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 September 30, 2001
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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
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CYTRX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 58-1642740
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
154 Technology Parkway
Suite 200
Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 368-9500
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_____
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Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and
outstanding as of November 14, 2001: 10,825,196.
CYTRX CORPORATION
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Form 10-Q
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Table of Contents
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Page
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 2001 (unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month and Nine Month Periods Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Nine Month Periods Ended September 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 1,877,109 $ 3,779,376
Receivables 30,496 54,160
Other current assets 49,452 34,171
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Total current assets 1,957,057 3,867,707
Property and equipment, net 1,892,290 2,331,977
Note receivable 516,475 598,576
Other assets 60,978 60,978
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Total assets $ 4,426,800 $ 6,859,238
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 122,364 $ 298,236
Accrued liabilities 477,223 942,188
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Total current liabilities 599,587 1,240,424
Commitments
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000 shares authorized, including 1,000
shares of Series A Junior Participating Preferred
Stock; no shares issued and outstanding - -
Common stock, $.001 par value, 50,000,000 shares authorized;
11,396,512 and 10,734,012 shares issued at September 30, 2001
and December 31, 2000, respectively 11,396 10,734
Additional paid-in capital 74,324,436 72,737,739
Treasury stock, at cost (633,816 shares held at September 30, 2001
and December 31, 2000) (2,279,238) (2,279,238)
Accumulated deficit (68,229,381) (64,850,421)
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Total stockholders' equity 3,827,213 5,618,814
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Total liabilities and stockholders' equity $ 4,426,800 $ 6,859,238
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See accompanying notes.
3
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
2001 2000 2001 2000
---------------- ---------------- ---------------- ----------------
Revenues:
Net sales $ 28,140 $ 168,086 $ 64,219 $ 353,370
Interest income 31,598 47,993 136,304 116,901
Grant income 46,584 107,269 141,876 316,741
Other 57,818 80,594 158,335 250,400
---------------- ---------------- ---------------- ----------------
164,140 403,942 500,734 1,037,412
Expenses:
Cost of sales 20,761 82,035 39,972 178,736
Research and development 384,084 387,516 1,320,809 1,615,934
Selling, general and administrative 761,500 540,583 2,518,913 1,550,954
---------------- ---------------- ---------------- ----------------
1,166,345 1,010,134 3,879,694 3,345,624
---------------- ---------------- ---------------- ----------------
Loss from continuing operations (1,002,205) (606,192) (3,378,960) (2,308,212)
Income from discontinued operations - - - 799,328
---------------- ---------------- ---------------- ----------------
Net loss $ (1,002,205) $ (606,192) $ (3,378,960) $ (1,508,884)
================ ================ ================ ================
Basic and diluted income (loss) per common share:
Continuing operations $ (0.10) $ (0.06) $ (0.33) $ (0.25)
Discontinued operations - - - 0.09
---------------- ---------------- ---------------- ----------------
Net loss $ (0.10) $ (0.06) $ (0.33) $ (0.16)
================ ================ ================ ================
Basic and diluted
weighted average shares outstanding 10,272,343 9,937,838 10,202,806 9,198,725
See accompanying notes.
4
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Month Period Ended September 30,
---------------------------------------------
2001 2000
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Cash flows from operating activities:
Net loss $ (3,378,960) $ (1,508,884)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 439,687 153,241
Gain on sale of Titermax - (679,784)
Stock option and warrant expense 1,183,891 217,875
Net change in assets and liabilities (550,353) (1,190,777)
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Total adjustments 1,073,225 (1,499,445)
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Net cash used by operating activities (2,305,735) (3,008,329)
Cash flows from investing activities:
Capital expenditures/retirements, net - 63,442
Net proceeds from sale of Titermax - 100,000
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Net cash provided by investing activities - 163,442
Cash flows from financing activities:
Net proceeds from issuance of common stock 403,468 2,185,793
Retirement of debt - (200,000)
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Net cash provided by financing activities 403,468 1,985,793
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Net decrease in cash and cash equivalents (1,902,267) (859,094)
Cash and cash equivalents at beginning of period 3,779,376 3,031,893
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Cash and cash equivalents at end of period $ 1,877,109 $ 2,172,799
==================== ====================
See accompanying notes.
