UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
----------------------------------------------
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 Brunswick, NJ 08901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (732) 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 December 10,
1998 was 140,650,893 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
September 30, 1998 (Unaudited)........................... 3..4
Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1998 and 1997 (Unaudited) ................. 5
Consolidated Statement of Stockholders'
Equity for the nine months ended
September 30, 1998 (Unaudited)........................... 6..7
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998 and
1997 (Unaudited)......................................... 8..10
Notes to Consolidated Financial Statements................ 11..14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 15..19
Part II.Other Information ........................................ 20
Signatures ...................................................... 21
2
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998.
(UNAUDITED)
- ------------------------------------------------------------------------------
Current Assets:
Cash and Cash Equivalents $ 52,669
Accounts Receivable 7,737
Loans Receivable - Related Parties 54,710
Inventory 357,753
Prepaid Expenses 179,599
-----------
Total Current Assets 652,468
Investment - Related Party 34,500
Equipment, Net of Accumulated
Depreciation of $567,675 840,626
Leasehold Improvements - Net of Accumulated
Amortization of $345,988 669,188
Deposits 18,867
-----------
Total Assets $ 2,215,649
===========
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998.
(UNAUDITED)
- ------------------------------------------------------------------------------
Current Liabilities:
Accounts Payable $ 509,755
Accrued Expenses 202,221
Loans Payable 855,545
Notes Payable 348,300
Due To Related Parties 183,031
-----------
Total Current Liabilities 2,098,852
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 Issued or Outstanding --
Class C Preferred Stock, $.00001 Par Value, 2,996,350 Shares
Authorized; None Issued or Outstanding --
Common Stock, $.00001 Par Value, 247,000,000
Shares Authorized; 139,850,839 Shares Issued and Outstanding 1,397
Additional Paid-in Capital (Common) 29,741,396
(Deficit) Accumulated During the Development Stage (29,628,496)
-----------
Total Stockholders' Equity 116,797
Total Liabilities and Stockholders' Equity $ 2,215,649
===========
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
Cumulative Period
From March 15,
1990 (Date of
Three months ended Nine months ended Inception to
September 30, September 30, September 30,
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7 1 9 9 8
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 11,591 $ 15,676 $ 73,703 $ 29,966 $ 763,620
---------- ---------- ----------- ----------- -----------
Expenses:
Research & Development 248,673 620,216 962,263 1,472,758 8,017,620
Rent -- -- -- -- 410,065
Rent - Related Party 37,245 42,420 104,070 119,386 222,631
General & Administrative 432,984 296,481 894,942 972,285 6,962,427
Writedown of Inventory -- -- -- -- 1,020,000
Writedown of Intangibles -- -- -- -- 517,000
--------- ---------- ----------- ----------- -----------
Total Expenses 718,902 959,117 1,961,275 2,564,429 17,149,743
---------- ---------- ---------- ----------- -----------
(Loss) from Operations (707,311) (943,441) (1,887,572) (2,534,463) (16,386,123)
Other Income (Expense) (12,185) 1,634 3,954 6,252 281,743
Interest (Expense) -
Related Party -- -- -- -- (8,589,081)
Interest (Expense) (6,399) (3,530) (15,802) (10,283) (4,935,035)
---------- ---------- ----------- ----------- -----------
(Loss) Before Income
Taxes (725,895) (945,337) (1,899,420) (2,538,494) (29,628,496)
Income Taxes -- -- -- -- --
---------- ---------- ----------- ----------- ------------
Net (Loss) $ (725,895) $ (945,337)$(1,899,420)$(2,538,494)$(29,628,496)
========== ========== =========== =========== ============
Preferred Stock Dividends$ -- $ -- $ -- $ 233 $ 101,361
========== ========== =========== =========== ============
Net (Loss) Available to
Common Stockholders $ (725,895) $ (945,337)$(1,899,420)$(2,538,727)$(29,729,857)
========== ========== =========== =========== ============
