UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1997 Commission File Number 0-23788
------------- -------
XECHEM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3284803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Jersey Avenue, Bldg. B., Suite 310
New Brunswick, New Jersey 08901
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (732) 247-3300
Check whether the registrant (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 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
Number of shares outstanding of the issuer=s common stock, as of August 12, 1997
was 118,829,030 shares.
Transitional Small Business Disclosure Format
Yes No X
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
Page No.
Part I. Financial Information
Item 1. Consolidated Balance Sheet as of June 30, 1997 [Unaudited] 3..4
Consolidated Statements of Operations for the three months and six months
ended June 30, 1997 and 1996 [Unaudited] ................ 5
Consolidated Statement of Stockholders' Equity for the six months ended
June 30, 1997 [Unaudited]................................ 6..7
Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 [Unaudited]....................... 8..9
Notes to Consolidated Financial Statements................ 10..12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................. 13..17
Part II.Other Information ........................................ 17..21
Signatures ...................................................... 22
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997.
[UNAUDITED]
- ------------------------------------------------------------------------------
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 96,105
Inventory 1,746,613
Prepaid Expenses 151,790
Other Current Assets 21,200
---------
Total Current Assets 2,015,708
Equipment, Net of Accumulated
Depreciation of $391,746 998,115
Leasehold Improvements - Net of Accumulated
Amortization of $265,068 721,849
Deposits 22,167
Patent Issuance Costs-Net of Accumulated
Amortization of $22,490 348,436
---------
Total Assets $4,106,275
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997.
[UNAUDITED]
- ------------------------------------------------------------------------------
<S> <C>
Current Liabilities:
Accounts Payable $ 402,874
Accrued Expenses 100,156
Notes Payable - Others 115,000
Loans Payable - Other 246,000
Other Current Liabilities 13,268
---------
Total Current Liabilities 877,298
Commitments and Contingencies --
Stockholders' Equity:
Class A Voting Preferred Stock, $.00001 Par Value, 2,500
Shares Authorized; 2,500 Shares Issued and Outstanding --
Additional Paid-in Capital [Class A Voting Preferred] 2,500
Class B 8% Preferred Stock, $.00001 Par Value, 1,150 Shares
Authorized; None Outstanding --
Common Stock, $.00001 Par Value, 247,000,000
Shares Authorized; 91,507,839 Shares Issued and Outstanding 915
Additional Paid-in Capital [Common] 27,289,189
(Deficit) Accumulated During the Development Stage (24,063,627)
-----------
Total Stockholders' Equity 3,228,977
Total Liabilities and Stockholders' Equity $4,106,275
See Accompanying Notes to Consolidated Financial Statements.
4
</TABLE>
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
- ------------------------------------------------------------------------------
Cumulative
Period from
March 15,
Three months ended Six Months ended 1990 [Date of
June 30, June 30, Inception] to
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6 June 30, 1997
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 11,018 $131,183 $ 14,290 $ 157,751 $ 590,020
--------- -------- ---------- ---------- -----------
Expenses:
Research and Development 503,748 394,303 852,542 761,079 5,489,608
Rent 39,479 33,252 76,966 65,240 508,736
General and Administrative 304,982 409,603 675,804 916,846 5,409,159
--------- -------- ---------- ---------- -----------
Total Expenses 848,209 837,158 1,605,312 1,743,165 11,407,503
--------- -------- ---------- ---------- -----------
(Loss) from Operations (837,191)(705,975) (1,591,022)(1,585,414)(10,817,483)
Other Income 1,734 4,116 4,618 5,609 277,737
Interest (Expense) - Related Party -- (22,121) -- (42,460) (8,589,081)
Interest (Expense) (3,553) (35,871) (6,753) (44,455) (4,911,854)
--------- -------- ---------- ---------- -----------
(Loss) Before Income Taxes (839,010)(759,851) (1,593,157)(1,666,720)(24,040,681)
Income Taxes -- -- -- -- --
--------- -------- ---------- ---------- -----------
Net (Loss) $(839,010)$(759,851)$(1,593,157)$(1,666,720)$(24,040,681)
Preferred Stock Dividends $ -- $ 41,371 $ 233 $ 43,511 $ 101,361
========= ======== ========== ========== ===========
