<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB
Quarterly or Transitional Report
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
----------------------------------------------------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-13789
NASTECH PHARMACEUTICAL COMPANY INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2658569
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
45 Davids Drive, Hauppauge, New York 11788
- ------------------------------------ -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 273-0101
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- ----------------
<S> <C>
Common Stock, $.002 par value Nasdaq Small-Cap Market
</TABLE>
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
-------- ---------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
DATE CLASS SHARES OUTSTANDING
---- ----- ------------------
<S> <C> <C>
3/31/96 Common stock - $.006 par value 3,221,447
</TABLE>
<PAGE> 2
NASTECH PHARMACEUTICAL COMPANY INC.
MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION: PAGE NO.
<S> <C>
ITEM 1. Balance Sheets as of March 31, 1996
and June 30, 1995 1
Statements of Operations
Nine Months and Three Months Ended
March 31, 1996 and 1995 2
Statement of Stockholders' Equity
Years Ended June 30, 1995 and 1994
and the Nine Months ended
March 31, 1996 3
Statement of Cash Flows
Nine Months Ended March 31, 1996
and 1995
Notes to Financial Statements 5 - 6
ITEM 2. Management's Discussion and 7 - 9
Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION:
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote 10
of Security Holders
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
<PAGE> 3
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, JUNE 30,
1996 1995
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $318,069 $819,985
Short-Term investments 4,217,299 4,198,869
Royalties receivable 951,243 759,349
Prepaid expenses and sundry 25,041 63,670
-------------- --------------
5,511,652 5,841,873
-------------- --------------
PROPERTY AND EQUIPMENT 318,106 219,283
Less: Accumulated depreciation and amortization 90,446 45,857
-------------- --------------
227,660 173,426
-------------- --------------
OTHER ASSETS:
Security deposits 14,500 19,613
-------------- --------------
$5,753,812 $6,034,912
============== ==============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $453,813 $565,185
Royalties payable 417,990 368,630
Notes payable - 40,942
Accrued interest payable 25,925 42,966
Accrued expenses and sundry
liabilities 197,515 218,856
Current maturities of long-term debt 198,640 161,186
-------------- --------------
1,293,883 1,397,765
-------------- --------------
LONG-TERM DEBT - NET OF CURRENT MATURITIES 157,411 348,965
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock - par value $.006 per share,
authorized 6,000,000 shares, issued and
outstanding 3,221,447 shares at March 31, 1996
and June 30, 1995, respectively 19,329 19,329
Additional paid-in capital 10,575,159 10,575,159
Accumulated deficit (6,291,970) (6,306,306)
-------------- --------------
4,302,518 4,288,182
-------------- --------------
$5,753,812 $6,034,912
============== ==============
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 4
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES
License Fee, Royalty and
Research Income $2,530,769 $1,917,085 $1,009,148 $704,637
Interest Income 181,605 182,530 56,053 69,691
----------- ----------- ----------- ----------
2,712,374 2,099,615 1,065,201 774,328
----------- ----------- ----------- ----------
COSTS AND EXPENSES
Research and Development 959,118 508,876 253,734 210,635
Royalties 1,155,744 880,239 417,971 318,630
----------- ----------- ----------- ----------
2,114,862 1,389,115 671,705 529,265
General and Administrative 552,043 554,104 190,499 198,034
Interest Expense 31,133 32,560 8,688 12,855
----------- ----------- ----------- ----------
2,698,038 1,975,779 870,892 740,154
----------- ----------- ----------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 14,336 123,836 194,309 34,174
PROVISION FOR INCOME TAXES --- 6,000 --- 1,000
----------- ----------- ----------- ----------
NET INCOME $14,336 $117,836 $194,309 $33,174
=========== =========== =========== ==========
NET INCOME PER COMMON
AND COMMON EQUIVALENT
SHARE --- $0.04 $0.05 $0.01
=========== =========== =========== ==========
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES 3,989,284 3,266,355 3,989,284 3,267,693
=========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
and the Nine Months Ended March 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------------
