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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
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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 JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NUMBER)
2110 RESEARCH ROW, SUITE 621, 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
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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: 16,171,173 SHARES OF COMMON
STOCK, $.01 PAR VALUE, OUTSTANDING AS OF MAY 10, 2001.
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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, 2001 (unaudited)
and December 31, 2000 3
Statements of Operations for the Three Months
Ended March 31, 2001 and 2000 (unaudited) 4
Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 (unaudited) 5
Notes to Financial Statements 6
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. -- Changes in Securities and use of Proceeds 12
Item 6. -- Exhibits and Reports on Form 8-K 12
Signatures 12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYTOCLONAL PHARMACEUTICS INC.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000
ASSETS (unaudited)
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Current assets:
Cash and cash equivalents $ 33,829,000 $ 35,408,000
Prepaid expenses and other current assets 387,000 495,000
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Total current assets 34,216,000 35,903,000
Equipment, net 643,000 512,000
Patent rights, less accumulated amortization of
$792,000 and $764,000 642,000 670,000
Notes receivable-officer/stockholder-9.75% due April 30, 2003 278,000 278,000
Other assets 15,000 15,000
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TOTAL $ 35,794,000 $ 37,378,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 681,000 633,000
Taxes payable 95,000 95,000
Deferred revenue 556,000 0
Current portion of royalties payable 93,000 125,000
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Total current liabilities 1,425,000 853,000
Royalties payable less current portion 750,000 750,000
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Total liabilities 2,175,000 1,603,000
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Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000 shares authorized; 772,842 and
718,353 shares of Series A convertible preferred issued and outstanding at
March 31, 2001 and December 31, 2000, respectively (liquidation value
$1,932,000 and $1,796,000 at March 31, 2001 and December 31, 2000, respectively) 8,000 7,000
Common Stock - $.01 par value, 30,000,000 shares authorized: 16,164,043 and
16,146,730 shares issued and outstanding at March 31, 2001 and December 31,
2000, respectively 162,000 162,000
Additional paid-in capital 67,363,000 67,083,000
Subscription receivable (51,000) (51,000)
Unearned compensatory cost (54,000) (70,000)
Accumulated deficit (30,872,000) (29,354,000)
Treasury stock, 511,200 and 260,600 shares common stock, at cost
at March 31, 2001 and December 31, 2000, respectively (2,937,000) (2,002,000)
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Total stockholders' equity 33,619,000 35,775,000
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TOTAL $ 35,794,000 $ 37,378,000
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CYTOCLONAL PHARMACEUTICS INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
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2001 2000
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Revenue:
Licensing & research collaborative
agreement $ 333,000 $ 344,000
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Operating Expenses:
Research and development $ 1,149,000 $ 577,000
General and administrative 983,000 2,265,000
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2,132,000 2,842,000
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Operating (loss) (1,799,000) (2,498,000)
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Other (Income) expenses:
Interest income (461,000) (81,000)
Interest expense 2,000 2,000
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(459,000) (79,000)
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NET LOSS (1,340,000) (2,419,000)
Preferred stock dividend (180,000) (47,000)
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Net loss attributable to
to common shareholders $(1,520,000.00) $(2,466,000.00)
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Basic and diluted net loss per common share $ (0.10) $ (0.22)
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Weighted average number of
shares outstanding - basic and
diluted 16,148,937 11,156,000
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CYTOCLONAL PHARMACEUTICS INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
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2001 2000
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Cash flows from operating activities:
Net loss $ (1,340,000) $ (2,419,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 84,000 40,000
Value assigned to warrant, options and compensatory stock 117,000 1,347,000
Changes in:
Prepaid expenses and other current assets 109,000 (36,000)
Deferred revenue 555,000 180,000
Accounts payable and accrued expenses 16,000 58,000
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Net cash used in operating activities (459,000) (830,000)
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Cash flows from investing activities:
Purchase of equipment (185,000) (63,000)
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Net cash used in investing activities (185,000) (63,000)
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Cash flows from financing activities:
Payment of royalties 0 (41,000)
Proceeds from exercise of options and warrants 14,220,000
Purchase of treasury stock (935,000) 0
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Net cash used in financing activities (935,000) 14,179,000
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,579,000) 13,286,000
Cash and cash equivalents at beginning of period 35,408,000 3,213,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 33,829,000 $ 16,499,000
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CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2001
(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-K for the fiscal year ended December 31, 2000. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) RESEARCH AND COLLABORATIVE AGREEMENT
In June 1998, the Company entered into a license and research agreement
with Bristol-Myers Squibb ("BMS") on two technologies related to
production of paclitaxel, the active ingredient in BMS's largest
selling cancer product, Taxol(R). The agreement includes fees,
milestone payments, research and development support and minimum and
sales based royalties.