Net (Loss) Available to
Common Stockholders $(839,010)$(801,222)$(1,593,390)$(1,710,231$(24,142,042)
Net (Loss) per Share $ (0.009)$ (0.12) $ (0.021)$ (0.26)
========= ======== ========== ==========
Average Number of Shares
Outstanding 91,507,8396,702,839 74,639,006 6,652,047
=================== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
5
</TABLE>
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
Class A Additional Class B Addl. Class C Class C Addl Xechem, Inc.Xechem Inter Addl. (Deficit)
Voting Prf. Paid in 8% Prf. Paid in Series 1 Series 2 Paid in Common StockCommon Stk Paid in Accumulated
Capital Capital 8% Conv. PrVt Cov.Cap Capital During
# of Par # of Par # of Par # of Par # of Par # of Par Development
Shares Value Clss A Shares Value Clss B Shares Value Shr Value Class C Sh Value Sh Value Common Stage
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock issued in
exchange for equipment in
March 1990 at no par
value $ - -$ - $ -$ - $- - $- -$ 100$ 125,000 -$ $ - $ - -
Capital contributions
April 1990 - - - -- - - - - - - - -- 170,000 -
Net (loss) for the period
from March 15, 1990(date
of inception) to
December 31, 1990 - - - - - - - - - - - - - - (159,271)
------------------------------------------------------------------------------------ ---------------
Balance - December 31,
1990 $- -$ - -$ -$ - -$ - - $ -$ -100$ 125,000$ $ 170,000 (159,271)
Capital contributions
July 1991 $- -$ - -$ -$ - -$ - - $ -$ - - - $ 95,971 -
Capital contributions
September 1991 - -$ -$ - -$ - - $ -$ - - - $ 50,172 -
Capital contributions
October 1991 $- -$ - -$ -$ - -$ - - $ -$ - - - $ 25,000 -
Net (loss) for the year
ended December31, 1991 - - - - - - - - - (357,390) - - - (159,271)
- - - -------------------------------------------------------------------------------------
Balance - December 31,
1991 $- -$ - -$ -$ - -$ - - $ -$ -100$ 125,000$ $ -341,143 (516,661)
Capital contributions $- -$ - -$ -$ - -$ - - $ -$ - - - $ 95,000 -
Net (loss) for the year
ended December31, 1992 - - - - - - - - - - - - - (487,301)
- - - -------------------------------------------------------------------------------------
Balance - December 31,
1992 $- -$ - -$ -$ - -$ - - $ -$ -100$ 125,000$ $ -436,143 (1,003,962)
Net (loss) for the year
ended December31, 1993 - - - - - - - - - - - - - (819,816)
- - - ------------------------------------------------------------------------------- -----
Balance - December 31,
1993 $- -$ - -$ -$ - -$ - - $ -$ -100$ 125,000$ $ -436,143 (1,823,778)
Reorganization 2,500 - 2,500 1,070 -107,000 - - - (100) 125,000 (4,370,500) 13,840,487
Net Proceeds from Initial
Public Offering - First
Quarter
1994, at $5.00 Per Unit
Less Issuance Cost - - - - - - - - - - 1,150,000 12 4,542,670 -
Excess of Fair Market
Value over Option Price
of Non-Qualified Stock
Options-Third quarter1994 - - - - - - - - - 105,000 1 1,049 -
Excess of Fair Market
Value over Option Price
of 50,060
Non-Qualified Stock
Options - Forth Quarter
1994 - - - - - - - - - 105,000 1 -
Net (loss) for the year
ended December 31, 1994 - - - - - - - - - - - - (14,316193)
- - - -------------------------------------------------------------------------------------
Balance - December 31,
1992 2,500$ -$ 2,500 1,070$ -$ 107,000 -$ - - $ $5,730,500 $18,870,409 (16,139,971)
Private Placement -
Common Stock at
$3.00 Per Share, Less
Issuance C0st - - - - - - - - - - - 118,778 2 388,887 -
Excess of Fair Market
Value over Option Price of
Non-Qualified Stock
Options - First quarter
1995 - - - - - - - - - 30,000 - 328,125 -
Excess of Fair Market
Value over Option Price
of Non-Qualified Stock
Options and issuance of
Apotex stock
Second Quarter 1995 - - - - - - - - - - - 674,700 7 980,806 -
Excess of Fair Market
Value over Option Price of
Non-Qualified Stock
Options - Third quarter
1995 - - - - - - - - - 24,500 - (260,612) -
Excess of Fair Market
Value over Option Price
Non-Qualified Stock
Options - Forth Quarter
1995 - - - - - - - - - 5,000 - 40,624 -
Net (loss) for the year
ended December 31, 1995 - - - - - - - - - - - - (3,133,348)
- - - ----------------------------------------------------------------------------------------
Balance - December 31,
1995 - Forward 2,500 - 2,500 $ 1,070 $ - 107,000 $- - $ - $ - 6,583,478 $20,348,239 (19,273,319)
-------------------------------------------------------------------------------------------------------
See Accompanying Notes
to Consolidated Financial
Statements
6
</TABLE>
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
Class A Additional Class B Addl. Class C Class C Addl Xechem, Inc.Xechem Inter Addl. (Deficit)