Net (Loss) per Share $ (0.005) $ (0.009)$ (0.014)$ (0.03)
========== ========== =========== ===========
Average Number of Shares
Outstanding 139,850,839 109,721,772131,721,772 86,333,195
=========== ====================== ==========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Class A Additional Class B Additional Class C
Voting Preferred Paid-in 8% Preferred Paid-in Series 1
Capital Capital 8% Conv. Preferred
# of Par # of Par # of Par
Shares Value Class A Shares Value Class B Shares Value
Common Stock issued in exchange for
equipment in March 1990 at no
<S> <C> <C> <C> <C> <C> <C> <C> <C>
par value -- $ -- $ -- -- $ -- $ -- -- $ --
Capital contributions April 1990 -- -- -- -- -- -- -- --
Net (loss) for the period from
March 15, 1990 (date of
inception) to December 31, 1990 -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - December 31, 1990 -- -- -- -- -- -- -- --
Capital contributions July 1991 -- -- -- -- -- -- -- --
Capital contributions September
1991 -- -- -- -- -- -- -- --
Capital contributions October 1991 -- -- -- -- -- -- -- --
Net (loss) for the year ended
December 31, 1991 -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - December 31, 1991 -- -- -- -- -- -- -- --
Capital contributions -- -- -- -- -- -- -- --
Net (loss) for the year ended
December 31, 1992 -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - December 31, 1992 -- -- -- -- -- -- -- --
Net (loss) for the year ended
December 31, 1993 -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - December 31, 1993 -- -- -- -- -- -- -- --
Reorganization 2,500 -- 2,500 1,070 -- 107,000 -- --
Net Proceeds from Initial Public
Offering - First Quarter 1994, at
$5.00 Per Unit, Less Issuance Cost -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified
Stock Options - Third Quarter 1994 -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified
Stock Options - Fourth Quarter 1994 -- -- -- -- -- -- -- --
Net (loss) for the year ended
December 31, 1994 -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - December 31, 1994 2,500 -- 2,500 1,070 -- 107,000 -- --
Private Placement - Common Stock at
$3.00 Per Share, Less Issuance Costs -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified
Stock Options - First Quarter 1995 -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified
Stock Options and issuance of
Apotex stock - Second Quarter 1995 -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified
Stock Options - Third Quarter 1995 -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified
Stock Options - Fourth Quarter 1995 -- -- -- -- -- -- -- --
Net (loss) for the year ended
December 31, 1995 -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - December 31, 1995 -
Forward 2,500 $ -- 2,500 1,070 $ -- $107,000 -- $ --
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
6
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Class C Additional Xechem, Inc. Xechem International Additional (Deficit)
Series 2 Paid-in Common Stock Common Stock Paid-in Accumulated
Voting Conv. PreferredCapital Capital During the
# of Par # of Par # of Par Development
Shares Value Class C Shares Value Shares Value Common Stage
Common Stock issued in exchange for
equipment in March 1990 at no
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- -- -- 100 125,000 -- -- 436,143 (1,823,778)
Reorganization -- -- -- (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 - December 31, 1994 -- -- -- -- -- 5,730,500 57 18,870,409 (16,139,971)
Private Placement - Common Stock at
$3.00 Per Share, Less Issuance Costs -- -- -- -- -- 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 -- $ -- $ -- -- $ -- 6,583,478 $ 66 $20,348,239 $(19,273,319)
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
6
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Class A Additional Class B Additional Class C
Voting Preferred Paid-in 8% Preferred Paid-in Series 1
Capital Capital 8% Conv. Preferred
# of Par # of Par # of Par
Shares Value Class A Shares Value Class B Shares Value
Balance - December 31, 1995 -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Forwarded 2,500 $ -- 2,500 1,070 $ -- $107,000 -- $ --
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 Cost -- -- -- -- -- -- 22,500 --
Private Placement - Series 2 Preferred
Stock at $100 per Share, Less
