Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
-------------------------
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended 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 Identification No.)
incorporation or organization)
100 Jersey Avenue, Bldg. B, Suite. 310, New Brunswi08901J
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 247-3300
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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 May 15, 1997
was 91,507,839
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
March 31, 1997 [Unaudited]............................... 3..4
Consolidated Statements of Operations
for the three months ended
March 31, 1997 and 1996 [Unaudited] ..................... 5
Consolidated Statement of Stockholders'
Equity for the three months ended
March 31, 1997 [Unaudited]............................... 6..7
Consolidated Statements of Cash Flows for
the three months ended March 31, 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..16
Part II.Other Information ........................................ 17..20
Signatures ...................................................... 21
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997
[UNAUDITED]
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Current Assets:
Cash and Cash Equivalents $ 667,864
Inventory 1,476,847
Prepaid Expenses 202,153
Other Current Assets 9,279
--------------
Total Current Assets $2,356,143
Equipment, Net of Accumulated
Depreciation of $362,645 $ 991,402
Leasehold Improvements - Net of Accumulated
Amortization of $249,168 733,827
Deposits 22,167
Patent Issuance Costs-Net of Accumulated
Amortization of $19,490 264,600
---------
Total Assets $4,368,139
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997
[UNAUDITED]
- ------------------------------------------------------------------------------
Current Liabilities:
Accounts Payable $ 313,020
Accrued Expenses 115,105
Notes Payable - Others 115,000
Other Current Liabilities 7,027
--------
Total Current Liabilities $ 550,152
---------
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; 86,507,839 Shares Issued and Outstanding 863
Additional Paid-in Capital [Common] 27,039,241
(Deficit) Accumulated During the Development Stage (23,224,617)
------------
Total Stockholders' Equity $3,817,987
Total Liabilities and Stockholders' Equity $4,368,139
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
- ------------------------------------------------------------------------------
March 15,
1990 [Date of
Three months endedInception] to
March 31, March 31,
---------- ---------
1 9 9 7 1 9 9 6 1 9 9 7
------- ------- -------
Revenues $ 3,272 $ 26,568 $ 579,002
--------- ---------- ----------
Expenses:
Research and Development $ 348,794 $ 366,776 4,985,860
Rent 37,487 31,988 469,257
General and Administrative 370,822 507,243 5,104,177
--------- ---------- ----------
Total Expenses $ 757,103 $ 906,007 $10,559,294
--------- ---------- -----------
(Loss) from Operations $(753,831) $ (879,439) $(9,980,292)
Other Income 2,884 1,493 276,003
Interest (Expense) - Related Party -- (20,339) (8,589,081)
Interest (Expense) (3,200) (8,584) (4,908,301)
---------- ----------- ------------
(Loss) Before Income Taxes $(754,147) $ (906,869) $(23,201,671)
Income Taxes -- -- --
--------- ---------- ------------
Net (Loss) $(754,147) $ (906,869) $(23,201,671)
========= ========== ============
Preferred Stock Dividends $ 233 $ 2,140 $ 101,361
========= ========== ============
Net (Loss) Available to Common
Stockholders $(754,380) $ (909,009) $(23,303,032)
========= ========== ============
Net (Loss) per Share $ (0.01) $ (0.14)
========= ==========
Average Number of Shares Outstanding 57,770,177 6,601,256
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE)]
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
Class A Add Class B Add Cls C Cls C Add Xchm Xchem Int Add
Cap Cap 8% Cnv VtgCnv Cap Cap Accum