Voting Prf. Paid in 8% Prf. Paid in Series 1 Series 2 Paid in Common StockCommon Stk Paid in Accumulated
Capital Capital 8% Conv. PrVt Cov.Cap Capital During
# of Par # of Par # of Par # of Par # of Par # of Par Development
Shares Value Clss A Shares Value Clss B Shares Value Shr Value Class C Sh Value Sh Value Common Stage
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31,
1995 2,500 2,500 1,070$ -$ 107,000 $- - $- -$ - $- 6,583,478 $20,348,$39(19,273,319)
Private Placement -Common
Stock at
$3.00 Per Share, Less
Issuance Costs - - - - - - - - - - 163,333 52,784 -
Private Placement -Petron
at $.38- par Share - - - - - - - - - - -260,000 1 100,000 -
Private Placement -
Series 1Preferred Stock
at $100 per Share, Less
Issuance-Cost - - - - 22,500 - - -2,137,500 - 12,500 28,125 -
Private Placement - Series
2 Preferred Stock
at $100 per Share, Less
Issuance-Cost - - - - - -10,000 -882,440 - - - - - -
Conversion of Preferred
Stock - - - - - -(21,000) - - -(1,995,000) - 1,673,583 161,966,840 -
Conversion of Debt to
Equity at $2 Per -share - - - - - - - - - - 1,477,745 15 369,422 -
Excess of Fair Market
Value over Option Price
of
Non-Qualified Stock
Options - Second Quarter
1996 - - - - - - - - - 2,000 4,625 -
Excess of Fair Market
Value over Opt.Price of
Non-Qualified Stock
Options - Third Quarter
1996 - - - - - - - - - -600 - 564 -
Excess of Fair Market
Value over Option Price
of
Non-Qualified Stock
Options - Forth Quarter
1996 - - - - - - - - - 51,600 1 13,205 -
Cancellation of Apotex
Stock - - - - - - - - - - - - (75,000) - -
Ocean Marine Settlement
at$1.31 per Share - - - - - - - - - - 25,000 32,812 -
Net (loss) for the year - - - - - - - - - - - - - - - (3,174,205)
------------ ---
Balance - December 31,
1996 $2,500$ 2,50$1,07$ 107,0001,$00 - 1$,000 $1,024,940 $- 10,17$,839$ 22,916$61(22,447,524)
Private Placement - Series
2 Preferred at $100 per
Share - - -12,500 -1,250,000 - - - - - -
Conversion of Series 1
Preferre- Stock - - - -(1,500) - - -(142,500) - -120,000 1 142,499 -
Conversion of Series 2
Preferre- Stock - - - - - -(22,500) -(2,132,440) - -45,000,004502,131,180 -
Conversion of Dr. Pandey
Preferred Stock an (1,070) (107,000) - - - - - - -21,088,002111,317,797(22,946)
Private Placement - Common
Stock- at -.05 per- Share - - - - - - - - -15,000,00152 749,848 -
Excess of Fair Market
Value over Option Price of
Non-Qualified Stock
Options - - - - - - - - - - - - -125,000 1 31,249 -
Net (loss) for the six
months ende- June 30, 1997 - - - - - - - - - - - - - (1,593,157)
-
Balance - June 30, 1997 $2,500 $ - 2,500 $ - -$- - $ - 91,507,839 915 $27,289,189 (24.063,627)
=========== ======== ========== ======= =================================================================
See Accompanying Notes to Consolidated Financial Statements
7
</TABLE>
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Cumulative
Period From
March 15,
1990 [Date of
Six months ended Inception] to
June 30, June 30
1 9 9 7 1 9 9 6 1 9 97
------- ------- ------
<S> <C> <C> <C>
Operating Activities:
Net (Loss) $(1,593,157$(1,666,720) $(24,040,681)
---------------------- ------------
Adjustments to Reconcile Net (Loss) to Net
Cash
Provided (Used) by Operating Activities:
Depreciation 88,200 60,902 310,251
Amortization 6,000 36,580 394,719
Loss on Sale of Assets -- -- (391)
Interest and Compensation Expense
in Connection with Issuance of Equities 30,000 65,543 14,243,500
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (16,079) (16,751) (14,820)
Inventory (349,708) (246,179) (1,719,378)
Prepaid Expenses (15,639) (6,885) (151,790)
Other Current Assets -- 23,819 (32,720)
Deposits -- (1,650) (22,167)
Organizational Costs -- -- (13,828)
Other Assets -- 2,250 (1,592)
Increase (Decrease) in:
Accounts Payable (201,085) (138,772) 403,739
Accrued Interest Payable 5,578 35,802 90,016
Accrued Expenses (101,838) (32,550) 107,372
Other Current Liabilities 3,863 461 3,863
---------- ---------- -----------
Total Adjustments (550,708) (217,430) 13,596,774
---------- ---------- -----------
Net Cash (Used) by Operating
Activities - Forward (2,143,865)(1,884,150) (10,443,907)
---------- ---------- -----------
Investing Activities:
Patent Issuance Costs (116,886) (74,085) (370,185)
Purchases of Equipment and
Leasehold Improvements (220,496) (173,049) (1,855,907)
Proceeds from Sale of Asset -- -- 26,700
Purchase of Marketable Securities -- -- (1,476,449)
Proceeds from Sale of Marketable Securities -- -- 1,476,449
---------- ---------- -----------
Net Cash (Used) by Investing
Activities - Forward (337,382) (247,134) (2,199,392)
See Accompanying Notes to Consolidated
Financial Statements.