Issuance Cost -- -- -- -- -- -- -- --
Conversion of Preferred Stock -- -- -- -- -- -- (21,000) --
Conversion of Debt to Equity at $.25
Per Share -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified Stock
Options - Second Quarter 1996 -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified
Stock Options - Third Quarter 1996 -- -- -- -- -- -- -- --
Excess of Fair Market Value over
Option Price of Non-Qualified
Stock Options - Fourth Quarter 1996 -- -- -- -- -- -- -- --
Cancellation of Apotex Stock -- -- -- -- -- -- -- --
Ocean Marine Settlement at $1.31
per Share -- -- -- -- -- -- -- --
Net (loss) for the year -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - December 31, 1996 2,500 -- 2,500 1,070 -- 107,000 1,500 --
Private Placement - Series 2
Preferred at $100 per Share -
First Quarter 1997 -- -- -- -- -- -- -- --
Conversion of Series 1
Preferred Stock at $1.25 per
Share - First Quarter 1997 -- -- -- -- -- -- (1,500) --
Conversion of Series 2
Preferred Stock at $.05 per
Share - First Quarter -- -- -- -- -- -- -- --
Conversion of Dr. Pandey's
Preferred Stock & Debt to
Equity at $.0625 per Share -
First Quarter -- -- -- (1,070) -- (107,000) -- --
Private Placement - Common Stock
At $.05 per Share -- -- -- -- -- -- -- --
Excess of Fair Market Value
Over Option Price of
Non-Qualified Stock Options
Exercised First Quarter 1997 -- -- -- -- -- -- -- --
Excess of Fair Market Value
Over Option Price of
Non-Qualified Stock Options
Exercised Third Quarter 1997 -- -- -- -- -- -- -- --
Stock Option Grants -- -- -- -- -- -- -- --
Net (loss) for the Year -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - December 31, 1997 2,500 -- 2,500 -- -- -- -- --
Private Placement - Common Stock
at $.05 Per Share -- -- -- -- -- -- -- --
Net (loss) for the Nine Months
Ended September 30, 1998 -- -- -- -- -- -- -- --
------- -------- -------- ------- ------ -------- -------- -------
Balance - September 30, 1998 [Unaudited] 2,500 $ -- $ 2,500 -- $ -- $ -- -- $ --
======= ======== ======== ======= ====== ======== ======== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
7
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Class C Additional Xechem, Inc. Xechem International Additional (Deficit)
Series 2 Paid-in Common Stock Common Stock Paid-in Accumulated
Voting Conv. PreferredCapital Capital During the
# of Par # of Par # of Par Development
Shares Value Class C Shares Value Shares Value Common Stage
Balance - December 31, 1995 -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Forwarded -- $ -- $ -- -- $ -- 6,583,478 $ 66 $20,348,239 $(19,273,319)
Private Placement - Common Stock
at $3.00 Per Share, Less Issuance
Costs -- -- -- -- -- 163,333 1 52,784 --
Private Placement - Petron at $.38
per Share -- -- -- -- -- 260,000 1 100,000 --
Private Placement - Series 1
Preferred Stock at $100 per
Share, Less Issuance Cost -- -- 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 -- --(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 -- -- -- -- -- -- -- -- (3,174,205)
-------- ------- -------- ------- -------- ----------- --------- ----------- -----------
Balance - December 31, 1996 10,000 -- 1,024,940 -- -- 10,174,839 100 22,916,616 (22,447,524)
Private Placement - Series 2
Preferred at $100 per Share -
First Quarter 1997 12,500 -- 1,250,000 -- -- -- -- -- --
Conversion of Series 1
Preferred Stock at $1.25 per
Share - First Quarter 1997 -- -- (142,500) -- -- 120,000 1 142,499 --
Conversion of Series 2
Preferred Stock at $.05 per
Share - First Quarter (22,500) __ (2,132,440) -- -- 45,000,000 450 2,131,180 --
Conversion of Dr. Pandey's
Preferred Stock & Debt to
Equity at $.0625 per Share -
First Quarter -- -- -- -- -- 19,430,400 194 1,214,257 --
Private Placement - Common Stock
At $.05 per Share -- -- -- -- -- 45,020,000 451 2,290,549 --
Excess of Fair Market Value
Over Option Price of
Non-Qualified Stock Options
Exercised First Quarter 1997 -- -- -- -- -- 125,000 1 31,249 --
Excess of Fair Market Value
Over Option Price of
Non-Qualified Stock Options
Exercised Third Quarter 1997 -- -- -- -- -- 600 -- 246 --
Stock Option Grants -- -- -- -- -- -- -- 16,000 --
Net (loss) for the Year -- -- -- -- -- -- -- -- (5,281,552)
-------- ------- -------- ------- -------- ----------- --------- ----------- -----------