5
CYTRX CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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September 30, 2001
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(Unaudited)
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1. Description of Company and Basis of Presentation
CytRx Corporation ("CytRx" or "the Company") is a biopharmaceutical company
focused on the development and commercialization of high-value human
therapeutics. The Company's current research and development activities include
CRL-5861, an intravenous agent for treatment of sickle cell disease and other
acute vaso-occlusive disorders, and TranzFect, a delivery technology for DNA-
based vaccines and therapeutics. CytRx also has a research pipeline with
opportunities in the areas of muscular dystrophy, cancer, spinal cord injury,
vaccine delivery, gene therapy and food animal feed additives.
The accompanying condensed consolidated financial statements at September
30, 2001 and for the three month and nine month periods ended September 30, 2001
and 2000 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, 2000.
2. Agreement with Cappello Capital Corp.
Effective January 1, 2001, the Company executed an agreement with Cappello
Capital Corp. ("Cappello") for general corporate financial advisory services. In
connection with this agreement, the Company issued to Cappello warrants to
purchase up to 1.4 million shares of its common stock with an exercise price of
$1.00 per share. During the three month and nine month periods ended September
30, 2001, the Company recognized non-cash charges of $234,000 and $924,000,
respectively, associated with the issuance and vesting of these warrants.
3. License Agreement with Ivy Animal Health
In February 2001, the Company entered into a license agreement with Ivy
Animal Health, Inc. ("Ivy") of Overland Park, Kansas, whereby CytRx granted to
Ivy a worldwide exclusive license to its investigational agent, CRL-8761, a
non-antibiotic feed additive that enhances growth performance in monogastric
food animals such as poultry and pigs. As part of the license, CytRx received a
nominal upfront payment, and will receive a milestone fee upon regulatory
approval in the United States and an eventual royalty equal to 5% of net sales.
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4. Segment Reporting
Continuing Operations
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Total
Recruiting Product Continuing Discontinued
(in thousands) Services Development Operations Operations
- --------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 2001:
Sales to external customers $ 28 $ - $ 28 $ -
Intersegment sales - - - -
Segment profit (loss) - (1,002) (1,002) -
Total assets - 4,427 4,427 -
Three Months Ended September 30, 2000
Sales to external customers 168 - 168 -
Intersegment sales - - - -
Segment profit (loss) 69 (675) (606) -
Total assets - 5,507 5,507 -
Nine Months Ended September 30, 2001:
Sales to external customers 64 - 64 -
Intersegment sales - - - -
Segment profit (loss) 2 (3,381) (3,379) -
Total assets - 4,427 4,427 -
Nine Months Ended September 30, 2000:
Sales to external customers 353 - 353 170
Intersegment sales - - - -
Segment profit (loss) 148 (2,456) (2,308) 799
Total assets - 5,507 5,507 -
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Item 2. -- Management's Discussion and Analysis of Financial Condition And
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Results of Operations
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This discussion includes "forward looking" statements that reflect our
current views with respect to future events and financial performance. Investors
should be aware that actual results may differ materially from our expressed
expectations because of risks and uncertainties inherent in future events,
particularly those risks identified under "Risk Factors" set forth in Exhibit
99.1 to our Annual Report on Form 10-K, and should not unduly rely on these
forward looking statements. We undertake no duty to update the information in
this discussion if any forward looking statement later turns out to be
inaccurate.
Liquidity and Capital Resources
At September 30, 2001 we had cash and cash equivalents of $1.9 million and
net assets of $3.8 million, compared to $3.8 million and $5.6 million,
respectively, at December 31, 2000. Working capital totaled $1.4 million at
September 30, 2001, compared to $2.6 million at December 31, 2000.
