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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 March 31, 1999
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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
CYTRX CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 58-1642740
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
154 Technology Parkway, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
(770) 368-9500
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(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
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Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and
outstanding as of May 13, 1999: 7,632,854.
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CYTRX CORPORATION
Form 10-Q
Table of Contents
Page
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of
March 31, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month Periods Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Month Periods Ended March 31, 1999 and 1998 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 10
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 11
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Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 12,361,398 $ 8,855,375
Short-term investments -- 6,417,066
Accounts receivable 170,017 83,249
Note receivable 300,000 300,000
Inventories 8,308 10,935
Other current assets 110,347 10,377
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Total current assets 12,950,070 15,677,002
Property and equipment, net 348,031 195,030
Other assets:
Acquired developed technology, net 600,000 600,000
Other assets 70,978 169,536
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Total other assets 670,978 769,536
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Total assets $ 13,969,079 $ 16,641,568
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 506,206 $ 540,089
Accrued liabilities 1,313,972 1,409,034
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Total current liabilities 1,820,178 1,949,123
Minority interest in Vaxcel, Inc. -- 3,897
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, 18,750,000 shares authorized;
8,256,065 and 8,236,926 shares issued at March 31, 1999
and December 31, 1998, respectively 8,256 8,237
Additional paid-in capital 67,168,838 66,423,577
Treasury stock, at cost (633,816 and 625,816 shares held at
March 31, 1999 and December 31, 1998, respectively) (2,279,238) (2,270,238)
Accumulated deficit (52,748,955) (49,473,028)
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Total stockholders' equity 12,148,901 14,688,548
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Total liabilities and stockholders' equity $ 13,969,079 $ 16,641,568
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See accompanying notes.
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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Ended March 31,
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1999 1998
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(restated)
Revenues:
Net sales $ 202,040 $ 217,965
Interest income 176,109 136,800
Grant income 27,461 --
Other 49,769 85,165
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455,379 439,930
Expenses:
Cost of sales 80,677 73,184
Research and development 2,358,061 1,034,438
Selling, general and administrative 1,200,873 510,826
Interest -- 123,040
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3,639,611 1,741,488
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Loss from continuing operations (3,184,232) (1,301,558)
Income (loss) from discontinued operations (95,592) 370,779
Minority interest in discontinued operations (3,897) (63,256)
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Net loss $(3,275,927) $ (867,523)
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Basic and diluted income (loss) per common share:
Continuing operations $ (0.42) $ (0.17)
Discontinued operations (0.01) 0.05
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Net loss $ (0.43) $ (0.12)
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Basic and diluted weighted average shares outstanding 7,623,394 7,516,319
See accompanying notes.
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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Month Period Ended March 31,
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1999 1998
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Cash flows from operating activities:
Net loss $(3,275,927) $ (867,523)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 29,760 161,206
Stock option expense 726,621 --
Gain on sale of business -- (831,038)
Minority interest in net loss of subsidiary (3,897) (63,256)
Net change in assets and liabilities (214,498) 168,402
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Total adjustments 537,986 (564,686)
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Net cash used by operating activities (2,737,941) (1,432,209)
Cash flows from investing activities:
Decrease in short-term investments 6,417,066 --
Capital expenditures, net (182,761) (25,083)
Net proceeds from sale of business -- 1,528,708
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Net cash provided by investing activities 6,234,305 1,503,625
Cash flows from financing activities:
Net proceeds from issuance of common stock 18,659 54,583
Purchase of treasury stock (9,000) --
Redemption of convertible debt -- (400,000)
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Net cash provided (used) by financing activities 9,659 (345,417)
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Net increase (decrease) in cash and cash equivalents 3,506,023 (274,001)
Cash and cash equivalents at beginning of period 8,855,375 5,895,008
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Cash and cash equivalents at end of period $12,361,398 $ 5,621,007
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See accompanying notes.
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CYTRX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
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 lead product is FLOCOR(TM), now in pivotal Phase
III clinical trials for the treatment of acute sickle cell crisis. CytRx is
also developing FLOCOR(TM) for acute respiratory disorders and plans to expand
its development for other vascular disorders such as shock and stroke. CytRx is
also currently engaged in research in the areas of infectious disease, gene and
drug delivery, vaccines, and animal feed additives.