8
</TABLE>
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Cumulative
Period From
March 15,
1990 [Date of
Six months ended Inception] to
June 30, June 30
1 9 9 7 1 9 9 6 1 9 97
------- ------- ------
<S> <C> <C> <C>
Net Cash (Used) by Operating
Activities - Forwarded $(2,143,865$(1,884,150) $(10,443,907)
---------------------- ------------
Net Cash (Used) by Investing
Activities - Forwarded (337,382) (247,134) (2,199,392)
Financing Activities:
Proceeds from Note Payable - Bank -- -- (390,000)
Proceeds from Related Party Loans 155,000 1,294,582
Proceeds from Borrowings Under
Line of Credit -- -- 1,365,000
Proceeds from Notes Payable - Others -- -- 445,000
Proceeds from Interim Loans 241,000 55,000 1,211,295
Proceeds from Bridge Financing -- 120,000 640,000
Capital Contribution -- -- 95,000
Payments on Interim Loans -- (55,000) (305,000)
Payments on Notes Payable - Others -- -- (520,000)
Payment on Stockholder Loans -- -- (207,037)
Payment of Line of Credit -- -- (975,000)
Proceeds from Issuance of
Common Stock 750,000 56,307 5,834,343
Proceeds from Issuance of Class C
Series 1 Preferred Stock -- 2,109,357 2,109,357
Proceeds from Issuance of Class C
Series 2 Preferred Stock 1,249,190 -- 2,131,630
Proceeds from Exercise of Options 1,250 20 10,234
Purchase of Letter of Credit -- (187,500) --
---------- ----------- -----------
Net Cash - Financing Activities 2,241,440 2,253,184 12,739,404
---------- ---------- -----------
Net Increase (Decrease) in Cash
And Cash Equivalents (239,807) 121,900 96,105
Cash and Cash Equivalents - Beginning
of Periods 335,912 125,067 --
--------- ---------- -----------
Cash and Cash Equivalents - End of Periods $ 96,105 $ 246,967 $ 96,105
========== ========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the periods for:
Interest - Related Party $ -- $ 20,641 $ 104,992
Interest - Other $ 1,150 $ 2,347 $ 134,968
Income Taxes $ -- $ -- $ --
See Accompanying Notes to Consolidated
Financial Statements.
9
</TABLE>
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
A total of 125,000 stock options, issued to the holder of notes payable, were
exercised at a nominal price during the six months ended June 30, 1997. The
difference between the fair market value of the Common Stock at the time of
exercise and the amount paid was charged to compensation expense.
As a result of this transaction, the Company=s statement of operations reflects
non-cash interest and compensation expense of $30,000 for the six months ended
June 30, 1997.
See Accompanying Notes to Consolidated Financial Statements.
10
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
[1] Significant Accounting Policies
Significant accounting policies and other matters of Xechem International,
Inc. and its wholly-owned subsidiaries, Xechem, Inc., Xechem
Laboratories, Inc. and XetaPharm, Inc. (collectively the "Company"),
are set forth in the financial statements for and as of the year ended
December 31,1996 ncluded in the Company's Form 10-KSB, as filed with the
Securities and Exchange Commission.
[2] Basis of Reporting
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
such statements include all adjustments (consisting only of normal recurring
item) which are considered necessary for a fair presentation of the
consolidated financial position of the Company at June 30, 1997 and the
consolidated results of its operations for the three months and six months
ended June 30, 1997 and 1996 and for the cumulative period from March 15,
1990 (date of inception) to June 30, 1997 and its cash flows for the six
months ended June 30, 1997 and 1996 and for the cumulative period from March
15, 1990 (date of inception) to June 30, 1997. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company=s Form 10-KSB for the
year ended December 31, 1996. The results of operations for the six month
periods ended June 30, 1997 and 1996 are not necessarily indicative of the
operating results for a full year.
[3] Loss per Share
Loss per share amounts are based on the weighted average number of shares
outstanding. Shares issuable upon the exercise of stock options are excluded
from the computation since the effect on the net loss per common share would
be anti-dilutive. The holders of Class B 8% Preferred Stock and Class C
Series 1 Preferred Stock are entitled to cumulative dividends on the $100 per
share liquidation preference at the rate of 8% per annum payable quarterly.
This dividend has been reflected in the computation of loss per share
available to common stockholders. The Class B 8% Preferred Stock and Class C
Series 1 Preferred Stock were converted in Common Stock in February and
January 1997, respectively.
[4] Capital Transactions
On January 15, 1997, at a Special Meeting of Shareholders, approval was
received to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock from 15,000,000 to 247,000,000
and the Company subsequently amended its Certificate of Incorporation to
reflect the cancellation of all the Series 1, Series 2 and Series 3 Class C
Preferred Stock which had been converted into Common Stock.
