The following discussion and analysis of our financial condition and results of
operations should be read together with the discussion under "Selected Financial
Data" and our consolidated financial statements included in this Annual Report.
This discussion contains forward-looking statements, based on current
expectations and related to future events and our future financial performance,
that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
important factors, including those set forth under the caption "Risk Factors"
and elsewhere in this Annual Report.
Overview
CytRx Corporation
CytRx Corporation ("CytRx") is a biopharmaceutical research and development
company specializing in oncology and rare diseases. The Company's focus has been
on the discovery, research and clinical development of novel anti-cancer drug
candidates that employ novel linker technologies to enhance the accumulation and
release of cytotoxic anti-cancer agents at the tumor. During 2017, CytRx's
discovery laboratory, located in Freiburg, Germany, synthesized and tested over
75 rationally designed drug conjugates with highly potent payloads, culminating
in the creation of two distinct classes of compounds. Four lead candidates
(LADR-7 through LADR-10) were selected based on in vitro and animal preclinical
studies, stability, and manufacturing feasibility. In 2018, additional animal
efficacy and toxicology testing of these lead candidates was conducted. In
addition, a novel albumin companion diagnostic, ACDx™, was developed to identify
patients with cancer who are most likely to benefit from treatment with these
drug candidates.
39
On June 1, 2018, CytRx launched Centurion BioPharma Corporation ("Centurion"), a
private subsidiary, and transferred all of its assets, liabilities and personnel
associated with the laboratory operations in Freiburg, Germany. In connection
with said transfer, the Company and Centurion entered into a Management Services
Agreement whereby the Company agreed to render advisory, consulting, financial
and administrative services to Centurion, for which Centurion shall reimburse
the Company for the cost of such services plus a 5% service charge. The
Management Services Agreement may be terminated by either party at any time.
Centurion is focused on the development of personalized medicine for solid tumor
treatment. On December 21, 2018, CytRx announced that Centurion had concluded
the pre-clinical phase of development for its four LADR™ drug candidates, and
for its albumin companion diagnostic (ACDx™). As a result of completing this
work, operations taking place at the pre-clinical laboratory in Freiburg,
Germany would no longer be needed and, accordingly, the lab was closed at the
end of January 2019.
We are a Delaware corporation, incorporated in 1985. Our corporate offices are
located at 11726 San Vicente Boulevard, Suite 650, Los Angeles, California
90049, and our telephone number is (310) 826-5648. Our web site is located at
http://www.cytrx.com. We do not incorporate by reference into this Annual Report
the information on, or accessible through, our website, and you should not
consider it as part of this Annual Report.
LADR Drug Discovery Platform and Centurion
Centurion's LADR™ (Linker Activated Drug Release) technology platform is a
discovery engine combining our expertise in linker chemistry and albumin biology
to create a pipeline of anti-cancer molecules that will avoid unacceptable
systemic toxicity while delivering highly potent agents directly to the tumor.
They have created a "toolbox" of linker technologies that have the ability to
significantly increase the therapeutic index of ultra-high potency drugs
(10-1,000 times more potent than traditional cytotoxins) by controlling the
release of the drug payloads and improving drug-like properties.
Centurion's efforts were focused on two classes of ultra-high potency
albumin-binding drug conjugates. These drug conjugates combine the proprietary
LADR™ linkers with novel derivatives of the auristatin and maytansinoid drug
classes. These payloads historically have required a targeting antibody for
successful administration to humans. These drug conjugates eliminate the need
for a targeting antibody and provide a small molecule therapeutic option with
potential broader applicability.
Centurion's postulated mechanism of action for the albumin-binding drug
conjugates is as follows:
? after administration, the linker portion of the drug conjugate forms a rapid
and specific covalent bond to the cysteine-34 position of circulating albumin;
? circulating albumin preferentially accumulates at the tumors, bypassing
concentration in other non-tumor sites, including the heart, liver and
gastrointestinal tract due to a mechanism called "Enhanced Permeability and
Retention";
? once localized at the tumor, the acid-sensitive linker is cleaved due to the
specific conditions within the tumor and in the tumor microenvironment; and
? free active drug is then released into the tumor.
Centurion's novel companion diagnostic, ACDx™ (albumin companion diagnostic),
was developed to identify patients with cancer who are most likely to benefit
from treatment with the four LADR lead assets.