Balance - December 31, 1997 -- -- -- -- -- 119,870,839 1,197 28,742,596 (27,729,076)
Private Placement - Common Stock
at $.05 Per Share -- -- -- -- -- 19,980,000 200 988,800 --
Net (loss) for the Nine Months
Ended September 30, 1998 -- -- -- -- -- -- -- -- (1,889,420)
-------- ------- -------- ------- -------- ----------- --------- ----------- ------------
Balance - September 30, 1998
[Unaudited] -- $ -- $ -- -- $ -- 139,850,839 $ 1,397 $29,741,396 $(29,628,496)
======== ======= ======== ======== ======== =========== ========= =========== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
7
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
March 15, 1990
(Date of
Nine months ended Inception to
September 30, September 30,
1 9 9 8 1 9 9 7 1 9 9 8
------- ------- -------
Operating Activities:
<S> <C> <C> <C>
Net (Loss) $(1,899,420)$(2,538,494)$(29,628,496)
Adjustments to Reconcile Net (Loss) to Net Cash
Provided (Used) by Operating Activities:
Depreciation 132,004 129,600 504,081
Amortization -- 9,000 469,164
(Gain)/Loss on Sale of Assets -- -- 5,609
Interest and Compensation Expense
in Connection with Issuance of Equities -- 30,240 14,259,740
Write Down of Inventory -- -- 1,020,000
Write Down of Intangibles -- -- 517,000
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable 58,492 -- (7,737)
Inventory (146,246) (251,559) (1,377,753)
Prepaid Expenses (61,858) 35,421 (179,599)
Other Current Assets 60,290 (129,998) (45,732)
Investments (34,500) -- (34,500)
Deposits 1,650 -- (18,867)
Organizational Costs -- -- (13,828)
Other Assets -- -- (1,592)
Increase (Decrease) in:
Accounts Payable 6,223 (342,487) 509,755
Accrued Interest Payable, Other Current
Liabilities and Due to Related Parties 57,236 10,258 183,161
Accrued Expenses 39,814 (42,488) 202,088
----------- ----------- -----------
Total Adjustments 113,105 (552,013) 15,990,990
----------- ----------- -----------
Net Cash (Used) by Operating Activities -
Forward (1,786,315) (3,090,507) (13,637,506)
----------- ----------- -----------
Investing Activities:
Patent Issuance Costs -- (168,383) (548,174)
Purchases of Equipment and
Leasehold Improvements (6,387) (267,783) (1,917,606)
Proceeds from Sale of Assets -- -- 28,700
Purchase of Marketable Securities -- -- (1,476,449)
Proceeds from Sale of Marketable Securities -- -- 1,476,449
----------- ----------- -----------
Net Cash (Used) by Investing Activities -
Forward $ (6,387)$ (436,166) $(2,437,080)
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
8
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ------------------------------------------------------------------------------
<TABLE>
March 15, 1990
(Date of
Nine months ended Inception to
September 30, September 30,
1 9 9 8 1 9 9 7 1 9 9 8
------- ------- -------
Net Cash (Used) by Operating Activities -
<S> <C> <C> <C>
Forwarded $(1,786,315)$(3,090,507)$(13,637,506)
Net Cash (Used) by Investing Activities -
Forwarded (6,387) (436,166) (2,437,080)
----------- ----------- ------------
Financing Activities:
Proceeds from Note Payable - Bank -- -- (390,000)
Proceeds from Related Party Loans -- -- 1,294,582
Proceeds from Borrowings Under Line of Credit -- -- 1,365,000
Proceeds from Notes Payable - Others 220,000 -- 678,300
Proceeds from Interim Loans 855,545 57,000 2,105,840
Proceeds from Bridge Financing -- -- 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 719,000 2,116,000 8,094,343
Proceeds from Issuance of Class C
Series 1 Preferred Stock -- -- 2,109,347
Proceeds from Issuance of Class C
Series 2 Preferred Stock -- 1,249,190 2,131,630
Proceeds from Exercise of Options -- 1,256 10,250
----------- ----------- -----------
Net Cash - Financing Activities 1,794,545 3,423,446 16,127,255
----------- ----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,843 (103,227) 52,669
Cash and Cash Equivalents - Beginning of Periods 50,826 335,912 --
----------- ----------- -----------
Cash and Cash Equivalents - End of Periods $ 52,669 $ 232,685 $ 52,669
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest - Related Party $ -- $ -- $ 104,992
Interest - Other $ 16,031 $ -- $ 149,849
Income Taxes $ -- $ -- $ --
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
9
<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 nine months ended September 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.
