<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 September 30, 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:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $.006 par value Nasdaq Small-Cap Market
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>
9/30/96 Common stock - $.006 par value 3,868,005
</TABLE>
<PAGE> 2
NASTECH PHARMACEUTICAL COMPANY INC.
SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION: PAGE NO.
<S> <C>
ITEM 1. Balance Sheets as of September 30, 1996
and June 30, 1996 3
Statements of Operations
Three Months Ended
September 30, 1996 and
September 30, 1995 4
Statement of Stockholders' Equity
Year Ended June 30, 1996
and the Three Months ended
September 30, 1996 5
Statement of Cash Flows
Three Months Ended September 30, 1996
and September 30, 1995 6
Notes to Financial Statements 7 - 8
ITEM 2. Management's Discussion and 9 - 11
Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION:
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities 12
ITEM 3. Defaults Upon Senior Securities 12
ITEM 4. Submission of Matters to a Vote 12
of Security Holders
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE> 3
NASTECH PHARMACEUTICAL COMPANY INC.
BALANCE SHEET (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,327,143 $4,031,252
Short-term investments 5,958,156 3,954,945
Royalties receivable 1,049,031 1,089,966
Prepaid expenses and sundry 102,592 55,370
------------ ------------
8,436,922 9,131,533
------------ ------------
PROPERTY AND EQUIPMENT 397,683 321,154
Less: Accumulated depreciation and amortization 115,614 100,391
------------ ------------
282,069 220,763
------------ ------------
OTHER ASSETS:
Security deposits 14,500 14,500
------------ ------------
$8,733,491 $9,366,796
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $212,215 $499,815
Royalties payable 474,294 521,127
Notes payable 20,109 32,000
Accrued interest payable - - - 33,216
Accrued expenses and sundry liabilities 119,888 359,389
Current maturities of long-term debt 23,625 216,608
------------ ------------
850,131 1,662,155
------------ ------------
LONG-TERM DEBT - NET OF CURRENT MATURITIES 20,881 135,907
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - par value $.006 per share,
authorized 6,000,000 shares, issued and
outstanding 3,868,005 shares and 3,826,433
shares at September 30, 1996 and
June 30, 1996 respectively 23,208 22,959
Additional paid-in capital 13,947,516 13,733,556
Accumulated deficit (6,108,245) (6,187,781)
------------ ------------
7,862,479 7,568,734
------------ ------------
$8,733,491 $9,366,796
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
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<S> <C> <C>
REVENUES
License Fee, Royalty and
Research Income $1,059,213 $818,459
Interest Income 102,447 63,051
----------- ---------
1,161,660 881,510
----------- ---------
COSTS AND EXPENSES
Research and Development 340,613 283,259
Royalties 474,294 391,191
----------- ---------
814,907 674,450
General and Administrative 258,673 168,602
Interest Expense 8,544 13,106
----------- ---------
1,082,124 856,158
----------- ---------
INCOME BEFORE PROVISION
FOR INCOME TAXES 79,536 25,352
PROVISION FOR INCOME TAXES - - - 3000
----------- ---------
NET INCOME $79,536 $22,352
=========== =========
NET INCOME PER COMMON
AND COMMON EQUIVALENT
SHARE $.02 $.01
=========== =========
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES 4,628,238 3,849,776
=========== =========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED JUNE 30, 1996
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE JUNE 30, 1995 3,221,447 $19,329 $10,575,159 ($6,306,306) $4,288,182
Stock issued in connection with exercise
of warrants 605,173 3,631 3,158,396 3,162,027
Fractional shares redeemed in connection
with reverse stock split (187) (1) 1
Net income 118,525 118,525
----------- -------- ------------ ------------ ----------
BALANCE JUNE 30, 1996 3,826,433 22,959 13,733,556 (6,187,781) 7,568,734
Stock issued in connection with exercise
of warrants 41,572 249 213,960 214,209
Net Income 79,536 79,536
----------- -------- ------------ ------------ ----------
BALANCE SEPTEMBER 30, 1996 3,868,005 $23,208 $13,947,516 ($6,108,245) $7,862,479
=========== ======== ============ ============ ==========
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
NASTECH PHARMACEUTICAL COMPANY INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $79,536 $22,352
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 15,223 14,863
Changes in assets and liabilities:
Royalties receivable 40,935 (55,528)
Prepaid expenses and sundry (47,222) 29,720