On March 9, 2022, Centurion was merged into the Company.
Business Strategy for LADR™ Platform
Currently, the Company continues to work on identifying partnership or financing
opportunities for LADR™ ultra-high potency drug conjugates and their albumin
companion diagnostic. We have concluded all research and development on LADR and
its companion diagnostic and continue to focus on identifying partnership or
financing opportunities.
Aldoxorubicin
Until July 2017, we were concentrating on the research and clinical development
of aldoxorubicin, our modified version of the widely used cytotoxin agent,
doxorubicin. Aldoxorubicin combines the agent doxorubicin with a novel
linker-molecule that binds specifically to albumin in the blood to allow for
delivery of higher amounts of doxorubicin (3½ to 4 times) without several of the
major dose-limiting toxicities seen with administration of doxorubicin alone.
40
On July 27, 2017, we entered into an exclusive worldwide license with
ImmunityBio, Inc. (formerly known as NantCell, Inc. ("ImmunityBio")), granting
to ImmunityBio the exclusive rights to develop, manufacture and commercialize
aldoxorubicin in all indications. As a result, the Company is no longer working
on development of aldoxorubicin (ImmunityBio merged with NantKwest, Inc. in
March 2021). As part of the license, ImmunityBio made a strategic investment of
$13 million in CytRx common stock at $6.60 per share, a premium of 92% to the
market price on that date. We also issued ImmunityBio a warrant to purchase up
to 500,000 shares of common stock at $6.60, which expired on January 26, 2019.
We are entitled to receive up to an aggregate of $343 million in potential
milestone payments contingent upon achievement of certain regulatory approvals
and commercial milestones. We are also entitled to receive ascending
double-digit royalties for net sales for soft tissue sarcomas and mid to high
single digit royalties for other indications. There can be no assurance that
ImmunityBio will achieve such milestones, approvals or sales with respect to
aldoxorubicin. ImmunityBio has initiated a Phase 2, randomized, three-cohort,
open-label registrational-intent study for first-line and second-line treatment
of locally advanced or metastatic pancreatic cancer, which includes
aldoxorubicin. On October 13, 2021, ImmunityBio announced that the trial's
Cohort C was fully enrolled. In January 2022 at the ASCO Gastrointestinal Cancer
Symposium, they reported that 27% of third-line or greater patients (17/63)
remain on study and that the median overall survival in this highly advanced
group of patients (who failed two to six prior lines of treatment) is 5.8 months
(95% CI: 3.9, 6.9 months) exceeding the approximately three-month historical
median overall survival. Of the 63 patients, 30 (48%) had progressed after two
prior lines of therapy. Median overall survival in this group was 6.3 months
(95% CI: 5.0, 9.8 months), more than doubling the historical overall survival.
(Survival of three months as reported by Manax et al ASCO GI 2019). In Cohort C,
four patients (7%) experienced treatment-related SAEs that included peripheral
edema, pyrexia, anemia and atrial flutter. No treatment-related deaths were
reported. Based on the strength of earlier data and the significant unmet
medical need, ImmunityBio submitted an amendment to the FDA to increase
enrollment in Cohort C and plan to meet with the FDA in 2022 to discuss a
potential path for the approval of combination therapies for pancreatic cancer.
Aldoxorubicin is a conjugate of the commonly prescribed cytotoxin agent
doxorubicin that binds to circulating albumin in the bloodstream and is believed
to concentrate the drug at the site of the tumor. Aldoxorubicin, has been tested
in over 600 patients with various types of cancer. Specifically, it is comprised
of (6-maleimidocaproyl) hydrazine, an acid-sensitive molecule that is conjugated
to doxorubicin. The initial indication for aldoxorubicin was for patients with
advanced soft tissue sarcomas (STS).
Aldoxorubicin has received Orphan Drug Designation (ODD) by the U.S. FDA for the
treatment of STS. ODD provides several benefits, including seven years of market
exclusivity after approval, certain R&D related tax credits, and protocol
assistance by the FDA. European regulators granted aldoxorubicin Orphan
designation for STS, which confers ten years of market exclusivity, among other
benefits.
ImmunityBio also lists ongoing clinical studies in head and neck and
triple-negative breast cancer and has submitted a protocol with the FDA for
glioblastoma; it is currently reviewing its options in STS.