In accordance with the terms of the Stock Plan (See Note 4), 600 options were
exercised at a nominal price during the nine months ended September 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 these transactions, the Company's statement of operations
reflects non-cash interest and compensation expense of $30,240 for the nine
months ended September 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, 1997 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 September 30, 1998 and the consolidated results of its operations for
the nine months ended September 30, 1998 and 1997 and for the cumulative period
from March 15, 1990 (date of inception) to September 30, 1998. 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, 1997. The results of operations for
the nine month periods ended September 30, 1998 and 1997 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) Stock Plan
As a result of the exercise of 600 stock options during the nine months ended
September 30, 1997, the Company's statements of operations reflect a charge to
non-cash compensation expense of $240. The offsetting amount was reflected as
paid-in capital. The charge reflects the market value of the Company's Common
Stock issued over the exercise price paid.
(5) Blech Purchase Agreement
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 for a purchase price of $100
per share ($5,500,000 in the aggregate), or the underlying shares of Common
Stock. Subsequent to December 31, 1996, the Blech Purchase Agreement was amended
to extend the purchase period. Through December 31, 1997, Blech purchased
95,620,000 shares of Common Stock for a total of $4,781,000. In the three months
ended March 31, 1998, Blech purchased 14,380,000 shares of Common Stock for a
total of $719,000. This completed the obligations under the Blech Purchase
Agreement. (See Notes 8 and 9).
11
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- ------------------------------------------------------------------------------
(5) Blech Purchase Agreement (Continued)
Pursuant to the Purchase Agreement, the Company, Dr. Pandey and Blech have also
entered into a stockholder's agreement, which, among other things: (i) generally
prohibits the sale of any of Dr. Pandey's shares of capital stock of the Company
for a period of five years, except with the consent of Blech; (ii) provides
Blech with the right to sell his pro rata portion (relative to the holdings of
Dr. Pandey) of any proposed sales of shares by Dr. Pandey, and a reciprocal
right in favor of Dr. Pandey to sell his pro rata portion of any shares sold by
Blech; (iii) requires Blech to vote for Dr. Pandey as a director of the Company,
and to use his efforts to cause Dr. Pandey to remain Chairman, President and
chief executive officer of the Company; (iv) requires the Company and its
directors (subject to their fiduciary duties to the Company and the shareholders
of the Company) to take such actions as Blech may request to elect his nominees
to constitute a majority of the directors of the Company; and (v) provides for
certain demand and piggyback registration rights in favor of Blech.
(6) Related Parties
(A) Loans Receivable - Related Parties - In 1997 and the nine months ended
September 30, 1998, the Company made loans totaling $90,000 and $60,000,
respectively, to Consumers Choice Systems, Inc. ("CCS"), a company engaged in
the marketing and distribution of products in the over-the counter
pharmaceutical market. The Company had entered into negotiations with CCS in
connection with possible distribution of XetaPharm nutraceuticals. CCS is
engaged in a private offering of its securities, and upon completion of this
offering, The Company understands that the Edward A. Blech Trust would own
approximately 30.8% of CCS' common stock. In September 1998, the Company agreed
to accept 46,000 shares of CCS common stock valued at $34,500, as partial
repayment of the loan. The outstanding balance of the loan at September 30, 1998
was $45,500.
In 1997 and the nine months ended September 30, 1998, the Company made unsecured
loans totaling $70,000 and $74,000, respectively, to Margaret Chassman. Ms.
Chassman is the wife of David Blech, a principal shareholder of the Company. The
outstanding balance at September 30, 1998 was $144,000.