Accounts payable (287,600) 161,955
Royalties payable (46,833) 22,355
Note payable (11,891) - - -
Accrued interest payable (33,216) (31,703)
Accrued expenses and sundry liabilities (239,501) (39,570)
------------ ------------
Net cash provided (used) by operating
activities (530,569) 124,444
------------ ------------
INVESTING ACTIVITIES:
Property, plant and equipment (76,529) (82,721)
Short-term investments - aquisitions (5,958,156) (2,236,590)
Short-term investments - redemptions 3,954,945 2,239,249
------------ ------------
Net cash used by investing activities (2,079,740) (80,062)
------------ ------------
FINANCING ACTIVITIES:
Repayment of debt (308,009) (158,091)
Exercise of warrants 214,209 - - -
------------ ------------
Net cash used by financing activities (93,800) (158,091)
------------ ------------
NET DECREASE (2,704,109) (113,709)
CASH AND CASH EQUIVALENTS - BEGINNING 4,031,252 819,985
------------ ------------
CASH AND CASH EQUIVALENTS - ENDING $1,327,143 $706,276
============ ============
Supplemental Cash Flow Information:
Interest paid $41,713 $42,946
============ ============
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
NASTECH PHARMACEUTICAL COMPANY INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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, 1996.
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) Public Offering
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 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.
(3) 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.
7
<PAGE> 8
(4) Income Taxes
At September 30, 1996, the Company has net operating loss
carryforwards of approximately $4,200,000 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 effects of the reduction of the valuation allowance at
September 30, 1996 and 1995. The income tax provision for the three
months ended September 30, 1995 represents the New York State minimum
tax on income which formerly did not allow a deduction for the net
operating loss carryforward.
8
<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.
FORWARD-LOOKING STATEMENTS
Some of the statements made in this form 10-QSB are forward-looking in
nature, including but not limited to the Company's business strategy, product
development, plans concerning the commercialization of products, certain
financial information and other statements that are not subject to the future
occurrence of certain events and scientific results, some or all of which are
not predictable or within the Company's control; therefore, actual results may
differ materially from those anticipated in any forward-looking statements.
OVERVIEW
The company is engaged in research and clinical testing activities in
an effort to develop nasally administered forms of phamaceuticals that are
currently available only in oral, injectable or other dosage forms. The
Company's objective is to expand the applications of nasal drug delivery in
the over-the-counter ("OTC") and prescription markets and otherwise become a
leading drug delivery specialist. The Company believes that advantages
associated with the nasal delivery of certain pharmaceuticals include rapid
systemic absorption, lower required dosages and quicker onset of desired
effect. Prior to the marketing of any nasally administered form of a
pharmaceutical agent in the United States, Food and Drug Administration
("FDA") approval must be obtained. A research and development program is
currently in progress with respect to six pharmaceuticals for which the Company
has patent rights for nasal administration.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Revenues Revenues for the three months ended September 30, 1996
increased by $280,000 to $1,162,000, or 31.8% over such revenues for the
similar period in fiscal 1996. This increase was due to increases in license
fee, royalty and research income which for the three months ended September 30,
1996 increased by $241,000 to $1,059,000, or 29.5% , over such income for the
similar period in fiscal 1996. The license fee, royalty and research income
increase primarily was due to royalty income received from Bristol-Myers Squibb
Company ("BMS"), pursuant to a sublicense agreement (the "BMS" Agreement") for
a nasal formulation of Stadol(R)NS(TM), a narcotic analgesic. The increased
revenue associated with the BMS Agreement primarily was due to increased sales
of Stadol NS and improved wholesale pricing of that product. Royalty income
received from the BMS
9
<PAGE> 10
Agreement for the current three month period increased by $171,000 to $966,000,
or 21.5% over such income for the similar period in fiscal 1996.