41
Molecular Chaperone Assets (Orphayzme)
In 2011, CytRx sold the rights to arimoclomol and iroxanadine, based on
molecular chaperone regulation technology, to Orphazyme A/S (formerly Orphazyme
ApS) in exchange for a one-time, upfront payment and the right to receive up to
a total of $120 million in milestone payments upon the achievement of certain
pre-specified regulatory and business milestones, as well as royalty payments
based on a specified percentage of any net sales of products derived from
arimoclomol. As a result of Orphazyme's disclosure that the pivotal phase 3
clinical trial for arimoclomol in Amyotrophic Lateral Sclerosis did not meet its
primary and secondary endpoints, the maximum amount that CytRx has the right to
receive is now approximately $100 million. Orphazyme is testing arimoclomol in
Niemann-Pick disease Type C ("NPC") and Gaucher disease. Orphazyme has
highlighted positive Phase 2/3 clinical trial data in patients with NPC and
previously submitted a New Drug Application ("NDA") with the U.S. Food and Drug
Administration (the "FDA"). On June 18, 2021, Orphazyme announced it had
received a Complete Response Letter from the FDA indicating the need for
additional data. In late October 2021, Orphazyme announced it held a Type A
meeting with the FDA, at which the FDA recommended that Orphazyme submit
additional data, information and analyses to address certain topics in the
Complete Response Letter and engage in further interactions with the FDA to
identify a pathway to resubmission. The FDA concurred with Orphazyme's proposal
to remove the cognition domain from the NPC Clinical Severity Scale ("NPCCSS")
endpoint, with the result that the primary endpoint is permitted to be
recalculated using the 4- domain NPCCSS, subject to the submission of additional
requested information which Orphazyme has publicly indicated that it intends to
provide. To bolster the confirmatory evidence already submitted, the FDA
affirmed that it would require additional in vivo or pharmacodynamic
(PD)/pharmacokinetic (PK) data. Based on [ ]. Orphazyme is planning to request a
Type C Meeting with the FDA in the second quarter of 2022. Subject to
discussions with the regulatory body, Orphazyme has publicly indicated that it
plans to resubmit the NDA for arimoclomol in the second half of 2022.
Orphazyme had also submitted a Marketing Authorization Application ("MAA") with
the European Medicines Agency (the "EMA"). In February 2022, Orphazyme announced
that although they had received positive feedback from the Committee for
Medicinal Products for Human Use ("CHMP") of the EMA, they were notified by the
CHMP of a negative trend vote on the MAA for arimoclomol for NPC following an
oral explanation. The trend vote indicates that the CHMP's current orientation
is to not approve arimoclomol when it convenes by the end of March 2022.
Orphazyme has publicly indicated that it considers it unlikely that this
position will change before the formal vote is undertaken in April 2022.
Orphazyme will assess its strategic options and provide an update to the market
at the applicable time.
Research and Development
Expenditures for research and development activities related to continuing
operations were $0 in the year ended December 31, 2021 and $0.8 million for the
year ended December 31, 2020 or approximately 0% and 12%, respectively, of our
total expenses.
Research and development expenses are further discussed below under "Critical
Accounting Policies and Estimates" and "Results of Operations."
We do not currently project incurring any material research and development
expenditures in 2022. Should the Company's subsidiary, Centurion BioPharma, be
successful in raising capital to further develop its LADR compounds along with a
companion diagnostic, only then would the Company incur research and development
expenditures.
All of our product candidates in development must be approved by the FDA or
corresponding foreign governmental agencies before they can be marketed. The
process for obtaining FDA and foreign government approvals is both
time-consuming and costly, with no certainty of a successful outcome. A
discussion of these and other risks and uncertainties associated with our
business is set forth in the "Risk Factors" section of this Annual Report.
Research and Development Expenses
Research and development expenses consist of costs incurred for direct and
overhead-related research expenses and are expensed as incurred. Costs to
acquire technologies, including licenses, that are utilized in research and
development and that have no alternative future use are expensed when incurred.
Technology developed for use in our product candidates is expensed as incurred
until technological feasibility has been established.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates its
estimates, including those related to stock options, impairment of long-lived
assets, including accrued liabilities and certain expenses. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
materially from these estimates under different assumptions or conditions.