Pfd Pfd Dur
Cap
#of Par #of Par #ofPar#of Par #ofPar #of Par Dev
Shr ValClsA Shr Val ClsB ShrValShr ValClsCShrVal Shr Val Common Stage
---------------------------------------------------------------------------------------------------------
<S> <C> <C><C> <C> <C> <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 December 31, 1991 - - - - - - - - - - - - - - - - (357,390)
Balance - December 31, 1991 - $- $- - $- - - - - $- - 100 $125,000 - $- $ 341,143 (516,661)
Capital contributions - - - - - - - - - - - - - - - 95,000 -
Net (loss) for the year
ended December 31, 1992 - - - - - - - - - - - - - - - - - (487,301)
Balance - December 31, 1992 - $- $- - $- $- - $- - $- $- 100 $125,000 - $- 436,143 1,003,962)
Net (loss) for the year
ended December 31, 1993 - - - - - - - - - - - - - - - - (819,816)
Balance - December 31, 1993 - $- $- - - $- - $- - $- $- - - $- 436,143 (1,823,778)
Reorganization 2,500 2,500 1,070 107,000 $- - - - (100)(125,000)4,370,500 43 13,840,487 -
Net Proceeds from Initial
Public Offering - First
Quarter 1994, at $5.00 Per
Unit Less Issuance cost - - - - - - - - - - - - - 1,150,000 12 4,542,670 -
Excess of Fair Market Value
over Option Price of Non-
Qualified Stock Options-
Third Quarter 1994 - - - - - - - - - - - - - 105,000 1 1,049 -
Excess of Fair Market Value
over Option Price of Non-
Qualified Stock Options-
Fourth Quarter 1994 - - - - - - - - - - - - - 105,000 1 50,060 -
Net (loss) for the year
ended December 31, 1994 - - - - - - - - - - - - - - - - (14,316,193)
Balance - Decmber 31, 1994 2,500$- $2,5001,070$- $107,000- $- - $- $- - - 5,730,000 $57 $18,870,409 (16,139,971)
Private Placement - Common
Stock at $3.00 Per Share,
Less Issuance Cost - - - - - - - - - - - - - 118,778 2 388,887 -
Excess of Fair Market Value
over Option Price of Non-
Qualified Stock Options-
First Quarter 1995 - - - - - - - - - - - - - 30,000 - 328,125 -
Excess of Fair Market Value
over Option Price of Non-
Qualified Stock Options and
issuance of Apotex stock -
Second Quarter 1995 - - - - - - - - - - - - - 674,700 7 980,806 -
Excess of Fair Market Value
over Option Price of Non-
Qualified Stock Options-
Third Quarter 1995 - - - - - - - - - - - - - 24,500 - (260,612) -
Excess of Fair Market Value
over Option Price of Non-
Qualified Stock Options-
Fourth Quarter 1995 - - - - - - - - - - - - - 5,000 - 40,624 -
Net (loss) for the year
ended December 31, 1995 - - - - - - - - - - - - - - (3,133,348)
Balance - December 31,
1995 - Forward 2,500$- $2,5001,070$- $107,000- $- - $- $- - $- 6,583,478 $66 20,348,239 $(19,273,319)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
<TABLE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
Class A AdditionaClass B AdditionaClass C Class C
AdditionXechem, Inc.Xechem InterAddition(Deficit)
Voting PrefPaiddin8% PreferrePaid in Series 1 Series 2
Paid in Common StockCommon StockPaid in Accumulated
Capital Capital8% Conv. PrVotingdCov.Capitalred Capital
# of Par # of Par # of Par # of Par # of Par # of Par
SharesValueClass ASharesValueClass BShares ValuSharesValueClass C Shares ValueShares Value Common
--------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9 10 11 1213 14 15 16
<S> <C> <C><C> <C> <C> <C> <C> <C><C> <C><C> <C><C><C> <C> <C>
Balance - December 31, 1995
Forwarded 2,500$- $2,5001,070 $- $107,000 - $- - $- $- - $- 6,583,438$66 $20,348,239
Private Placement - Common
Stock at $3.00 Per Share,
Private Placement - Petron
at $.38 per Share - - - - - - - - - - - - - 260,000 1 100,000
Private Placement - Series
1Preferred Stock at $100
per Share,Less IssuanceCost - - - - - - 22,500 - - - 2,137,500 - - 12,500 - 28,125
Private Placement - Series
2 Preferred Stock at $100
per Share,Less IssuanceCost - - - - - - - - 10,000 - 882,440 - - - - - -
Conversion of Preferred Stk - - - - - - (21,000) - - - (1,995,000)- - 1,673,583 16 1,966,840
Conversion of Debt to Equity
at $25 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 Option Price of Non-