On November 18, 1996, the Company entered into and closed the initial stage
of a stock purchase agreement (the "Blech Purchase Agreement") with David
Blech and/or his designees ("Blech") providing for the sale of up to 55,000
shares of Class C Series 2 Voting Cumulative Preferred Stock shares (the
"Series 2 Preferred Shares") for a purchase price of $100 per share
($5,500,000 in the aggregate), or the underlying shares of Common Stock, over
approximately nine months. Subsequent to December 31, 1996, the Blech
Purchase Agreement was amended to modify the closing schedule. Through
December 31, 1996, the Edward A. Blech Trust (the "Trust") purchased 10,000
Series 2 Preferred Shares at a price of $100 per share. In January and
February 1997, the Trust purchased 12,500 Series 2 Preferred Shares for a
price of $100 per share.
11
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
In February 1997, the 22,500 Series 2 Preferred shares owned by the Trust were
converted into 45,000,000 shares of Common Stock at a conversion price of $.05
per common share.
In February 1997, in accordance with the terms of the Blech Purchase Agreement,
Dr. Pandey converted his Class B 8% Preferred Stock, notes receivable, accrued
interest and dividends into 13,180 shares of Class C Series 3 Preferred Shares
for a price of $100 per share. Subsequently, these shares were converted into
21,088,000 shares of Common Stock at a conversion price of $.0625 per common
share.
In March 1997, in accordance with the terms of the Blech Purchase Agreement, two
other trusts, not otherwise affiliated with Blech, each purchased 5,000,000
shares of Common Stock.
In April 1997, under the terms of the Blech Purchase Agreement, David Blech
purchased 5,000,000 shares of Common Stock at a price of $.05 per common share.
[5] Notes Payable - Other
In 1996, an individual made two loans to the Company aggregating to $115,000.
Those loans were evidenced by a ten percent and twelve percent (at simple
interest) promissory note, respectively, each due six months from the date of
the loan. The Company exercised its option to extend the loans for an additional
six months and the interest rate is twelve percent (at simple interest) during
this period on both loans.
[6] Dividends
The Company's Class B and Class C Preferred Stock accrued cumulative dividends
at varying rates. The Company had not declared payment of such accrued
dividends. However, in the conversion and liquidation of the Class B Preferred
Stock into Common Stock as per the Blech Purchase Agreement, Dr. Pandey received
$22,946 in accumulated dividends which were converted into Common Stock.
In June 1997, under the terms of the Blech Purchase Agreement, funds totaling
$241,000 were received from the Trust and two other individuals, not otherwise
affiliated with Blech. These funds were treated as loans payable on the June 30,
1997 financial . Subsequent to June 30, 1997, such funds, together with
additional funds contributed by other persons, were applied to the purchase on
August 1, 1997, of an aggregate of 27,320,000 shares of Common Stock at a price
of $.05 per share, pursuant to the Blech Purchase Agreement.
In July 1997, under the terms of the Blech Purchase Agreement, two investors,
not otherwise affiliated with Blech , purchased 22,500,000 shares of Common
Stock at a price of $.05 per common share. Such purchases were credited
dollar-for-dollar against the aggregate stock purchase obligations under the
Blech Purchase Agreement.
12
<PAGE>
Item 2. Management's Discussion and Analysis
General1
The Company is the holder of all of the capital stock of Xechem, Inc.,
a development stage biopharmaceutical company engaged in the research,
development, and production of generic and proprietary drugs from natural
sources. Xechem, Inc. was formed in March 1990 to acquire substantially all
of the assets of a subsidiary of LyphoMed, Inc.
(later known as Fujisawa/LyphoMed, Inc.), a publicly traded company.
Xechem Laboratories (formed in 1993) and XetaPharm, Inc. (formed in 1996) are
subsidiaries of the Company.
Results of Operations:
The Six Months Ended June 30, 1997 vs. The Six Months Ended June 30, 1996
The following table sets forth certain statement of operations data of the
Company for the cumulative period from inception [March 15, 1990] to June 30,
1997 and for the six month periods ended June 30, 1997 and June 30, 1996.
Cumulative
Six Months Ended Inception to
June 30, June 30,
1997 1996 1997
-------------- -------------- -------------
(In thousands)
-------------- -------------
Revenue $ 14.3 $ 157.8 $ 590.0
Research and development expense $ 852.5 $ 761.1 $ 5,489.6
Rent, general and administrative expen$es 752.8 $ 982.1 $ 5,917.9
(Loss) from operations $(1,591.0) $(1,585.4) $(10,817.5)
- --------
1 Some of the statements included in Item 2, Management Discussion and Analysis,
may be considered to be "forward looking statements" since such statements
relate to matters which have not yet occurred. For example, phrases such as "the
Company anticipates," "believes" or "expects," indicate that it is possible that
the event anticipated, believed or expected may not occur. Should such event not
occur, then the result which the Company expected may also not occur or occur in
a different manner, which may be more or less favorable to the Company. The
Company does not undertake any obligation to publicly release the result of any
revisions to the forward looking statements that may be made to reflect any
future events or circumstances.