Our significant accounting policies are summarized in Note 2 of the Notes to
Consolidated Financial Statements included in this Annual Report. We believe the
following critical accounting policies are affected by our more significant
judgments and estimates used in the preparation of our consolidated financial
statements:
42
Clinical Trial Expenses
Clinical trial expenses, which are included in research and development
expenses, include obligations resulting from our contracts with various contract
research organizations, or CROs, in connection with conducting clinical trials
of our product candidates. We recognize expenses for these activities based on a
variety of factors, including actual and estimated labor hours, clinical site
initiation activities, patient enrollment rates, estimates of external costs and
other activity-based factors. We believe that this method is the best measure of
the efforts expended on a clinical trial with the expenses we record. We adjust
our rate of clinical expense recognition if actual results differ from our
estimates. If our estimates prove to be incorrect, clinical trial expenses
recorded in any particular period could vary.
Stock-based Compensation
The fair value of the Company's stock option and restricted stock grants is
estimated using the Black-Scholes-Merton Option Pricing model, which uses
certain assumptions related to risk-free interest rates, expected volatility,
expected life of the stock options or restricted stock, and future dividends.
Compensation expense is recorded based upon the value derived from the
Black-Scholes-Merton Option Pricing model and based on actual experience. The
assumptions used in the Black-Scholes-Merton Option Pricing model could
materially affect compensation expense recorded in future periods.
Basic and Diluted Net Loss Per Share of Common Stock
Basic and diluted net loss per share of common stock is computed based on the
weighted-average number of shares of common stock outstanding. for the period.
Diluted net income (loss) per share is computed by dividing the net income
(loss) applicable to common stockholders by the weighted average number of
shares of common stock outstanding plus the number of additional shares of
common stock that would have been outstanding if all dilutive potential common
stock had been issued using the treasury stock method. Potential shares of
common stock are excluded from the computation when their effect is
antidilutive. Common stock equivalents that could potentially dilute net loss
per share in the future, and which were excluded from the computation of diluted
loss per share, were as follows:
43
As of December 31,
2021 2020
Options to acquire common stock 2,827,829 3,162,700
Warrants to acquire common stock 4,167 193,196
Convertible preferred stock 9,363,637 -
Preferred Investment option 11,363,637 -
23,559,270 3,355,896
Liquidity and Capital Resources
Going Concern
The Company's consolidated financial statements have been presented on the basis
that it will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. During
the year ended December 31, 2021, the Company incurred a net loss of
$13,176,663, utilized cash in operations of $12,308,890, and the Company had an
accumulated deficit of $484,075,711 as of December 31, 2021. In addition, the
Company has no recurring revenue. As a result, management has concluded that
there is substantial doubt about the Company's ability to continue as a going
concern. The Company's consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In order to fund our business and operations, we have relied primarily upon
sales of our equity securities, including proceeds from the exercise of stock
options and common stock purchase warrants and long-term loan financing. We also
have received limited funding from our strategic partners and licensees. We will
ultimately be required to obtain additional funding in order to execute our
long-term business plans, although we do not currently have commitments from any
third parties to provide us with long term debt or capital. We cannot assure
that additional funding will be available on favorable terms, or at all. If we
fail to obtain additional funding when needed, we may not be able to execute our
business plans and our business may suffer, which would have a material adverse
effect on our financial position, results of operations and cash flows. We have
approximately $1.3 million of contractual obligations in 2022 and expect to pay
these out of the Company's balance sheet cash. We have no material contractual
obligations beyond 2022.
If ImmunityBio obtains marketing approval and successfully commercializes
aldoxorubicin, we anticipate it will take two years, and possibly longer, for us
to generate significant recurring revenue, and we will be dependent on future
financing until such time, if ever, as we can generate significant recurring
revenue. There are also no certainties that Orphazyme will be successful in
obtaining FDA and EMA approval for arimoclomol or choose to commercialize
arimoclomol. We have no commitments from third parties to provide us with any
additional financing, and we may not be able to obtain future financing on
favorable terms, or at all. Failure to obtain adequate financing would adversely
affect our ability to operate as a going concern. If we raise additional funds
by issuing equity securities, dilution to stockholders may result and new
investors could have rights superior to some or all of our existing equity
holders. In addition, debt financing, if available, may include restrictive
covenants. If adequate funds are not available to us, we may have to liquidate
some or all of our assets or to delay or reduce the scope of or eliminate some
portion or all of our development programs or clinical trials.