<S> <C> <C> <C> <C> <C>
BALANCE - June 30, 1993 1,428,723 $8,572 $5,691,150 ($6,434,508) ($734,786)
Stock issued in connection with private
placement at $1.20 per share 200,000 1,200 203,814 205,014
Additional shares issued in
connection with public offering at
$3.75 per share 1,485,000 8,910 4,627,242 4,636,152
Fractional shares redeemed
in connection with reverse
stock split (2,038) (12) (4,988) (5,000)
Net income 207,647 207,647
---------- ---------- ------------ ------------ ------------
BALANCE JUNE 30, 1994 3,111,685 18,670 10,517,218 (6,226,861) 4,309,027
Stock issued in connection with exercise
of stock options 109,999 660 57,940 58,600
Fractional shares redeemed in connection
with reverse stock split (237) (1) 1
Net loss (79,445) (79,445)
---------- ---------- ------------ ------------ ------------
BALANCE JUNE 30, 1995 3,221,447 19,329 10,575,159 (6,306,306) 4,288,182
Net Income - Nine Months Ended
March 31, 1996 14,336 14,336
---------- ---------- ------------ ------------ ------------
3,221,447 $19,329 $10,575,159 ($6,291,970) $4,302,518
========== ========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 6
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $14,336 $117,836
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 44,589 17,043
Changes in assets and liabilities:
Royalties receivable (191,894) 76,636
Prepaid expenses and sundry 38,629 851
Accounts payable (111,372) (61,103)
Royalties payable 49,360 (33,119)
Accrued interest payable (17,041) 1,735
Accrued expenses and sundry liabilities (21,341) (22,992)
------------ ------------
Net cash provided (used) by operating
activities (194,734) 96,887
------------ ------------
INVESTING ACTIVITIES:
Short-term investments - aquisitions (7,349,459) (6,866,004)
Short-term investments - redemptions 7,331,029 5,611,164
Property, plant and equipment (98,823) ---
Other Assets 5,113 (14,999)
------------ ------------
Net cash used by investing activities (112,140) (1,269,839)
------------ ------------
FINANCING ACTIVITIES:
Repayment of debt (195,042) (112,899)
Proceeds from sale of common stock -- 1,699
------------ ------------
Net cash used by financing activities (195,042) (111,200)
------------ ------------
NET DECREASE IN CASH (501,916) (1,284,152)
CASH - BEGINNING 819,985 3,214,929
------------ ------------
CASH - ENDING $318,069 $1,930,777
============ ============
Supplemental Cash Flow Information:
Interest paid $46,796 $29,925
============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 7
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
(1) General
The accompanying financial information should be read in conjunction
with the audited financial statements, including the notes thereto,
for the year ended June 30, 1995.
The information furnished in this report reflects all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair statement of the results
for the interim periods.
(2) Reverse Stock Split and Increase in Authorized Shares
On November 8, 1993 shareholders approved a one for three reverse
split of the common stock of the Company and an increase in the newly
authorized shares to 6,000,000. Numbers of shares and per share data
disclosed herein have been retroactively adjusted to reflect the stock
split for all periods presented.
(3) Public Offering and Private Placement
The Company completed a Public Offering of 742,500 units of common
stock and warrants in Fiscal 1994. The units in the aggregate
consisted of 1,485,000 shares of common stock and 1,485,000 common
stock warrants.
Each Warrant entitles the holder to purchase one share of Common Stock
at a price of $5.50 at any time through December 7, 1996. The
Warrants are subject to redemption by the Company at $.05 per Warrant
on 30 days' prior written notice if the closing bid price for the
Common Stock, as reported on NASDAQ is in excess of $5.63 for 20
consecutive trading days ending within 10 days of the notice of
redemption of the Warrants.
The Company sold to the representative of the underwriter for the
offering at a price of $67.50, warrants to purchase one unit for every
ten units sold in the offering up to an aggregate of 67,500 units at
an exercise price per warrant of $8.25 per Unit (110% of the initial
public offering price per unit), exercisable for a period of four
years commencing December 7, 1994.
The Company had a private placement of 200,000 shares of common stock
on September 14, 1993 resulting in net proceeds to the Company of
$205,000. The proceeds were used to provide funding for the costs
incurred related to the public offering.