(3) LOSS PER COMMON SHARE
Basic and diluted 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 period. No
effect has been given to outstanding options, warrants or convertible
preferred stock in the diluted computation, as their effect would be
antidilutive.
(4) STOCKHOLDERS' EQUITY
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." In October 1995, the Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which establishes a fair value-based
method of accounting for stock-based compensation plans. The Company
has adopted the disclosure-only alternative under SFAS No. 123. The
Company accounts for stock based compensation to nonemployees using the
fair value method in accordance with SFAS No. 123 and Emerging Issues
Task Force (EITF) Issue No. 96-18. The Company has recognized deferred
stock compensation related to certain stock option and warrant grants.
During the three months ended March 31, 2000 the Company granted 5,000
options to purchase shares of its Common Stock at $7.188 per share, in
return for consulting services. The Company valued these warrants based
on the Black-Scholes option pricing model. In connection therewith the
Company recorded a non-cash charge of $1,392 during the three months
ended March 31, 2001. In connection with other option grants to
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consultants in previous years the Company recorded a non-cash charge of
$115,694 during the three months ended March 31, 2001.
(5) DEFERRED REVENUE
The Company recognizes revenue from development agreements over the
stated live of the agreement. Amounts received in advance of the
services to be performed are recorded as deferred revenue. Accordingly,
funds of $1,000,000 received February 2001, net of $444,000 in revenues
recognized in the quarters ending December 31, 2000 and March 31,2001
are recorded as deferred revenue of $556,000.
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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.
We were organized and commenced operations in September 1991. Our 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 our scientific and management
personnel and advisors and raising capital. As we accelerate our efforts to
become a fully operational and profitable drug design and development company,
we will continue to review and refine our strategic plan. Our strong financial
position provides us with the resources necessary to move forward rapidly to
achieve our goals.
We have enhanced our executive management team to ensure that we have
capable, experienced individuals in place to meet the increasing demands we face
as the Company continues its plans. Ronald Lane Goode, Ph.D. has joined the
Company as President and Chief Executive Officer. Dr. Goode is an accomplished
pharmaceutical executive who has held key management positions at G. D. Searle &
Co. and Pfizer Pharmaceuticals. He has an extensive record of success in
business development, having been responsible for many of Searle's acquisitions
and has supervised clinical development programs that led to the filing of over
a dozen New Drug Approval applications. After his tenure at Searle, Dr. Goode
was President and CEO of Unimed Pharmaceuticals, Inc. He positioned that company
for sale to Solvay. Most recently he formed the consulting company Pharma-Links
with the mission of being the "link" between pharmaceutical companies to help
them create alliances, form joint ventures and effect various transactions. Dr.
Goode succeeds founder Dr. Arthur P. Bollon who remains as non-executive Vice
Chairman.
During the past year we have increased our focus on the expansion of our
two drug design platform technologies: Quantum Core Technologies(TM) (QCT(TM))
and OASIS(TM). We have strengthened and expanded our affiliations with
universities and other research institutions to ensure that we obtain the most
advanced scientific knowledge available. In addition, we have increased our
emphasis of identifying opportunities for collaborations, strategic alliances
and joint ventures with pharmaceutical and biotechnology companies for the
commercial development of our products.
We have also increased the scientific staff, both in number and depth of
knowledge. We have added additional physical facilities, and we will continue to
provide the staff members and equipment necessary to accommodate the tasks
required by our expanding QCT(TM) and OASIS(TM) technologies. We are improving
our medicinal chemistry department, a function we feel is vital to our growth in
drug development. We are cognizant of the importance of obtaining new as well
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as existing patents and intellectual property, and are developing new programs
to ensure successful operations in this area.
We believe that we have a capable, focused Board and management team,
promising technology and strong financial resources. During the next twelve
months we plan on concentrating our efforts in the following areas:
o Designing drugs (using QCT(TM)) that inhibit specific, targeted
proteins;
o Designing gene-regulating antisense reagents (using our
OASIS(TM)genome library);
o Continuing our collaboration with Bristol-Myers Squibb Company, Inc.
pursuant to our license and research and development agreements to
utilize microbial fermentation and genetic engineering to develop
Paclitaxel in commercial quantities and at lower costs; and
o Seeking to establish additional partnerships, strategic alliances and
technology licenses for the development, manufacturing, marketing and
sales of vaccines and pharmaceuticals for cancer detection and
treatment, drug resistance, infectious diseases and genetic diseases.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our 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 our operations will also be dependent upon the establishment of
collaborative arrangements with other companies, the availability of financing
and other factors.
