consolidated results
of operations for CytRx and its subsidiaries, management believes this
presentation of net results by operating unit is important to an understanding
of the consolidated financial statements taken as a whole.
8
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ------------------------
(in thousands) 1996 1995 1996 1995
---- ---- ---- ----
CytRx $ (694) $(2,673) $(1,055) $(5,389)
Proceutics (150) - (559) -
Vaxcel (217) (518) (513) (892)
Vetlife (84) (155) (330) (437)
----- ----- ----- -----
Consolidated Net Loss $(1,145) $(3,346) $(2,457) $(6,718)
===== ===== ===== =====
Net sales were $480,000 during the three months ended June 30, 1996 compared to
$116,000 in 1995 and $817,000 during the six months ended June 30, 1996 compared
to $252,000 in 1995. Cost of sales during the six month period ended June 30,
1996 were $480,000 (59% of net sales) as compared to $22,000 (9% of net sales)
in 1995. Selling and marketing expenses during the three months ended June 30,
1996 were $170,000 as compared to $33,000 during 1995; and $337,000 during the
six months ended June 30, 1996 as compared to $60,000 during the same period in
1995. Each of these increases from 1995 is primarily attributable to the
activities of Proceutics, which commenced formal operations in January 1996.
Net sales for the first and second quarters of 1995 consist solely of Titermax
sales.
Investment income was $317,000 and $621,000 during the three months and six
months ended June 30, 1996, as compared to $444,000 and $951,000 for the same
periods in 1995. At December 31, 1994 the Company had $2.5 million in
unrealized losses as a result of 1994's dramatic increase in interest rates.
By taking advantage of strength in the bond market during the second quarter,
CytRx reduced its unrealized losses by $1.4 million, recording non-cash
charges of $1 million and $1.1 million during the three months and six months
ended June 30, 1995, respectively. These charges are shown as a separate line
item on the Condensed Consolidated Statements of Operations.
Research and development expenditures in 1996 decreased by $1,341,000, or 71%,
from 1995 for the three months ended June 30, and by $2,034,000, or 57%, for the
six months ended June 30. This decrease is due to a reduction in the scope of
the Company's preclinical development activities combined with a shift of
certain personnel and capital resources to Proceutics.
General, administrative and business development expenses in 1996 decreased by
$75,000, or 8%, from 1995 for the three months ended June 30, and by $183,000 or
10%, for the six months ended June 30. This decrease is primarily due to cost
reduction measures taken by CytRx, partially offset by higher administrative
expenses associated with Proceutics.
9
Part II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 -- Statement re: computation of net loss per share
(attached hereto).
(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.
CYTRX CORPORATION
(Registrant)
Date: August 6, 1996 By:/s/ Mark W. Reynolds
Mark W. Reynolds
Controller
(Chief Accounting Officer)
11