5
<PAGE> 8
The Company is authorized to issue up to 100,000 shares of Preferred
Stock the designations, powers, preferences and rights of which may be
determined, from time to time, by the Company's Board of Directors.
In accordance with its agreement with Basil, the Company may not
declare or pay any dividends.
(4) Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share are calculated using
the weighted average number of common shares outstanding during the
period and the net additional number of shares which would be issuable
upon the exercise of stock options and warrants, assuming that the
Company used the proceeds received to purchase additional shares at
market value.
(5) Income Taxes
At March 31, 1996, the Company has net operating loss carryforwards of
approximately $4,400,000 for income tax purposes, available to reduce
future taxable income, expiring from 1998 through 2010.
Federal income taxes normally provided for the income have been offset
by the effect of the use of the loss carryforwards at March 31, 1996.
The income tax provision for the nine and three months ended March
31, 1995 represents the New York State minimum tax on income which
does not allow a deduction for the net operating loss carryforward.
New York State income taxes are not applicable for the nine months
ended March 31, 1996.
6
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and notes thereto
included elsewhere herein.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996 COMPARED WITH NINE MONTHS ENDED MARCH 31, 1995
During the nine months ended March 31, 1996, the Company continued to
conduct the pharmaceutical and pharmacological research and/or assemble the
technical and reference data required to gain marketing approval from the
appropriate regulatory agencies for four new drug products. The Company
continued to conduct Clinical Phase I testing to optimize a nasal formulation
of doxylamine succinate. The Company also has been generating preclinical data
in preparation for the submission of an IND for its nasal formulations of a
selected group of antihistamines.
During the nine months ended March 31, 1996, the Company has expended
$959,118 for its preclinical and clinical research and development. This
compares with $508,876 expended in the corresponding prior year period. This
increase in research and development activity reflects the Company's commitment
to accelerate its efforts to develop its nasal pharmaceutical formulations and
should be expected to continue.
Proceeds from the sale of the Company's research, and licensing of its
proprietary technology, have significantly increased in the current fiscal year
compared to the prior year. Revenue of $2,530,769 was earned by the Company in
the current nine month period as a result of licensing, royalty, and research
income. This revenue level reflects a 32% increase from revenues of $1,917,085
in the corresponding prior year period. Interest income earned in the nine
months ended March 31, 1996 was $181,605 compared to $182,530 earned in the
nine months ended March 31, 1995. The decrease is attributable to changes in
interest rates and reductions of excess funds invested. Total revenue was
$2,712,374 and $2,099,615 for the nine months ended March 31, 1996 and 1995,
respectively.
The Company earned revenues of $2,353,187 from royalties received from
the Bristol-Myers Squibb Company ("BMS") for the nine months ended March 31,
1996 ($1,783,724 in the corresponding period in fiscal 1995) pursuant to a
sublicense agreement (the "BMS Agreement") for a nasal formulation of
butorphanol, a narcotic analgesic. BMS received marketing approval from the
FDA for butorphanol tartrate, which its markets as Stadol(R)NS(TM), in
December, 1991. Management anticipates that a significant portion of its
revenues for the current fiscal year and some additional periods will be
derived from expected royalties from the BMS Agreement. Royalties from the BMS
Agreement commenced in the quarter ended December 31, 1992 and have increased
since that time
7
<PAGE> 10
based upon sales by BMS of Stadol(R)NS(TM). However, there is no assurance
that such sales will continue to increase or be maintained and therefore, there
is no assurance of any future minimum royalties.
The Company recognized no earnings as a result of the discontinued
marketing of the Company's non-prescription Vitamin B12 nasal gel by Nature's
Bounty, Inc. ("NB"). This compares to revenues of $103,361 earned from this
product in the comparable period of the prior fiscal year. The Company does
not expect any future royalties from NB.
Royalties expense increased in the nine months ended March 31, 1996 to
$1,155,744 from $880,239 in the corresponding period in fiscal 1995 as the
royalties received from BMS are also subject to a separate license agreement
between the Company and a third party. As a result, royalties expense in
connection with Stadol(R)NS(TM) will increase approximately in proportion to
royalty income. General and administrative expenses decreased slightly in the
current nine month period to $552,043 as compared to $554,104 in the
corresponding period of the prior fiscal year.