Qualified Stock Options -
Third Quarter 1996 - - - - - - - - - - - - - 600 - 564
Excess of Fair Market Value
over Option Price of Non-
Qualified Stock Options -
Fourth Quarter 1996 - - - - - - - - - - - - - 51,600 1 13,205
Cancellation of Apotex Stock - - - - - - - - - - - - - (75,000) - -
Ocean Marine Settlement at
$1.31 per Share - - - - - - - - - - - - - 25,000 - 32,812
Net (loss) for the year - - - - - - - - - - - - - - -
Balance - December 31, 1996 2,500$- $2,500 1,070 $- $107,000 1,500 - 10,000 - $1,024,940 - $- 10,174,839 - $22,916,616
Private Placement - Series
2 Preferred at $100 per
Share - - - - - - - - 12,500 - 1,250,000 - - - - - -
Conversion of Series 1
Preferred Stock - - - - - - (1,500) - - - (142,500)- - 120,000 1 142,499
Conversion of Series 2
Preferred Stock - - - - - - - - - (22,500) - (2,132,440)- - 45,000,000 450 2,131,180
Conversion of Dr. Pandey
Preferred Stock and debt
to Equity - - - (1,070)- (107,000)- - - - - - - 21,088,000 211 1,317,797
Private Placement - Common
Stock at $.05 per Share - - - - - - - - - - - - - 10,000,000 100 499,900
Excess of Fair Market Value
over Option Price of Non-
Qualified Stock Options - - - - - - - - - - - - - 125,000 1 31,249
Net (loss) for the three
months ended March 31, 1997 - - - - - - - - - - - - -
Balance - March 31, 1997 2,500 $2,500- $ $- - $- - - - - - $86,507,839 863 $27,039,241
=====================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
7
<PAGE>
Balance - December 31, 1995-Forwarded $(19,273,319)
Private Placement-Common Stock at
$3.00 Per Share, Less Issuance Costs -
Private Placement-Petron at $.38 per Share -
Private Placement-Series 1 Preferred Stock
at $100 per Share, Less Issuance Costs -
Private Placement-Series 2 Preferred Stock
at $100 per Share, Less Issuance Costs -
Converison of Preferred Stock -
Conversion of Debt to Equity at $25 per Share -
Excess of Fair Market Value over Option Price
of Non-Qualified Stock Options-2nd Quarter, 1996 -
Excess of Fair Market Value over Option Price
of Non-Qualified Stock Options-3rd Quarter, 1996 -
Excess of Fair Market Value over Option Price
of Non-Qualified Stock Options-4th Quaarter, 1996 -
Cancellation of Apotex Stock -
Ocean Marine settlement at $1.31 per share -
Net (loss) for the year (3,174,205)
-----------
Balance - December 31, 1996 $(22,447,524)
Private Placement-Series 2 Preferred at $100
per Share -
Conversion of Series 1 Preferred Stock -
Conversion of Series 2 Preferred Stock -
Conversion of Dr. Pandey Preferred Stock and
Debt to Equity (22,946)
Private Placement-Common Stock at $.05 per Share -
Excerss of Fair Market Value over Option Price
of Non-Qualified Stock Options -
Net (Loss) for the three months ended March 31, 1997 (754,147)
------------
Balance - March 31, 1997 $(23,224,617)
=============
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Cumulative
Period From
March 15,
1990 [Date of
Three months ended Inception] to
March 31, March 31
1 9 9 7 1 9 9 6 1 9 97
------- ------- ------
Operating Activities:
Net (Loss) $ (754,147) $ (906,869) $(23,201,671)
----------- ---------- -------------
Adjustments to Reconcile Net (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation $ 27,300 $ 31,234 $ 249,351
Amortization 18,900 18,312 407619
Loss on Sale of Assets -- -- 391
Interest and Compensation Expense
in Connection with Issuance
of Equities 30,000 -- 14,243,500
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (4,158) (13,336) (2,899)
Inventory (79,942) (25,621) (1,449,612)
Prepaid Expenses (66,002) (15,025) (202,153)
Other Current Assets -- 540 (32,720)
Deposits -- -- (22,167)
Organizational Costs -- -- (13,828)
Other Assets -- 300 (1,592)
Increase (Decrease) in:
Accounts Payable (290,940) 107,848 313,884
Accrued Interest Payable 3,200 26,824 87,638
Accrued Expenses (86,889) 183,012 122,321
Other Current Liabilities -- 7,000 --
---------- ---------- -----------