Discussion of Operating, Investing and Financing Activities
Cash Flows from Operating Activities
Net cash used in operating activities for the year ended December 31, 2021 was
$12.3 million, which was primarily the result of a net loss from operations of
$13.2 million, offset by $0.9 million in net cash inflows associated with
changes in assets and liabilities. The net cash inflows associated with changes
in assets and liabilities were primarily due to increases of $0.9 million of
accrued expenses and other current liabilities, $0.2 million of amortization of
right-of-use asset and $0.1 million of insurance receivable, offset by
reductions of $0.2 million of prepaid expenses and other current assets and $0.2
million of decrease in lease liabilities.
Net cash used in operating activities for the year ended December 31, 2020 was
$6.1 million, which was primarily the result of a net loss from operations of
$6.7 million, offset by $0.2 million of adjustments associated with changes in
assets and liabilities. The net cash inflows associated with changes in assets
and liabilities were primarily due to increases of $0.2 million in accounts
payable, $0.2 million of amortization of right-of-use asset, offset by
reductions of $0.1 million of prepaid expenses and other current assets and $0.1
million of decrease in lease liabilities. We also recognized stock based
compensation expense of $-0.3 million.
44
Cash Flows from Investing Activities
We purchased $7,000 of fixed assets in the year ended December 31, 2021 and
$25,000 of fixed assets in the year ended December 31, 2020, and do not expect
any significant capital spending during the next 12 months.
Cash Flows from Financing Activities
Net cash provided by financing activities for the year ended December 31, 2021
was $9.1 million, $9.2 million of which is related to the sale of our common
stock, Series C 10% Convertible Preferred Stock and preferred investment options
described in Note 2 of our audited financial statements contained in this Annual
Report and $0.1 million from the exercise of stock options, offset slightly by
$0.2 million paid in respect of preferred stock dividend. In the year December
31, 2020, stock options were exercised, resulting in a cash infusion of $39,000.
The registration rights agreement entered into between us and the Investor on
July 13, 2021, contains a triggering event which would require us to pay to any
holder of the Preferred Stock an amount in cash, as partial liquidated damages
and not as a penalty, equal to the product of 2.0% multiplied by the aggregate
subscription amount paid by such holder for shares of Series C Preferred Stock
pursuant to the Purchase Agreement; provided, however, that such partial
liquidated damages shall not exceed 24% of the aggregate subscription amounts
paid by such holders pursuant to the Purchase Agreement or $1,977,600. If we
fail to pay any partial liquidated damages within seven days after the date
payable, we will be required to pay interest on any such amounts at a rate equal
to the lesser of 18% per annum or the maximum rate permitted by applicable law.
We have been subject to the payment of such partial liquidated damages since
September 2021. See "Results of Operations - Liquidated Damages".
We continue to evaluate potential future sources of capital, as we do not
currently have commitments from any third parties to provide us with additional
capital and we may not be able to obtain future financing on favorable terms, or
at all. The results of our technology licensing efforts and the actual proceeds
of any fund-raising activities will determine our ongoing ability to operate as
a going concern. Our ability to obtain future financings through joint ventures,
product licensing arrangements, royalty sales, equity financings, grants 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. Depending upon the outcome of our fundraising efforts, the
accompanying financial information may not necessarily be indicative of our
future financial condition. Failure to obtain adequate financing would adversely
affect our ability to operate as a going concern.
There can be no assurance that we will be able to generate revenues from our
product candidates and become profitable. Even if we become profitable, we may
not be able to sustain that profitability.
Results of Operations
We incurred a net loss of $13.2 million and $6.7 million for the years ended
December 31, 2021 and 2020, respectively.
During the years ended December 31, 2021 and 2020, we recognized no service
revenue and earned an immaterial amount of license fees and grant revenue. All
future licensing fees under our current licensing agreements are dependent upon
successful development milestones being achieved by our licensees
Due to the nature of research and development, our operating results may
fluctuate from period to period, and the results of prior periods should not be
relied upon as predictive of the results in future periods.
Research and Development from Continuing Operations
Research expenses are expenses incurred by us in the discovery of new
information that will assist us in the creation and the development of new drugs
or treatments. Development expenses are expenses incurred by us in our efforts
to commercialize the findings generated through our research efforts.