The accompanying condensed consolidated financial statements at March
31, 1999 and for the three month periods ended March 31, 1999 and 1998 include
the accounts of CytRx together with those of its 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, 1998.
Certain prior year amounts have been reclassified to conform to the
1999 financial statement presentation. The operations of Proceutics, Inc.
("Proceutics"), CytRx Animal Health, Inc. ("CytRx Animal Health") (formerly
VetLife, Inc.), and Vaxcel, Inc. ("Vaxcel") are presented as discontinued
operations for all periods presented.
2. SALE OF TECHNOLOGY
In January 1999, Vaxcel entered into an agreement with Innovax
Corporation ("Innovax") giving Innovax the option to purchase the rights to
Vaxcel's PLG microencapsulation technology for an aggregate purchase price of
$600,000. Innovax paid a nonrefundable option fee of $200,000, with an
additional $400,000 due upon the exercise of the option. Innovax also paid a
total of $20,000 for extensions of the option period. On April 1, 1999 Innovax
exercised its option and the rights to such technology were assigned by Vaxcel
to Innovax.
The Company will record this transaction in the second quarter of 1999
as a sale of its Acquired Developed Technology, valued at $600,000, and
therefore will not record a gain or loss
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on the transaction. The $20,000 in option extension fees paid by Innovax is
included in the discontinued operations of Vaxcel in the accompanying Statement
of Operations. The $400,000 due upon exercise of the option was paid on April
1, 1999.
3. SEGMENT REPORTING
Continuing Operations Discontinued Operations
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Total Cattle Total
Research Recruiting Product Continuing Marketing Pharmaceutical Vaccine Discontinued
(in thousands) Products Services Development Operations Operations Services Development Operations
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Three Months Ended March 31, 1999:
Sales to external customers $136 $ 66 $ -- $ 202 $ -- $ -- $ -- $ --
Intersegment sales -- -- -- -- -- -- -- --
Segment profit (loss) 83 (1) (3,266) (3,184) -- -- (92) (92)
Total assets -- -- 13,164 13,164 -- -- 805 805
Three Months Ended March 31, 1998:
Sales to external customers 117 101 -- 218 3,790 407 -- 4,197
Intersegment sales -- -- -- -- -- 143 -- 143
Segment profit (loss) 60 21 (1,383) (1,302) (120) 996 (442) 434
Total assets -- -- 5,395 5,395 7,670 4,669 4,877 17,216
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Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At March 31, 1999 the Company had cash and cash equivalents and
short-term investments of $12.4 million and net assets of $12.1 million,
compared to $15.3 million and $14.7 million, respectively, at December 31,
1998. Working capital totaled $11.1 million at March 31, 1999, compared to
$13.7 million at December 31, 1998.
Management believes that cash and cash equivalents on hand, combined
with interest income and operating revenues, will be sufficient to satisfy the
Company's projected liquidity and working capital needs through 1999, but it is
likely that additional funding will be required to complete the necessary
testing and data collection procedures prescribed by the U.S. Food and Drug
Administration ("FDA") for the commercialization of any products for human use.
Definitive statements as to the time required and costs involved in reaching
certain objectives for the Company's products are difficult to project due to
the uncertainties of the medical research field. Requirements could vary
depending upon the results of research, competitive and technological
developments, and the time and expense required for governmental approval of
products, some of which factors are beyond management's control. CytRx
anticipates that it may raise funds through equity offerings. Additional
funding for research and development expenditures may be obtained through joint
ventures and product licensing arrangements with other companies.
During 1997 and 1998, the Company received federal government funding
for certain research and development activities via Small Business Innovative
Research (SBIR) grants. Most recently, in 1998 the Company received a grant
from the U.S. Food and Drug Administration's Division of Orphan Drug
Development to support CytRx's Phase III clinical trial of FLOCOR(TM). This
grant will provide approximately $400,000 over two years, $200,000 of which was
received during 1998, to help defray the overall costs of the study. The
Company intends to continue to seek government assistance for its product
development efforts.
The above statements regarding the Company's plans and expectations
for future financing are forward-looking statements that are subject to a
number of risks and uncertainties. The Company's ability to obtain future
financings through joint ventures, product licensing arrangements, equity
financings or otherwise is subject to market conditions and the Company's
ability to identify parties that are willing and able to enter into such
arrangements on terms that are satisfactory to the Company. There can be no
assurance that the Company will be able to obtain future financing from these
sources. Additionally, depending upon the outcome of the Company's fund raising
efforts via its subsidiaries discussed above, the accompanying financial
information may not necessarily be indicative of future operating results or
future financial condition.
