<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 December 31, 1995
----------------------------------------------------------
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>
12/31/95 Common stock - $.006 par value 3,221,447
</TABLE>
<PAGE> 2
NASTECH PHARMACEUTICAL COMPANY INC.
DECEMBER 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION: PAGE NO.
<S> <C>
ITEM 1. Balance Sheets as of December 31, 1995
and June 30, 1995 1
Statements of Operations
Six Months and Three Months Ended
December 31, 1995 and 1994 2
Statement of Stockholders' Equity
Years Ended June 30, 1995 and 1994
and the Six Months ended
December 31, 1995 3
Statement of Cash Flows
Six Months Ended December 31, 1995
and 1994 4
Notes to Financial Statements 5 - 6
ITEM 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7 - 9
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>
DECEMBER 31, JUNE 30,
1995 1995
(UNAUDITED) (*)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $420,415 $819,985
Short-Term investments 4,214,708 4,198,869
Royalties receivable 707,604 759,349
Prepaid expenses and sundry 28,132 63,670
------------ ------------
5,370,859 5,841,873
------------ ------------
PROPERTY AND EQUIPMENT 306,428 219,283
Less: Accumulated depreciation and amortization 75,583 45,857
------------ ------------
230,845 173,426
------------ ------------
OTHER ASSETS:
Security deposits 14,500 19,613
------------ ------------
$5,616,204 $6,034,912
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $541,366 565,185
Royalties payable 346,575 368,630
Notes payable 5,852 40,942
Accrued interest payable 18,635 42,966
Accrued expenses and sundry
liabilities 229,956 218,856
Current maturities of long-term debt 183,820 161,186
------------ ------------
1,326,204 1,397,765
------------ ------------
LONG-TERM DEBT - NET OF CURRENT MATURITIES 181,791 348,965
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - par value $.006 per share,
authorized 6,000,000 shares, issued and
outstanding 3,221,447 shares at September 30, 1995
and June 30, 1995, respectively 19,329 19,329
Additional paid-in capital 10,575,159 10,575,159
Accumulated deficit (6,486,279) (6,306,306)
------------ ------------
4,108,209 4,288,182
------------ ------------
$5,616,204 $6,034,912
============ ============
</TABLE>
*The Balance Sheet as of June 30, 1995 has been summarized from the Company's
audited Balance Sheet as of that date.
1
<PAGE> 4
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
License Fee, Royalty and
Research Income $1,521,621 $1,212,448 $703,162 $558,260
Interest Income 125,552 112,839 62,501 58,791
------------ ------------ ------------ ------------
1,647,173 1,325,287 765,663 617,051
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Research and Development 705,384 298,241 422,125 158,259
Royalties 737,773 561,609 346,582 264,640
------------ ------------ ------------ ------------
1,443,157 859,850 768,707 422,899
General and Administrative 361,544 356,070 189,942 197,339
Interest Expense 22,445 19,705 9,339 8,473
------------ ------------ ------------ ------------
1,827,146 1,235,625 967,988 628,711
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (179,973) 89,662 (202,325) (11,660)
PROVISION FOR INCOME TAXES 5,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) ($179,973) $84,662 ($202,325) ($11,660)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT
SHARE ($0.06) $0.03 ($0.06) $0.00
============ ============ ============ ============
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES 3,221,447 3,268,077 3,221,447 3,114,366
============ ============ ============ ============
</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 Six Months Ended December 31, 1995
(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 Loss- Six Months Ended
December 31, 1995 (179,973) (179,973)
---------- ---------- ----------- ------------ ----------
3,221,447 $19,329 $10,575,159 ($6,486,279) $4,108,209
========== ========== =========== ============ ==========
</TABLE>
See accompanying notes to Financial Statements
3
<PAGE> 6
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($179,973) $84,662
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 29,726 11,362
Changes in assets and liabilities:
Royalties receivable 51,745 168,252
Prepaid expenses and sundry 35,538 13,816
Accounts payable (23,819) (9,882)
Royalties payable (22,055) (83,430)
Accrued interest payable (24,331) (10,823)
Accrued expenses and sundry liabilities 11,100 (24,830)
------------ ------------
Net cash provided (used) by operating
activities (122,069) 149,127
------------ ------------
INVESTING ACTIVITIES:
Short-term investments - aquisitions (4,150,442) (5,654,553)
Short-term investments - redemptions 4,134,603 4,408,651
Property, plant and equipment (87,145) (12,017)
Other Assets 5,113 ----
------------ ------------
Net cash provided (used) by investing activities 97,871 (1,257,919)
------------ ------------
FINANCING ACTIVITIES:
Repayment of debt (179,630) (111,696)
Proceeds from sale of common stock ---- 1,699
------------ ------------
Net cash provided (used) by financing activities (179,630) (109,997)
------------ ------------
NET DECREASE IN CASH (399,570) (1,218,789)
CASH - BEGINNING 819,985 3,214,929
------------ ------------
CASH - ENDING $420,415 $1,996,140
============ ============
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)
DECEMBER 31, 1995
(1) General
The accompanying financial information should be read in conjunction
with the 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. For the six and three months ended December 31, 1995
and the three months ended December 31, 1994 the effect of stock
options and warrants is not included because it would be antidilutive.