In November 2000, we entered into an exclusive, worldwide license agreement
(the "Merck License") with Merck & Co., Inc. ("Merck") whereby we granted to
Merck the right to use our TranzFect technology in DNA-based vaccines targeted
to four infectious diseases, one of which is HIV. For the license to the
TranzFect technology to treat the first disease target, Merck has paid us a
signature payment of $2 million, and will pay us milestone and product approval
payments of up to $4 million as they develop the product. Additionally, if
certain conditions are met regarding patent protection and Merck's competitive
position, Merck may pay a royalty to us of 1% on net sales of products
incorporating TranzFect for the first disease target. For each of the licenses
to the TranzFect technology to treat the three additional disease targets, Merck
will make a series of milestone and product approval payments to us totaling up
to $2,850,000 each. If and when sales of products incorporating TranzFect for
the three additional disease targets commence, we will receive royalties of
between 2 and 4% of the net sales from such products. Additionally, if certain
conditions are met regarding patent protection and Merck's competitive position,
Merck may pay an additional royalty of 1% on net sales of products incorporating
TranzFect for these additional disease targets. Merck will also pay an annual
fee of between $50,000 and $100,000 until the first product approval for one of
the three additional disease targets. Merck may terminate the Merck License at
any time, upon 90 days written notice. All amounts paid to us are non-refundable
upon termination and require no additional effort on our part.
In April 2000, we entered into a private equity line of credit agreement
(the "ELC Agreement") whereby we have the right to "put" shares of our common
stock to an investor from time to time to raise up to $5,000,000, subject to the
conditions and restrictions included in the ELC Agreement. To date, we have not
exercised our right to sell shares under this agreement. Our ability to raise
significant funds through this mechanism is subject to a number of risks and
uncertainties, including stock market conditions and our ability to maintain an
effective registration of the related shares with the Securities and Exchange
Commission.
8
We believe that we will have adequate working capital to allow us to
operate through the first half of 2002, but that additional funds will be needed
to significantly advance any of our technologies under development. We are
continuing to seek additional corporate partnerships for TranzFect, and are also
seeking government support for additional clinical studies of CRL-5861 (FLOCOR)
in sickle cell disease. Some of our additional capital requirements may be
provided by the ELC Agreement and by potential milestone payments pursuant to
the Merck License, but we are also pursuing other sources of equity capital. The
results of our technology licensing efforts and/or the actual proceeds of any
fund-raising activities will determine our ongoing ability to operate as a going
concern with the current portfolio of technologies under development. These
efforts are subject to market conditions and our ability to identify parties
that are willing and able to enter into such arrangements on terms that are
satisfactory to us. There is no assurance that such funding will be available to
finance our operations on acceptable terms, if at all. Insufficient funding may
require us to delay, reduce or eliminate some or all of our research and
development activities, planned clinical trials and administrative programs. In
order to fund our operations we are considering all available options, including
the possible sale of the Company to, or merger with, another organization.
The above statements regarding our plans and expectations for future
financing are forward-looking statements that are subject to a number of risks
and uncertainties. Our ability to obtain future financing through joint
ventures, product licensing arrangements, sales of equity securities or
otherwise is subject to market conditions and our ability to identify parties
that are willing and able to enter into such arrangements on terms that are
satisfactory to us. There can be no assurance that we will be able to obtain
future financing from these sources. Additionally, depending upon the outcome of
our fund raising efforts, the accompanying financial information may not
necessarily be indicative of future operating results or future financial
condition.
Results of Operations
We recorded net losses of $1,002,000 and $3,379,000 for the three month and
nine month periods ended September 30, 2001 as compared to $606,000 and
$1,509,000 for the same periods in 2000. Loss from continuing operations was
$1,002,000 and $3,379,000 for the three month and nine month periods ended
September 30, 2001 as compared to $606,000 and $2,308,000 in 2000.