In the nine months ended September 30, 1998, the Company made unsecured loans
totaling $72,000 to Pacific Sensuals Inc. ("Pacific"), a company engaged in the
marketing and distribution of products sold through health stores. David Blech
has an indirect 38% ownership interest in Pacific. This balance was outstanding
at September 30, 1998.
A demand promissory note was issued for each of these loans, which bears an
interest rate of 10% per annum. With the exception of the CCS loans, the Company
anticipates that these loans will not be collected and has fully reserved for
their uncollectibility. Accrued interest and interest income amounted to $9,210
and $6,224, respectively, at September 30, 1998.
12
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- ------------------------------------------------------------------------------
(6) Related Parties (Continued)
(B) Due To Related Parties -
(i) Pursuant to the Blech Agreement (See Note 5), on February 7, 1997, Dr.
Pandey 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
12,144 shares of Series 3 Preferred Shares. These shares were then converted
into 19,430,400 shares of Common Stock at $.0625 per share. At September 30,
1998, the Company has an indebtedness to Dr. Pandey for the accrued interest
on the notes totaling $80,611.
(ii)The Company leases its operating facilities under an operating lease that
began in April 1991 and expires on September 30, 2000. In 1996, Dr. Pandey
purchased a 25% beneficial ownership in the lessor as a limited partner in
such entity, which may be deemed to be an affiliate of Dr. Pandey. The lease
provides the Company with renewal options for three additional five year
periods. Management has stated its intention to renew. Rent expense under
the operating lease amounted to $104,070 and $119,386 for the nine months
ended September 30, 1998 and 1997, respectively. As of September 30, 1998,
the Company is in arrears with respect to rental payments in the amount of
$102,420.
(7) Investment
In September 1998, the Company agreed to convert a portion of its loan
receivable from Consumers Choice systems, Inc. ("CSS") into shares of CCS common
stock. The Company received 46,000 shares of CCS common stock at a price of $.75
per share or $34,500. The stock is not registered at this time and there is no
public market for these shares of stock.
(8) Notes Payable
An individual made two loans to the Company during 1996 aggregating to $115,000.
Each of these loans was evidenced by ten percent and twelve percent (at simple
interest) promissory notes, due six months from the date of the loan. Each
promissory note was subject to a six month extension, which the Company
exercised. In September 1997, these two loans were extended for an additional
one year evidenced by 12% (at simple interest) promissory notes. The accumulated
interest of $13,300 was also converted into one year 12% promissory notes. In
the nine months ended September 30, 1998, this individual made four additional
loans to the Company aggregating to $170,000. Each of these loans was evidenced
by ten percent and twelve percent (at simple interest) promissory notes, due one
year from the date of the loan. This individual also has the right to convert
these loans into shares of Company Common Stock at $.01 per share.
In September 1998, two individuals made loans of $25,000 each, which are
evidenced by eight percent (at simple interest) promissory notes, due one year
from the date of the loan. One individual also has the right to convert the loan
into shares of Company Common Stock at $.01 pr share. Accrued interest and
interest expense related to these notes amounted to $133 and $14,097,
respectively, at the nine months ended September 30, 1998.
The weighted average interest rate on short-term borrowings as of September 30,
1998 was approximately 11%.
13
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- ------------------------------------------------------------------------------
(9) Loans Payable
In February, 1998, an individual made a loan to the Company in the amount of
$10,000.
In the nine months ended September 30, 1998, the Company received $845,545 from
David Blech and six non-affiliated individuals in the form of loans. At
September 30, 1998, outstanding loans amounted to $855,545.
(10) Subsequent Events
(A) The Company conducted a rights offering (the "Rights Offering"), pursuant to
which it offered to those holders ("Holders") of Xechem's Common Stock, who
purchased Common Stock pursuant to the Blech Purchase Agreement, the right to
subscribe for an aggregate of 275,000,000 additional shares of Common Stock at a
price of $.01 per share, subject to the proviso that until sufficient Common
Stock is authorized for issuance, the Company will issue a new series of Class C
Preferred Shares which will be converted to Common Stock when sufficient Common
Stock is authorized. The Rights Offering was to expire on September 15, 1998 but
has been extended. Holders of loans of $480,000 (see Note 9) have committed to
convert to Common Stock under the Rights Offering. Holders of Notes Payable (see
Note 8) have the option to convert their loans to equity.