(5) Income Taxes
At December 31, 1995, the Company has net operating loss
carryforwards of approximately $4,600,000 for income tax purposes,
available to reduce future taxable income, expiring from 1998 through
2011.
Federal income taxes normally provided for the income have been offset
by the effect of the use of the loss carryforwards at December 31,
1994. The income tax provision for the six months ended December 31,
1994 represents the New York State minimum tax on income which does
not allow a deduction for the net operating loss carryforward.
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 of
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
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1994
During the six months ended December 31, 1995, 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
conducted bioavailability and toxicity studies in animals with respect to its
nasal formulation of doxylamine succinate. The company also has been
generating preclinical data in preparation for the submission of an IND for its
nasal formulation of chlorpheniramine maleate.
In the six months ended December 31, 1995, the Company has expended
$705,384 for its preclinical and clinical research and development. This
compares with $298,241 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 $1,521,621 was earned by the Company in
the current six month period as a result of licensing, royalty and research
income. This revenue level reflects a 25.5% increase from revenues of
$1,212,448 in the corresponding prior year period. Interest income earned in
the six months ended December 31, 1995 was $125,552 compared to $112,839 earned
in the six months ended December 31, 1994. The increase is attributable to
changes in interest rates and amounts of excess funds invested. Total revenue
was $1,647,173 and $1,325,287 for the six months ended December 31, 1995 and
1994, respectively.
The Company earned revenues of $1,502,000 from royalties received
from the Bristol-Myers Squibb Company ("BMS") for the six months ended December
31, 1995 ($1,123,000 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 has recognized no earnings as a result of the discontinued
marketing of the Company's non-prescription vitamin B-12 nasal gel by Nature's
Bounty, Inc. ("NB"). This compares to revenues of $67,000 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 six months ended December 31, 1995
to $737,773 from $561,609 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 increased slightly in the
current six month period to $361,544 as compared to $356,070 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 DECEMBER 31, 1995 COMPARED WITH THREE MONTHS ENDED
DECEMBER 31, 1994
The Company has expended $422,125 for its preclinical and clinical
research and development in the current three month period. This compares with
$158,259 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
December 31, 1995 compared to the prior year. Revenue of $703,162 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 26.0% increase from
revenues of $558,260 in the comparable period of the prior fiscal year.
Interest income earned in the three months ended December 31, 1995 was $62,501,
compared to $58,791 earned in the comparable period of the prior fiscal year.
Total revenue was $765,663 and $617,051 for three months ended December 31,
1995 and 1994 respectively.
The Company earned revenues of $708,000 from royalties received from
BMS for the three months ended December 31, 1995 ($529,000 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 B-12 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 December 31,
1995 to $346,582 from $264,640 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 December 31, 1995 to $189,942 as compared to $197,339 in the
comparable period of the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash and cash equivalents of
$420,415 as compared to $819,985 at June 30, 1995. The Company also had
short-term investments of $4,214,708 at December 31, 1995, (compared with
$4,198,869 at June 30, 1995). The combined cash and short-term investments
primarily consisted of the net proceeds of the Company's December, 1993 public
offering. In addition, the Company had royalties receivable of $707,604 at
December 31, 1995 compared to $759,349 at June 30, 1995. The royalties
receivable are principally royalty income from the BMS Agreement.
As of December 31, 1995, the Company had working capital of
$4,044,655. 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 9th day of
February, 1996.
NASTECH PHARMACEUTICAL COMPANY INC.
BY: /s/
------------------------------------
Dr. VINCENT D. ROMEO, President
and Chief Executive Officer
BY: /s/
-------------------------------------
CAROL WENIG, Assistant Secretary,
Treasurer & Assistant Principal
Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 420415
<SECURITIES> 4214708
<RECEIVABLES> 707604
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5370859
<PP&E> 306428
<DEPRECIATION> 75583
<TOTAL-ASSETS> 5616204
<CURRENT-LIABILITIES> 1326204
<BONDS> 181791
0
0
<COMMON> 19329
<OTHER-SE> 4088880
<TOTAL-LIABILITY-AND-EQUITY> 5616204
<SALES> 0
<TOTAL-REVENUES> 1647173
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1443157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22445
<INCOME-PRETAX> (179973)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (179973)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