Interest income for the current three month period increased by
$39,000 to $102,000, or 62.5%, compared to such income for the similar period
in fiscal 1996 due to increased funds invested.
Research and development expense. In the first quarter of fiscal
1997, the Company continued to conduct the pharmaceutical and pharmacological
research and assemble the technical and reference data required to gain
marketing approval from the appropriate regulatory agencies for six new drug
products. Preclinical and clinical research and development expense for the
current three month period increased by $57,000 to $341,000, or 20.1%, over
such expense for the similar period in fiscal 1996. Such increase was due to
the execution of the Company's strategy to accelerate development of its nasal
pharmaceutical formulations.
Royalties Expense Royalties expense for the three months ended
September 30, 1996 increased by $83,000 to $474,000, or 21.2% over such
expense for the similar period in fiscal 1996. Such increase was due to the
increase in royalties paid by the Company to the University of Kentucky
Research Foundation ("UKRF") in connection with the BMS Agreement. Pursuant to
a separate license agreement between the Company and UKRF, the Company pays
UKRF royalties based on royalty income received by the Company under the BMS
Agreement. Accordingly, royalties expense in connection with the BMS Agreement
increases approximately in proportion to royalty income.
General and administrative expense. General and administrative
expense for the three months ended September 30, 1996 increased by $90,000 to
$259,000, or 53.6% over such expense for the three months ended September 30,
1995. As a percentage of revenues, general and administrative expense
increased to 22.3% for current three month period from 19.1% for the similar
period in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's primary sources of liquidity
included cash and cash equivalents and short-term investments of $7.3 million
compared to $8 million at June 30, 1996. These consist primarily of the funds
received from the recent exercise of warrants outstanding and the net proceeds
of the Company's December, 1993 public offering. Royalty income receivable at
June 30, 1996, totaled $1.0 million, principally royalty income pursuant to the
BMS agreement.
As a result of the availability of funds provided by increased revenue
as well as the liquidity provided by the Company's December 1993 public
offering and the exercise of the related warrants, the Company has budgeted an
increase in its research and development efforts and related general and
administrative support.
10
<PAGE> 11
At September 30, 1996, the Company had working capital of $7.6
million. Management anticipates that the net proceeds of the 1993 Offering,
including exercise of warrants, together with cash generated from operations
will provide adequate funds for the Company's anticipated needs, including
working capital, for at least 12 months. Management also believes that cash
provided from operations will be sufficient to satisfy all existing debt
obligations as they mature. Based upon the anticipated future financing
requirements of the Company, management expects that the Company will, from
time to time, engage in additional financings of a character and in amounts to
be determined.
11
<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
12
<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 30th day of October,
1996.
NASTECH PHARMACEUTICAL COMPANY INC.
BY: /s/ Dr. Vincent D. Romeo
------------------------------------------
Dr. VINCENT D. ROMEO, President
and Chief Executive Officer
BY: /s/ Joel Girsky
------------------------------------------
JOEL GIRSKY, Secretary, Treasurer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1327143
<SECURITIES> 5958156
<RECEIVABLES> 1049031
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8436922
<PP&E> 397683
<DEPRECIATION> 115614
<TOTAL-ASSETS> 8733491
<CURRENT-LIABILITIES> 850131
<BONDS> 20881
0
0
<COMMON> 23208
<OTHER-SE> 7839271
<TOTAL-LIABILITY-AND-EQUITY> 8733491
<SALES> 0
<TOTAL-REVENUES> 1161660
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 814907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8544
<INCOME-PRETAX> 79536
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79536
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