(B) Pro Forma - When the loans payable of $480,000 (See Note 9) are converted
into equity under the Rights Offering, a pro forma balance sheet would be as
follows:
Actual Effect Pro Forma
September 30, of November 15,
1 9 9 8 Transaction 1 9 9 8
------- ----------- -------
Current Liabilities $2,098,852 $ (480,000) $1,618,852
Stockholders Equity 116,797 480,000 596,797
---------- ---------- ----------
Totals $2,215,649 $ -- $2,215,649
------ ========== ========== ==========
The effect of the above transactions would be antidilutive and accordingly basic
and diluted earnings per share are not shown.
(C) In July 1998, the Company received a demand from the trustee of the estate
of Kensington Wells Incorporated for payment of $40,000 alleged to be due per
the fee agreement between the Company and Kensington Wells Incorporated related
to the introduction of David Blech to the Company. The Company had written off
this purported obligation in 1997 based upon certain defenses it has asserted to
this obligation. The Company is presently in the discovery process with the
trustee and there can be no assurances as to whether the Company will be
required to pay some or all of this obligation
(D) In December 1998, the Company has received demand from the lessor of its
facilities for the repayment of past due rent. The landlord of the property
which the Company leases for its principal business office and research
facilities and the Company have agreed to a settlement of past amounts due to
the landlord under the lease. This settlement requires the Company to make
periodic payments to the landlord aggregating $136,388.93 of past due rent to be
paid off by March 31, 1999. In the event that the Company is unable to comply
with the terms of this settlement, or to satisfy its currently accruing rent
obligations, the Company could be forced to seek a new location for the
principal offices and research facilities and forfeit much, if not all of its
extensive leasehold improvements.
. . . . . . .
14
<PAGE>
Item 2. Management's Discussion and Analysis.1
General
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. The assets of Xechem, Inc., a subsidiary of LyphoMed, Inc. (later known
as Fujisawa/LyphoMed, Inc.), a publicly traded company were purchased in March
1990 and registered in Illinois. Xechem Inc. (1990), Xechem Laboratories (formed
in 1993) and XetaPharm, Inc.
(formed in 1996) are subsidiaries of the Company.
Results of Operations
The Nine Months Ended September 30, 1998 vs. The Nine Months Ended
September 30, 1997
The following table sets forth certain statement of operations data of the
Company for the cumulative period from inception (March 15, 1990) to September
30, 1998 and for each of the six months ended September 30, 1998 and September
30, 1997.
Nine Months Cumulative
Ended Inception to
September 30, June 30,
1998 1997 1998
(in thousands)
Revenue $ 73.7 $ 30.0 $ 763.7
Research and Development Expense $ 962.3 $1,472.8 $ 8,017.7
Rent $ -- $ -- $ 410.1
Rent - Related Party $ 104.1 $ 119.4 $ 222.7
General and Administrative $ 894.9 $ 972.3 $ 6,962.3
Writedown of Inventory $ -- $ -- $ 1,020.0
Writedown of Intangibles $ -- $ -- $ 517.0
(Loss) from operations $(1,887.6)$(2,534.5) $(16,386.17)
Revenue
The $43,700 increase in revenue from the nine months ended September 30,
1997 to the nine months ended September 30, 1998 was attributable to an increase
in product sales. There were no service sales in the nine months ended September
30, 1998. The 1998 product sales of $73,700 were by the Company's subsidiary,
XetaPharm, which introduced its line of over-the-counter natural health
products, commonly known as nutraceuticals, in June 1996.
- --------
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 also may 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.
15
<PAGE>
Research and Development
The Company's research and development expenditures continue to emphasize
compounds for generic anticancer, antiviral and antibiotic products that enjoy
significant market demand but are no longer subject to patent protection.
Research and development expenditures decreased by $510,500 to $962,300, or
(34.7%), for the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997.
Expenditures on the development of the Company's process for producing
paclitaxel of $229,000 represents a decrease of $140,800, or (38.1%), as
compared to the nine months ended September 30, 1997. Research and development
costs for bleomycin were $9,800 for the nine months ended September 30, 1998, an
increase of $8,300, as compared to the nine months ended September 30, 1997.