13
<PAGE>
The $143,500 decrease in revenue from the six months ended June 30, 1996 to
the six months ended June 30, 1997 was attributable to a decrease in sales of
services and products. Service sales decreased by $80,400 in the six months
ended June 30, 1997 as compared to the six months ended June 30, 1996. This
decrease in services was the result of two non-recurring projects in the 1996
period, as compared to no comparable projects in 1997. Product sales decreased
by $63,100 for the six months ended June 30, 1997 as compared to the same period
in 1996. Sales of paclitaxel for research purposes for the six months ended June
30, 1997 decreased $74,500 as compared with the six months ended June 30, 1996.
The decrease in sales of paclitaxel was partially offset by product sales of
$11,400 by the Company's subsidiary, XetaPharm, which introduced its line of
over-the-counter natural health products, commonly known as nutraceuticals, in
June 1996.
The Company's research and development expenditures continue to emphasize
compounds for generic anticancer, antiviral and antibiotic products which enjoy
significant market demand but are no longer subject to patent protection.
Research and development expenditures increased by $91,400 to $852,500 or 12.0%
for the six months ended June 30, 1997 as compared to the six months ended June
30, 1996. This included expenditures on the development of Company's process for
producing paclitaxel of $269,900, an increase of $5,900 or 2.2% as compared to
the six months ended June 30, 1996. XetaPharm had research and development
expenses of $39,600, a decrease of $14,100 or 26.3%, for the six months ended
June 30, 1997 as compared to the six months ended June 30, 1996.
Research and development costs for bleomycin decreased from $15,100 for the
six months ended June 30, 1996, to zero for the six months ended June 30, 1997.
Other research and development projects, both for customers and in-house
research, increased $114,700, or 26.8% to $543,000 for the six months ended June
30, 1997, which included $58,000 for a new project to develop a cholesterol
lowering compound. The Company anticipates that research and development
expenditures will continue to increase for paclitaxel, as well as the
aforementioned compound and for the development of other anticancer, antiviral
and memory enhancing drugs.
Rent, general and administrative expenses decreased $229,300, or 23.4%, for
the six months ended June 30, 1997 as compared to the six months ended June 30,
1997, due primarily to the one time charge in 1996 of $150,000 for the
settlement of a claim against Dr. Pandey (which the Company was obligated to
finance). Legal and accounting expenses of $204,200 for the six months ended
June 30, 1997 and were $37,300 or 22.4% higher than the $166,900, for the
comparable 1996 period. Other general and administrative costs decreased
$116,600 or 17.5% to $548,600 in 1997 compared to the same period in 1996. This
included general and administrative expenses related to XetaPharm, which
decreased $136,800, from the six months ended June 30, 1996, offset by filing
fees of $35,000 paid to Nasdaq for new stock registrations in the period ended
June 30, 1997.
The Company anticipates that, provided adequate funding is available to
the Company, general and administrative expenses will increase as a result of
expansion of its operations and marketing efforts. The Company's planned
activities will require the addition of new personnel, including management, and
the development of additional expertise in areas such as preclinical testing,
clinical trial management, regulatory affairs, manufacturing and marketing. The
exact number and nature of persons hired, and the Company's expenses for such
persons, will depend on many factors, including the capabilities of those
persons who seek employment with the Company and the availability of funding to
finance these efforts.
The Company's loss from operations totaled $1,591,000, a decrease of
$5,600 for the six months ended June 30, 1997 as compared to the same period in
1996, and is primarily a result of the foregoing.
Interest expense decreased approximately $80,200, or 92.2% to $6,800, in
the six months ended June 30, 1997 as compared to the six months ended June 30,
1996. This reduction was the result of debt to equity conversions of gap
financing loaned to the Company.
Liquidity and Capital Resources; Plan of Operations
14
<PAGE>
On June 30, 1997, the Company had cash and cash equivalents of $96,105,
working capital of $1,138,410 and stockholder's equity of $3,228,977.
As a result of its net losses to December 31, 1996 and accumulated deficit
since inception, the Company's accountants, in their report on the Company's
financial statements for the year ended December 31, 1996, included an
explanatory paragraph indicating there is substantial doubt about the Company's
ability to continue as a going concern. The Company's research and development
activities are at an early stage and the time and money required to determine
the commercial value and marketability of the Company's proposed products cannot
be estimated with precision. The Company expects research and development
activities to continue to require significant cost expenditures for an
indefinite period in the future.
In May 1995 the Company filed a Drug Master File with the Food and Drug
Administration ("FDA") for the Company's facilities. The Company has completed
its technology validation and filed a Drug Master File for paclitaxel in June
1997, however, it has yet to be inspected by the FDA for current Good
Manufacturing Practices ("GMPs"). The Company has sufficient inventory of raw
materials to produce commercial bulk paclitaxel which has a market value of
approximately $2,000,000 at current prices and anticipates, but can provide no
assurances, that it will commence sales of paclitaxel in the international
market in 1998. Prior to commencing such sales, the Company must file for and
obtain approvals from appropriate regulatory agencies in foreign jurisdictions.