We incurred no research and development expenses during the year ended December
31, 2021 and research and development expenses of $800,000 during the year ended
December 31, 2020.
45
General and Administrative
Year Ended December 31,
2021 2020
(In thousands)
General and administrative expenses $ 5,966 $ 5,673
Employee stock and stock option expense
- 328
Total $ 5,966 $ 6,001General and administrative expenses include all administrative salaries and
general corporate expenses, including legal expenses associated with the
prosecution of our intellectual property. Our general and administrative
expenses, excluding common stock, stock options and warrants issued, were $6.0
million and $5.7 million in the years ended December 31, 2021 and 2020,
respectively.
From time to time, we issue shares of our common stock or warrants or options to
purchase shares of our common stock to consultants and other service providers
in exchange for services. For financial statement purposes, we value these
shares of common stock, stock options, and warrants at the fair value of the
common stock, stock options or warrants granted, or the services received
whichever we can measure more reliably. In the years ended December 31, 2021 and
2020, we had no such expense. We recorded employee stock option expense of $0
and $0.3 million in the years ended December 31, 2021 and 2020, respectively.
Settlement with former Chief Executive Officer
On January 3, 2022, in connection with the Separation Agreement, Steven A.
Kriegsman, who served as the Chairman and Chief Executive Officer of CytRx
Corporation, departed from his roles as an officer of the Company and the
Chairman of the Company's board of directors, Mr. Kriegsman's departure as
Chairman of the Board was not in connection with any disagreement between Mr.
Kriegsman and the Company, its management, the Board or any committee of the
Board on any matter relating to the Company's operations, policies or practices,
or any other matter.
In connection with the execution of the Separation Agreement, Mr. Kriegsman's
existing executive employment agreement, as amended (the "Prior Employment
Agreement"), was terminated; provided, however, that certain surviving customary
confidentiality provisions and milestone and royalty payments as defined in the
Prior Employment Agreement remain in full force and effect. Pursuant to the
Prior Employment Agreement and the Separation Agreement, Mr. Kriegsman received
a lump sum cash payment equal to approximately $6.0 million.
Depreciation and Amortization
Depreciation and amortization expenses for the years ended December 31, 2021 and
2020 were approximately $14,000 and $29,000, respectively. The depreciation
expense reflects the depreciation of our equipment and furnishings.
Liquidated Damages
On July 13, 2021, the Company entered into a Securities Purchase Agreement (the
"Purchase Agreement") with a single institutional investor (the "Investor") for
aggregate gross proceeds of $10 million and net proceeds of approximately $9.2
million. The transaction closed on July 16, 2021. Under the Purchase Agreement,
the Company sold and issued (i) 2 million shares of its common stock at a
purchase price of $0.88 per share for total gross proceeds of approximately
$1.76 million in a registered direct offering (the "Registered Direct Offering")
and (ii) 8,240 shares of Preferred Stock at a purchase price of $1,000 per
share, for aggregate gross proceeds of approximately $8.24 million, in a
concurrent private placement (the "Private Placement" and, together with the
Registered Direct Offering, the "July 2021 Offerings"). The shares of the
Preferred Stock are convertible, upon shareholder approval as described below,
into an aggregate of up to 9,363,637 shares of common stock at a conversion
price of $0.88 per share. CytRx also issued to the Investor an unregistered
preferred investment option (the "Preferred Investment Option") that allows for
the purchase of up to 11,363,637 shares of common stock for additional gross
proceeds of approximately $10 million if the Preferred Investment Option is
exercised in full. The Preferred Investment Option has a term equal to five and
one-half years commencing upon the Company increasing its authorized common
stock following shareholder approval.
46
In connection with the July 2021 Offerings, the Company entered into a
registration rights agreement, dated as of July 13, 2021 (the "Registration
Rights Agreement"), with the investor named therein, pursuant to which the
Company will undertake to file, within five calendar days of the date of the
filing of the proxy statement seeking the Stockholder Approval, a resale
registration statement to register the shares of common stock issuable upon: (i)
the conversion of the Preferred Stock sold in the Private Placement and (ii) the
exercise of the Preferred Investment Option (collectively, the "Registrable
Securities"); and to cause such registration statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event no later than 75 days following the pricing date of this offering,
or no later than 105 days following such date in the event of a "full review" by
the SEC, and shall use its reasonable best efforts to keep such registration
statement continuously effective under the Securities Act until the date that
all Registrable Securities covered by such registration statement have been sold
or are otherwise able to be sold pursuant to Rule 144.