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Results of Operations
The Company recorded a net loss of $3,238,000 for the three month
period ended March 31, 1999 as compared to $868,000 for 1998. Loss from
continuing operations was $3,146,000 and $1,302,000 in 1999 and 1998,
respectively.
Net sales from continuing operations, which consist primarily of sales
of TiterMax research adjuvant and service revenues from Spectrum Recruitment
Research, were $202,000 and $218,000 during the three months ended March 31,
1999 and 1998, respectively. Cost of product sales and service revenues was
$81,000 in 1999 versus $73,000 in 1998.
Interest income from continuing operations was $176,000 and $137,000
during the three months ended March 31, 1999 and 1998, respectively. The
variance between years generally corresponds to fluctuating cash and investment
balances. Grant income was $27,000 in 1999 versus $-0- in 1998. Other income
was $50,000 and $85,000 in 1999 and 1998, respectively, and relates to
administrative and facilities costs allocated by CytRx to its discontinued
subsidiaries. The related costs are included in selling, general and
administrative expenses. The decrease from 1998 to 1999 is reflective of the
discontinuance of the Proceutics and CytRx Animal Health operations in early
1998.
Research and development expenditures from continuing operations were
$2,358,000 and $1,034,000 during the three months ended March 31, 1999 and
1998, respectively. Research and development expenditures have increased
primarily as a result of the Company's development activities for FLOCOR(TM),
including the initiation of a pivotal Phase III trial in March 1998. The
Company expects patient enrollment in the Phase III trial to be completed
during the second half of 1999, with the final statistical analysis of the
study completed by the end of 1999.
Selling, general and administrative expense from continuing operations
were $474,000 and $511,000 during the three months ended March 31, 1999 and
1998, respectively. The decrease includes a reduction in administrative staff
requirements as a result of the Company's divestiture of its subsidiary
operations. Interest expense of $123,000 during the three month period ended
March 31, 1998 relates to convertible debentures which were redeemed and/or
converted during 1998. During 1998, the Company granted options and warrants to
certain employees which contain vesting criteria based on stock price
performance. The Company has also granted options and warrants to purchase its
common stock to certain consultants in exchange for consulting services. During
the first quarter of 1999, certain vesting criteria of these options and
warrants were achieved, resulting in an aggregate non-cash charge to
compensation expense and consulting expense of $727,000.
Net income (loss) from discontinued operations, net of minority
interest, was $(92,000) and $434,000 during the three months ended March 31,
1999 and 1998, respectively. The operations of Proceutics and CytRx Animal
Health were sold during 1998, thus the results of their operations have been
presented as discontinued operations. During 1998, the Company adopted
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a plan to dispose of the research and development activities of Vaxcel and has
also presented its results of operations as discontinued operations. The
following table presents the breakdown of income (loss) from discontinued
operations:
Three Months Ended March 31,
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1999 1998
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Vaxcel, net of minority interest $ (92,000) $(443,000)
Proceutics -- 996,000
CytRx Animal Health -- (119,000)
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Income (loss) from discontinued operations $ (92,000) $ 434,000
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Year 2000 Issue
The term "Year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
is approached and reached. These problems generally arise from the fact that
most of the world's computer hardware and software have historically used only
two digits to identify the year in a date, often meaning that the computer will
fail to distinguish dates in the "2000's" from dates in the "1900's." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field.
There have been no changes in the Company's state of readiness or
contingency plans from that disclosed in its Annual Report on Form 10-K for the
year ended December 31, 1998. No costs have been incurred related to the Year
2000 Issue for the three months ended March 31, 1999.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
The have been no changes in the Company's assessment of its market risk
from that disclosed in its Form 10-K for the year ended December 31, 1998.
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PART II-- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
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27.1 Financial Data Schedule (for SEC use only)
27.2 Financial Data Schedule (Restated 1998) (for SEC use only)
(b) 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.
CYTRX CORPORATION
(Registrant)
Date: May 13, 1999 By: /s/ Mark W. Reynolds
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Mark W. Reynolds
Chief Financial Officer
(Chief Accounting Officer
and a duly authorized officer)
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