Total Adjustments $ (448,531) $ 321,088 $13,698,951
----------- ---------- -----------
Net Cash (Used) by Operating
Activities - Forward $(1,202,678) $ (585,781) $(9,502,720)
------------------------ ------------
Investing Activities:
Patent Issuance Costs $ (30,050) $ (13,547) $ (283,349)
Purchases of Equipment and
Leasehold Improvements (185,760) (124,433) (1,821,171)
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 $ (215,810) $ (137,980) $(2,077,820)
8
<PAGE>
See Accompanying Notes to Consolidated Financial Statements.
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Cumulative
Period From
March 15,
1990 [Date of
Three months ended Inception] to
March 31, March 31,
1 9 9 7 1 9 9 6 1 9 9 7
------- ------- -------
Net Cash (Used) by Operating
Activities - Forwarded $(1,202,678) $ (585,781) $(9,502,720)
------------ ----------- ------------
Net Cash (Used) by Investing
Activities - Forwarded $ (215,810) $ (137,980) $(2,077,820)
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 -- -- 970,295
Proceeds from Bridge Financing -- 540,000 640,000
Capital Contribution -- -- 95,000
Payments on Interim Loans -- -- (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 500,000 49,107 5,584,343
Proceeds from Issuance of Class C
Series 1 Preferred Stock -- -- 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 -- 10,234
---------- ---------- ----------
Net Cash - Financing Activities $1,750,440 $ 744,107 $12,248,404
---------- ---------- -----------
Net Increase (Decrease) in Cash
And Cash Equivalents $ 331,952 $ 20,346 $ 667,864
Cash and Cash Equivalents -
Beginning of Periods 335,912 125,067 --
---------- ---------- ----------
Cash and Cash Equivalents -
End of Periods $ 667,864 $ 145,413 $ 667,864
========== ========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest - Related Party $ -- $ -- $ 104,992
Interest - Other $ -- $ 2,100 $ 133,818
Income Taxes $ -- $ -- $ --
9
<PAGE>
See Accompanying Notes to Consolidated Financial Statements.
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 three months ended March 31, 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 three months ended
March 31, 1997.
See Accompanying Notes to Consolidated Financial Statements.
10
<PAGE>
- ------------------------------------------------------------------------------
[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 included 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 March 31, 1997 and the consolidated results of its operations for the
three months ended March 31, 1997 and 1996 and for the cumulative period from
March 15, 1990 (date of inception) to March 31, 1997 and its cash flows for the
three months ended March 31, 1997 and 1996 and for the cumulative period from
March 15, 1990 (date of inception) to March 31, 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 three month
periods ended March 31, 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 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 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
11
<PAGE>
12,500 Series 2 Preferred Shares for a price of $100 per share.
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.
[5] Notes Payable - Other
In 1996, an individual made two loans to the Company aggregating to $115,000.
Each of those loans is evidenced by a ten percent and twelve percent (at simple
interest) promisory note 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.
[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 was converted into Common Stock.
[7] Subsequent Event
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.
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 Quarter Ended March 31, 1997 vs. The Quarter Ended March 31, 1996
The following table sets forth certain statement of operations data of the
Company for the cumulative period from inception [March 15, 1990] to March 31,
1997 and for each of the quarters ended March 31, 1997 and March 31, 1996.