The Registration Rights Agreement provides for liquidated damages to the extent
that the Company does not file or maintain a registration statement in
accordance with the terms thereof. The Registration Rights Agreement contains a
triggering event which would require us to pay to any holder of the Preferred
Stock an amount in cash, as partial liquidated damages and not as a penalty, on
a monthly basis equal to the product of 2.0% multipled by the aggregate
subscription amount paid by such holder for shares of Preferred Stock pursuant
to the Purchase Agreement; provided, however, that such partial liquidated
damages shall not exceed 24% of the aggregate subscription amounts paid by such
holders pursuant to the Purchase Agreement, or $1,977,600. If we fail to pay any
partial liquidated damages within seven days after the date payable, we will be
required to pay interest on any such amounts at a rate equal to the lesser of
18% per annum or the maximum rate permitted by applicable law.
The Company was required to hold a special shareholders meeting to approve an
increase in authorized common shares to allow for conversion of preferred
shares. At the first such meeting, held on September 23, 2021, the proposal was
not approved by shareholders. On March 15, 2022,the Company held a special
meeting of stockholders, which was originally opened and subsequently adjourned
on September 23, 2021, at which meeting the Company's stockholders, by an
affirmative vote of the majority of the Company's outstanding shares of capital
stock, approved the amendment to the Company's Restated Certificate of
Incorporation to effect an increase in the number of shares of authorized common
stock, par value $0.001 per share, from 41,666,666 shares to 62,393,940 shares,
and to make a corresponding change to the number of authorized shares of capital
stock in order to comply with the Company's contractual obligations under a
securities purchase agreement entered into on July 13, 2021 (the "Authorized
Share Increase Amendment"). The number of shares of authorized preferred stock
of the Company remains unchanged.
On March 15, 2022, the Company filed a Certificate of Amendment to Restated
Certificate of Incorporation with the Secretary of State of Delaware to effect
the Authorized Share Increase Amendment.
Since the proposal was not approved on September 23, 2021, the Company was
liable for liquidated damages in the monthly amount of $164,800, up to a maximum
of approximately $2 million, or twelve-monthly payments. In 2021, the Company
made three monthly payments and has accrued additional payments through March
15, 2022, of $615,000, for a total of approximately $1.1 million On March 15,
2022, the necessary proposal was approved by the shareholders and it is
anticipated that there will no longer be any further liquidated damages beyond
the end of March 2022. There were no such payments in 2020.
Interest Income
Interest income was $17,000 in the year ended December 31, 2021 and $0.1 million
in the year ended December 31, 2020. The variance between years is attributable
primarily to the amount of funds available for investment each year and, to a
lesser extent, changes in prevailing market interest rates.
Known Trends, Events and Uncertainties
The future events that would have the most material impact on the Company relate
to the Registration Rights Agreement the Company entered into on July 13, 2021,
whereby we are required to pay as partial liquidated damages an amount not to
exceed $1,977,600 up until the Company has and maintains an effective
registration statement in accordance with the terms of the Registration Rights
Agreement. It is anticipated however that there will be no further payments due
beyond the end of March 2022. In addition, under the terms of the Securities
Purchase Agreement entered into on July 13, 2021, we are required to pay, on a
quarterly basis, a 10% dividend on the outstanding shares of Series C Preferred
Stock, with an outstanding balance of $8,240,000 as of December 31, 2021.
47
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of
Credit Losses on Financial Instruments ("ASC 326"). The standard significantly
changes how entities will measure credit losses for most financial assets,
including accounts and notes receivables. The standard will replace today's
"incurred loss" approach with an "expected loss" model, under which companies
will recognize allowances based on expected rather than incurred losses.
Entities will apply the standard's provisions as a cumulative-effect adjustment
to retained earnings as of the beginning of the first reporting period in which
the guidance is effective. The standard is effective for interim and annual
reporting periods beginning after December 15, 2019. The adoption of ASU 2016-13
is not expected to have a material impact on the Company's financial position,
results of operations, and cash flows.
Other recent authoritative guidance issued by the FASB (including technical
corrections to the ASC), the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission ("SEC") did not, or are not expected
to, have a material impact on the Company's consolidated financial statements
and related disclosures.
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