RESULTS OF OPERATIONS
Revenue
We recognized revenues of $333,000 and $344,000 for the three months
ended March 2001, and 2000, respectively. Revenues in both quarters were
attributable to license and research and development payments from our
agreements with Bristol-Myers Squibb.
Research and Development Expenses
We incurred research and development expenses of $1,149,000, and
$577,000 for the three months ended March 2001 and 2000, respectively. The
increase in research and development expenses in 2001 from 2000 was due to
increases in research and development salaries due to additional scientific
staff, increases in expenses for contract research and research consultants as
well as increases in laboratory expenses as we expanded our research and
development activities.
We anticipate that we will incur increased research and development
expenses as we move products from pre-clinical to clinical trials and as we
expand our drug discovery efforts. We also expect to hire additional technical
staff to aid in the fulfillment of these goals.
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General and Administrative Expenses
We incurred general and administrative expenses of $983,000 and
$2,265,000 for the three months ended March 2001, and 2000, respectively. The
primary decrease in general and administrative expenses in 2001 from 2000 was
attributable to a decrease of $1,558,000 in public and financial relations
expenses, which included $1,267,000 in non-cash charges in 2000 related to
issuance of warrants to financial advisors offset by increases in salaries and
other operating expenses in 2001 related to the addition of personnel and
corporate activities.
We anticipate that we will incur increased general and administrative
expenses as we expand our administrative staff to aid in our business
development.
Interest Income
Interest income was $461,000 and $81,000 for the three months ended
March 2001 and 2000, respectively. The increase in interest income is due to the
increase in available cash balances resulting from the receipt of approximately
$12,953,000 and $25,742,000 for the redemption of 1,992,829 and 2,941,905 Class
C and D warrants, respectively, received from January 1, 2000 through April 14,
2000.
Net Losses
We incurred a net loss of $1,520,000 and $2,419,000 for the three
months ended March 2001 and 2000, respectively. The decrease in net loss in 2001
from 2000 was attributable to an increase in interest income and a reduction in
general and administrative operating expenses, partially offset by in increase
in research and development expenses.
Liquidity and Capital Resources
At March 31, 2001, we had cash and cash equivalents approximately
$33,829,000. Since inception we have financed our operations from debt and
equity financings as well as fees received from licensing and research and
development agreements. During the three months ended March 31, 2001, we used
cash of approximately $1,579,000 to fund our operating activities, principally
caused by the net loss of $1,520,000. In addition, during the three months ended
March 31, 2001 we used approximately $1,066,000 to fund our investing
activities, principally caused by the purchase of treasury stock.
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." In
October 1995, the Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which establishes a
fair value-based method of accounting for stock-based compensation plans. The
Company has adopted the disclosure-only alternative under SFAS No. 123. The
Company accounts for stock based compensation to nonemployees using the fair
value method in accordance with SFAS No. 123 and Emerging Issues Task Force
(EITF) Issue No. 96-18. The Company has recognized deferred stock compensation
related to certain stock option and warrant grants. During the three months
ended March 31, 2000 the Company granted 5,000 options to purchase shares of its
Common Stock at $7.188 per share, in return for consulting services. The Company
valued these warrants based on the Black-Scholes option pricing model. In
connection therewith the Company
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recorded a non-cash charge of $1,392 during the three months ended March 31,
2001. In connection with other option grants to consultants in previous years
the Company recorded a non-cash charge of $115,694 during the three months ended
March 31, 2001.
We have agreed to fund scientific research at academic institutions
and/or to make minimum royalty payments for licensing and collaborative
agreements of approximately $1,223,000 in 2001. We do not expect these
arrangements to have a significant impact on our liquidity and capital
resources. We intend to continue to maintain and develop relationships with
academic institutions and to establish licensing and collaborative agreements.
We have no material capital commitments for the year ended December
31, 2001.
We believe that we have sufficient cash and cash equivalents at March
31, 2001 to finance our plan of operation through March 31, 2002. However, there
can be no assurance that we will generate sufficient revenues, if any, to fund
our 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 AND USE OF PROCEEDS
In January 2001, we issued 71,802 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, 2000 to the holders of such preferred stock. Such issuance
was pursuant to Section 3(a)(9) promulgated under the Securities Act.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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 18, 2001 /s/ Joan H. Gillett
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Joan H. Gillett, C.P.A.
Vice President/Controller
Principal Accounting Officer
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