Cumulative
Quarters Ended Inception to
March 31, March 31,
1997 1996 1997
(In thousands)
Revenue $ 3.3 $ 26.6 $ 579.1
Research and development expense $ 348.8 $ 366.8 $ 4,985.8
Rent, general and administrative
expenses $ 408.3 $ 539.2 $ 5,573.5
(Loss) from operations $ (753.8) $ (879.4) $(9,980.2)
The $23,300 decrease in revenue from the quarter ended March 31, 1996 to
the quarter ended March 31, 1997 was attributable to a decrease in sales of
services and products. Service sales decreased by $100 in the quarter ended
March 31, 1997 as compared to the quarter ended March 31, 1996. Sales of
paclitaxel for research purposes for the quarter ended March 31, 1997 decreased
$26,500 as compared with the quarter ended March 31, 1996. The decrease in sales
of paclitaxel were partially offset by product sales of $3,300 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 decreased by $18,000 to $348,800 or 4.9%
for the quarter ended March 31, 1997 as compared to the quarter ended March 31,
1996. This included expenditures on the development of Company's process for
producing paclitaxel of $127,700, an increase of $14,700 or 13.0% as compared to
the quarter ended March 31, 1996. XetaPharm had research and development
expenses of $19,400, an increase of $4,100 or 26.5%, for the quarter ended March
31, 1997 as compared to the quarter ended March 31, 1996.
These increases were offset by a decline in research and development costs
for bleomycin to $12,300, for the quarter ended March 31, 1997, a decrease of
$12,800, or 51.0%, as compared to the quarter ended March 31, 1996, and decline
in other research and development projects, both for customers and in-house
research, to $201,700 for the quarter ended March 31, 1997, a decrease of
$28,300 or 10.8% from the same period in 1996. The largest cause for the
decrease in other research and development expenses from the quarter ended March
31, 1997 was the reduction of $10,000 in funds to the University of Virginia for
an HIV project. The Company anticipates that research and development
expenditures will continue to increase for paclitaxel, as well as the
development of other anticancer, antiviral and memory enhancing drugs.
Rent, general and administrative expenses decreased $130,000, or 24.3%,
for the quarter ended March 31, 1997 as compared to the quarter ended March 31,
1997, due primarily to the one time charge in 1996 of $150,000 for the
settlement of the Ocean Marine Service claim against Dr. Pandey. Legal and
accounting expenses totaled $112,700 for the quarter ended March 31, 1997 and
were $32,800 or 41.1% higher than the $79,865, for the comparable 1996 period.
Other general and administrative costs decreased $49,700 or 4.4% to $309,400 in
1997 compared to the same period in 1996. Salaries and wages and Advertising
expenses related to XetaPharm decreased $28,400 and $27,800, respectively, from
the quarter ended March 31, 1996. These decreases were offset by filing fees of
$35,000 paid to Nasdaq for new stock registration in the quarter ended March 31,
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
- --------
1Some 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>
availability of funding to finance these efforts.
The Company's loss from operations totaled $753,800, a decrease of
$125,600, or 14.3% for the quarter ended March 31, 1997 as compared to the same
period in 1996, and is primarily a result of the foregoing.
Interest expense decreased approximately $25,700, or 88.9% to $3,200, in
the quarter ended March 31, 1997 as compared to the quarter ended March 31,
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
On March 31, 1997, the Company had cash and cash equivalents of $667,864,
working capital of $1,805,991 and stockholder's equity of $3,817,987.
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 for the Company's facilities. The Company is in the process of
completing its technology validation and anticipates, but can provide no
assurances, that a Drug Master File for paclitaxel will be filed in the fourth
quarter of 1997. 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 the
fourth quarter of 1997. Prior to commencing such sales, the Company must file
for and obtain approvals from appropriate regulatory agencies in foreign
jurisdictions. There can be no such assurance that such 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.
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
14
<PAGE>
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 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 conmmenced 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.