Additionally, to the extent the Company elects to manufacture bulk paclitaxel
domestically and ship it overseas for packaging, the Company's facility must be
approved for cGMP and the product must either be approved for an investigational
new drug exemption (not currently so approved), or deemed in compliance with the
laws of 24 industrialized "tier one" countries (no yet so approved). Otherwise,
the Company can produce the product entirely overseas; however, no such
arrangements have been made to date. There can be no such assurance that
necessary approvals will not be delayed or subject to conditions or that the
Company will be able to meet such conditions. In addition, the Company has no
experience in marketing pharmaceutical products for human consumption and there
can be no assurance that the Company will be able to successfully market its
paclitaxel product in bulk, or be able to obtain satisfactory packaging of the
product in single dosage vials from an independent manufacturer.
15
<PAGE>
Xechem has expended and will continue to expend substantial funds in
connection with the research and development of its products. As a result of
these expenditures, and even with revenues anticipated from commencement of
sales of paclitaxel, the Company anticipates that losses will continue for the
foreseeable future.
Xechem's planned activities will require the addition of new personnel,
including management, and the continued development of expertise in areas such
as preclinical testing, clinical trial management, regulatory affairs,
manufacturing and marketing. Further, if Xechem receives regulatory approval for
any of its products, in the United States or elsewhere, it will incur
substantial expenditures to develop its manufacturing, sales and marketing
capabilities. There can be no assurance that Xechem will ever recognize revenue
or profit from any such products. In addition, Xechem may encounter
unanticipated problems, including developmental, regulatory, manufacturing or
marketing difficulties, some of which may be beyond Xechem's ability to resolve.
Xechem may lack the capacity to produce its products in-house and there can be
no assurances that it will be able to locate suitable contract manufacturers or
be able to have them produce products at satisfactory prices.
The Company is developing a limited line of over-the-counter natural
products (not requiring FDA approval) for sale through health food outlets, drug
stores and physicians specializing in natural medicines. The Company has
selected several natural, over-the-counter products, commonly known as
nutraceuticals, manufactured by contract manufacturers under the Company's
trademark. The emphasis of the products will be the combination of the natural
health benefits of these products with the quality of a pharmaceutical firm.
Initial marketing efforts commenced in the third quarter of 1996. However, there
can be no assurances as to the level of success for this program, or that the
Company will have adequate financial resources to support such program. To date,
the costs of such program have exceeded revenues.
On November 18, 1996, the Company entered into and closed the initial
stage of the Blech Purchase Agreement providing for the sale of up to 55,000
shares of Series 2 Preferred Shares at a purchase price of $100 per share
($5,500,000 in the aggregate), or the underlying shares of Common Stock, over
approximately nine months. The Blech Purchase Agreement was amended effective
March 27, 1997, to modify the closing schedule. At the initial closing, the
Trust purchased 5,000 Series 2 Preferred Shares for $500,000. The Trust
purchased an additional 5,000 Series 2 Preferred Shares on December 30, 1996;
5,000 Series 2 Preferred Shares on January 8, 1997; and 7,500 Series 2 Preferred
Shares on February 7, 1997. Pursuant to the Blech Purchase Agreement, on
February 7, 1997, Dr. Ramesh Pandey, the Company's Chairman and Chief Executive
Officer, exchanged certain indebtedness owed by the Company to him and the 1,070
shares of Class B Preferred Stock of the Company held by him for 13,180 shares
of Series 3 Preferred Shares. Pursuant to their terms, effective February 8,
1997, the then outstanding 22,500 Series 2 Preferred Shares and 13,180 Series 3
Preferred Shares were converted into 45,000,000 and 21,088,00 shares of Common
Stock, respectively.
Two other trusts, not otherwise affiliated with Blech, each purchased
5,000,000 shares of Common Stock on March 27, 1997 and Blech purchased a further
5,000,000 shares of Common Stock on April 14, 1997. On May 1, 1997, Blech sold
(at his cost) his 5,000,000 shares to the two referenced unaffiliated trusts and
a third unaffiliated trust. On August 1, 1997, the Trust and four other persons
purchased an aggregate of 27,320,000 shares of Common Stock (including 1,500,000
shares purchased by the Trust). Under the Blech Purchase Agreement, as amended,
Blech has the right to purchase an additional 22,680,000 shares of Common Stock.
Although the Company has the right to terminate further purchases as a result of
the failure to meet such deadlines for such purchases, it has not exercised such
right and does not presently expect to do so.