Net sales from continuing operations, which consist of service revenues
from Spectrum Recruitment Research, were $28,000 and $64,000 during the three
month and nine month periods ended September 30, 2001 as compared to $168,000
and $353,000 in 2000. Cost of sales were $21,000 and $40,000 for the three month
and nine month periods ended Sepember 30, 2001 as compared to $82,000 and
$179,000 in 2000. Spectrum's revenues are derived from selling its consulting
services to third party companies seeking to recruit new personnel. The decline
in revenues during 2001 is reflective of the general slowdown affecting the
economy as a whole. However, because Spectrum utilizes the services of external
consultants to fulfill its clients' needs, it can retract or expand its
operations easily. Spectrum's activities are ancillary to the Company's
operational focus and the Company is not dependent on the cash flow it
generates.
9
Interest income was $32,000 and $136,000 during the three month and nine
month periods ended September 30, 2001, as compared to $48,000 and $117,000 in
2000. The variance between years generally corresponds to fluctuating cash and
investment balances.
Grant income was $47,000 and $142,000 during the three month and nine month
periods ended September 30, 2001, as compared to $107,000 and $317,000 in 2000.
Costs related to grant income are included in research and development expense
and generally approximate the amount of revenue recognized.
Other income was $58,000 and $158,000 during the three month and nine month
periods ended September 30, 2001 as compared to $81,000 and $250,000 in 2000.
Other income for 2001 primarily consists of sublease revenues. For the nine
month period ended September 30, 2000, other income includes $125,000 in fees
paid by a third party during the first quarter of 2000 pursuant to an Evaluation
Agreement for the Company's gene delivery technology.
Research and development expenditures were $384,000 and $1,321,000 during
the three month and nine month periods ended September 30, 2001, as compared to
$388,000 and $1,616,000 in 2000. Research and development expenditures for all
periods primarily relate to the Company's development activities for CRL-5861
(FLOCOR). A Phase III clinical trial of CRL-5861 for treatment of acute sickle
cell crisis was completed in December 1999. Expenditures during 2000 are higher
than in 2001 due to costs incurred related to the wrap-up and analysis of the
Phase III results and consultation with the Company's scientific and regulatory
advisors. The Company's activities with regard to CRL-5861 during 2001 have
focused primarily on preparation for the next Phase III clinical trial,
including preparations for government grant applications, as well as the
initiation of preclinical studies for the treatment of spinal cord injury and
cancer.
Selling, general and administrative expenditures were $762,000 and
$2,519,000 during the three and nine month periods ended September 30, 2001, as
compared to $541,000 and $1,551,000 in 2000. During each of the periods, the
vesting criteria of employee and consultant stock options and warrants were
achieved, resulting in aggregate non-cash charges of $392,000 and $1,184,000,
during the three and nine month periods ended September 30, 2001 and $-0- and
$218,000 during the same periods in 2000. Excluding these charges, selling,
general and administrative expenditures were $370,000 and $1,335,000 during the
2001 periods and $541,000 and $1,333,000 during the 2000 periods.
Income from discontinued operations of $799,000 reported during the nine
month period ended September 30, 2000 relates to the Company's TiterMax research
adjuvant product line, which we sold in June 2000, and includes a gain of
$680,000.
10
Item 3. -- Quantitative and Qualitative Disclosures About Market Risk
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There have been no changes in our assessment of market risk from that
disclosed in our Form 10-K for the year ended December 31, 2000.
PART II-- OTHER INFORMATION
Item 6. -- Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits -- None
(b) Reports on Form 8-K -- None
11
SIGNATURES
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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: November 14, 2001 By: /s/ Mark W. Reynolds
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Mark W. Reynolds
Vice President, Finance
(Chief Accounting Officer
and a duly authorized officer)
12