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 Comon 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 fo Common
Stock, respectively. Under the Blech Purchase Agreement, as amended, Blech has
the right to purchase an additional 25,000,000 shares of Common Stock on or
before April 30, 1997 (although the Company has the right to terminate further
purchases as a result of the failure to meet such deadlines, it has not
exercised such right and does not presently expect to do so), 20,000,000 shares
of Common Stock on or before June 2, 1997 and a final 10,000,000 shares on or
before July 15, 1997.
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.
The Company is presently substantially dependent on funds received and
anticipated to be received under the Blech Purchase Agreement. Through March 31,
1997, Mr. Blech and his designees have purchased an aggregate of $2,750,000 of
the total of $5,500,000 of securities subject to the Blech Purchase Agreement
and purchased an additional $250,000 since that date. If Mr. Blech does not meet
or cause others to meet his continuing obligations under the Blech Purchase
15
<PAGE>
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.
Part II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - see exhibit
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security
Holders - see exhibit
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
None
(b). Reports on Form 8-K
Form 8-K dated February 5, 1997, in which disclosure was
made under Item 5 - Other Events.
16
<PAGE>
PART II OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
On January 15, 1997, the number of authorized shares of Common Stock was
increased to 247,000,000 shares. See Item 4.
17
<PAGE>
EXHIBIT I
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
OF XECHEM INTERNATIONAL, INC.
Xechem International, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Law"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation
held on November 15, 1996, the Board of Directors duly adopted a resolution
proposing and declaring advisable the following amendment to the Corporation's
Certificate of Incorporation:
RESOLVED, that the directors find it advisable to amend the
Certificate of Incorporation of the Corporation by striking Article
Fourth, Section 1 in its entirety and inserting in lieu thereof the
following:
FOURTH. Authorized Shares.
1. The aggregate number of shares which the Corporation shall
have authority to issue is 250,000,000 shares, of which 2,500 shares of
the par value of $0.00001 per share shall be designated "Class A Voting
Preferred Stock," 1,150 shares of the par value of $0.00001 per share
shall be designated "Class B 8% Preferred Stock", 2,996,350 shares of
the par value of $0.00001 per share shall be designated "Class C
Preferred Stock" and 247,000,000 shares of the par value of $0.00001
per share shall be designated "Common Stock."
SECOND: A special meeting of the stockholders of the Corporation was
duly called and held on January 15, 1997, upon notice in accordance with the
applicable provisions of Section 222 of the Law, at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Ramesh C. Pandey, its President and Chief Executive Officer and
attested by Leonard A. Mudry, its Secretary, this 15th day of January, 1997.
/s/ Ramesh C. Pandey
Ramesh C. Pandey, President and Chief
Executive Officer
ATTEST
/s/ Leonard A. Mudry
Leonard A. Mudry, Secretary
18
<PAGE>
PART II OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of the Stockholders of the Company was held January 15,
1997, a proposal to amend the Company's Certificate of Incorporation to increase
the number of authorized shares from 18,000,000 to 250,000,000, consisting of
247,000,000 shares of common stock and 3,000,000 shares of preferred stock. The
vote of the stockholders was an aggregate of 15,233,945 votes in favor, no votes
against, no abstentions and 5,378,149 non-votes.
19
<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: May 16, 1997
/s/ Ramesh C. Pandey
Ramesh C. Pandey, Ph.D.
President/Chief Executive Officer
/s/ Leonard A. Mudry
Leonard A. Mudry,
Vice President - Finance and Operations
20
<PAGE>
<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> MAR-31-1997
<CASH> 667,864
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,476,847
<CURRENT-ASSETS> 2,356,143
<PP&E> 991,402
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,368,139
<CURRENT-LIABILITIES> 550,152
<BONDS> 0
0
0
<COMMON> 863
<OTHER-SE> 3,817,124
<TOTAL-LIABILITY-AND-EQUITY> 4,368,139
<SALES> 3,272
<TOTAL-REVENUES> 3,272
<CGS> 0
<TOTAL-COSTS> 757,103
<OTHER-EXPENSES> (2,884)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,200
<INCOME-PRETAX> (754,147)
<INCOME-TAX> 0
<INCOME-CONTINUING> (754,147)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (754,380)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