As a result of the availability of funds provided by increased revenue
as well as the liquidity provided by the December 1993 public offering, the
company has budgeted an increase in its research and development efforts and
related general and administrative support. It is anticipated that as
expenditures for research and development and supporting functions increase,
the Company's net income will be negatively affected.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH QUARTER ENDED MARCH 31, 1995
The Company has expended $253,734 for its preclinical and clinical
research and development in the current three month period. This compares with
$210,635 expended in the comparable period of the prior fiscal year. This
increase in research and development activity reflects the Company's commitment
to accelerate its efforts to develop its nasal pharmaceutical formulations and
should be expected to continue.
Proceeds from the sale of the Company's research, and licensing of its
proprietary technology, have significantly increased in the three months ended
March 31, 1996 compared to the prior year. Revenue of $1,009,148 was earned by
the Company in the current three month period as a result of licensing, royalty
and research income. This revenue level reflects a 43.2% increase from
revenues of $704,637 in the comparable period of the prior fiscal year.
Interest income earned in the three months ended March 31, 1996 was $56,053,
compared to $69,691 earned in the comparable period of the prior fiscal year.
Total revenue was $1,065,201 and $774,328 for three months ended March 31, 1996
and 1995, respectively.
The Company earned revenues of $851,148 from royalties received from
BMS for the three months ended March 31, 1996 ($660,506 in fiscal 1995)
pursuant to the BMS agreement.
8
<PAGE> 11
The Company has recognized no earnings as a result of the discontinued
marketing of the Company's non-prescription vitamin B12 nasal gel by NB. This
compares to revenues of $32,000 earned from this product in the comparable
period of the prior fiscal year.
Royalties expense increased in the three months ended March 31, 1996
to $417,971 from $318,630 in fiscal 1995 as the royalties received from BMS are
also subject to a separate license agreement between the Company and a third
party. As a result, royalties expense in connection with Stadol(R)NS(TM) will
increase in proportion to royalty income.
General and administrative expenses slightly decreased in the three
months ended March 31, 1996 to $190,499 as compared to $198,034 in the
comparable period of the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents of
$318,069 as compared to $819,985 at June 30, 1995. The Company also had
short-term investments of $4,217,299 at March 31, 1996, which primarily
consisted of the net proceeds of the Company's December, 1993 public offering.
In addition, the Company had royalties receivable of $951,243 at March 31, 1996
compared to $759,349 at June 30, 1995. The royalties receivable are
principally royalty income from the BMS Agreement.
As of March 31, 1996, the Company had working capital of $4,217,769.
Management believes that the Company has adequate resources to meet expected
needs and to fund its anticipated research and development efforts for the next
eighteen months. The Company has been able to maintain its operations and its
continued liquidity is dependent on its ability to control its operating costs
and the receipt of revenue from Bristol-Myers Squibb Company as set forth
above.
9
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
10
<PAGE> 13
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, duly authorized at Hauppauge, New York on the 6th day of May,
1996.
NASTECH PHARMACEUTICAL COMPANY INC.
BY: /s/ Dr. VINCENT D. ROMEO
--------------------------------
Dr. VINCENT D. ROMEO, President
and Chief Executive Officer
BY: /s/ CAROL WENIG
-------------------------------
CAROL WENIG, Assistant Secretary,
Treasurer & Assistant Principal
Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> MAR-31-1996
<CASH> 318,069
<SECURITIES> 4,217,299
<RECEIVABLES> 951,243
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,511,652
<PP&E> 318,106
<DEPRECIATION> 90,446
<TOTAL-ASSETS> 5,753,812
<CURRENT-LIABILITIES> 1,293,883
<BONDS> 157,411
0
0
<COMMON> 19,329
<OTHER-SE> 4,283,189
<TOTAL-LIABILITY-AND-EQUITY> 5,753,812
<SALES> 0
<TOTAL-REVENUES> 2,712,374
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,114,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,133
<INCOME-PRETAX> 14,336
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,336
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