The Company is presently substantially dependent on funds received and
anticipated to be received under the Blech Purchase Agreement. Through June 30,
1997, Mr. Blech and his designees have purchased an aggregate of $3,000,000 of
the total of $5,500,000 of securities subject to the Blech Purchase Agreement
and purchased an additional $1,366,00 since that date. If Mr. Blech does not
meet or cause others to meet his continuing obligations under the Blech Purchase
Agreement, the Company's only remedy is to terminate Mr. Blech's future rights.
In such case, the Company may be unable to obtain substitute financing, and may
be unable to meet its obligations or continue its operations.
16
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 3. Defaults Upon Senior Securities - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
None
(b). Reports on Form 8-K
None
17
<PAGE>
PART II OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
From November 1996 through January 1997, the Company entered into
agreements with holders of $330,000 in principal amount of notes and a supplier
to whom the Company was indebted in the amount of $7,041, whereby the Company
agreed to issue a total of 1,477,745 shares of Common Stock in exchange for the
cancellation of all indebtedness owed by the Company to such persons. These
shares were offered and sold pursuant to an exemption from registration under
the federal securities laws provided by Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"), and Regulation D promulgated thereunder as a
non-public offering to a limited number of persons. The Company did not use any
securities broker-dealers in connection with these transactions.
Between November 18, 1996 and February 7, 1997, pursuant to the Blech
Purchase Agreement, the Company issued a total of 22,500 Series 2 Preferred
Shares and 13,180 Series 3 Preferred Shares, which were converted into
45,000,000 and 21,088,000 shares of Common Stock, respectively. The purchase
price of Series 2 Preferred Shares was $100 per share and was paid in cash by
The Edward A. Blech Trust (the "Trust"). The Series 3 Preferred Shares were
issued in exchange for $1,188,062 of indebtedness owed by the Company to the
purchaser (Dr. Pandey) and all of the Class B Preferred Stock owned by him.
Between February 8, 1997 and August 1, 1997, pursuant to the Blech
Purchase Agreement, the Company issued a total of 42,320,000 shares of Common
Stock at a purchase price of $.05 per share to eight (8) investors, including
the Trust. All shares, pursuant to the Blech Purchase Agreement, were offered
and sold pursuant to an exemption from registration under the federal securities
laws provided by the 1933 Act, and Regulation D promulgated thereunder as a
non-public offering to a limited number of persons. The Company did not use any
securities broker-dealers in connection with these transactions.
18
<PAGE>
PART II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held at the Hyatt Regency
Hotel, 2 Albany Street, New Brunswick, New Jersey on Wednesday, June 11, 1997 at
10:00 A.M. Eastern Daylight Savings Time. The purpose of the Annual Meeting was
to consider the vote on the following matters:
1. To elect two directors to hold office until the next annual meeting
of stockholders of otherwise as provided in the Corporation's
By-Laws.
Nominees
Ramesh C. Pandey, Ph.D.
Stephen F. Burg
The nominees for director received the following number of votes:
Ramesh C. Pandey and Stephen F. Burg
Common Class A
Stock Preferred Stock
For 77,523,950 2,500,000
Withheld 9,050 -0-
Non-votes 13,974,839 -0-
2. To approve an increase in the number of shares of Common Stock which
may be issued under the Xechem International, Inc. Amended and
Restated Stock Option Plan.
The vote of the stockholders was as follows:
Common Class A
Stock Preferred Stock
For 74,988,800 2,500,000
Against 26,950 -0-
Abstentions 17,250 -0-
Non-votes 16,474,839 -0-
19
<PAGE>
3. To concur in the selection of Moore Stephens, P.C. as the Corporation's
independent auditor for the fiscal year ending December 31, 1997.
The vote of the stockholders was as follows:
Common Class A
Stock Preferred Stock
For 75,009,150 2,500,000
Against 3,500 -0-
Abstentions 20,350 -0-
Non-votes 16,474,839 -0-
All of the above matters were approved by the Stockholders. There were no other
matters voted on at the meeting.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
XECHEM INTERNATIONAL, INC.
Date: August 13, 1997
/s/ Ramesh C. Pandey
Ramesh C. Pandey, Ph.D.
President/Chief Executive Officer/Chief
Accounting Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations filed
as part of the quarterly report on Form 10-Q and is qualified in its entirety
by reference to such quarterly report on Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> jun-30-1997
<CASH> 96,105
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,746,613
<CURRENT-ASSETS> 2,015,708
<PP&E> 1,389,861
<DEPRECIATION> 391,746
<TOTAL-ASSETS> 4,106,275
<CURRENT-LIABILITIES> 877,298
<BONDS> 0
0
0
<COMMON> 915
<OTHER-SE> 3,228,062
<TOTAL-LIABILITY-AND-EQUITY> 4,106,275
<SALES> 11,018
<TOTAL-REVENUES> 11,018
<CGS> 0
<TOTAL-COSTS> 848,209
<OTHER-EXPENSES> (1,734)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,553
<INCOME-PRETAX> (839,010)
<INCOME-TAX> 0
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<EPS-PRIMARY> (.009)
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</TABLE>