XetaPharm had research and development expenses of $157,900 for market
readiness on alternative medicines and nutraceuticals in the nine months ended
September 30, 1998. This represents a net increase of $21,200 or 15.5% of
expenses for the period ended September 30, 1998 as compared to the period ended
September 30, 1997.
One cholesterol-lowering project, still in development, represented $85,800
of decreased costs as compared to this same period in 1997. The Company's other
research and development projects, both for customers and in-house research,
totaled $530,700 for the nine months ended September 30, 1998, a decrease of
$313,400, or (37.1%) from the same period in 1997.
The Company anticipates that, subject to the availability of funding,
research and development expenditures will continue for paclitaxel, as well as
the development of other anticancer, antiviral and memory enhancing drugs.
Rent, General and Administrative
Rent, general and administrative expenses decreased $92,700, or (8.5%), for
the nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997. Significant expense increases for the period ended September
30, 1998, were: Bad debt expenses of $261,000, and Sales and Use Tax expenses of
$12,300. The sales and use tax figure represents an amount that was above the
1997 estimate of $23,200. These increases were offset by significant expense
decreases of $241,500, which included: Consulting $52,300; NASDAQ fees $43,100;
Repairs & Maintenance $42,200; Officer Salaries $32,500; and Promotions $21,100.
Legal and accounting expenses totaled $174,800 for the nine months ended
September 30, 1998. This represents a decrease of $66,000 or (27.4%), as
compared to the same period in 1997. Other general and administrative costs
decreased $93,506 or (20.3%), to $366,000, in 1998 compared to the same period
in 1997.
The Company anticipates that, provided adequate funding is available to the
Company, general and administrative expenses will increase as a result of the
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 $1,887,600, a decrease of
$646,900, or (25.5%), for the nine months ended September 30, 1998 as compared
to the same period in 1997, and is primarily a result of the foregoing.
Interest expense increased approximately $5,500, or 53.7%, to $15,800, in
the nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997.
16
<PAGE>
Liquidity and Capital Resources; Plan of Operations
On September 30, 1998, the Company had cash and cash equivalents of $52,700,
negative working capital of $1,446,400 and stockholder's equity of $116,800.
As a result of its net losses through December 31, 1997 and accumulated
deficit since inception, the Company's accountants, in their report on the
Company's financial statements for the year ended December 31, 1997, 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 have been 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's expected research and
development activities have been curtailed due to the inability of the Company
to meet the required significant cost expenditures.
In May 1995, the Company filed a Drug Master File ("DMF") with the Food and
Drug Administration ("FDA") for the Company's facilities. The Company has
completed its technology and filed a DMF for paclitaxel in June 1997; however,
the Company's facilities have yet to be inspected by the FDA for current Good
Manufacturing Practices ("cGMPs") and it is not known at this time when any
inspection will occur. The Company has sufficient raw materials to produce
commercial bulk paclitaxel that 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 1999. Although the
Company has the capability to, and may, sell paclitaxel for research purposes,
to date, the Company has not received any revenues from sales of paclitaxel for
human consumption and has received only minimal revenues from other product
sales or sales of paclitaxel for research and development. As a result, during
1997, the Company determined to write off its crude paclitaxel, work-in-process
paclitaxel and finished (pure) paclitaxel inventory in the amount of $1,020,000.
Additionally, to the extent the Company elects to manufacture bulk paclitaxel
domestically and ship it overseas for packaging, the Company's facilities 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 (not yet so
approved). Otherwise, the Company can produce the product entirely overseas;
however, it most likely would subcontract production to others from raw material
or partially processed raw material provided by the Company, and might also
enter into joint venture or other marketing arrangements for sale of the product
overseas. There can be no such assurances 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 indirectly through others, or be able to obtain satisfactory packaging of the
product in single dosage vials from an independent manufacturer.
The Company has signed "Strategic Alliance Agreements" with two European
companies to license production, marketing and selling of bulk and injectable
paclitaxel. The crude paclitaxel, which was written off in 1997, may now be sold
to the strategic alliance partners for their production of finished product. The
companies will be responsible for the registration of injectable paclitaxel in
their respective countries. Xechem will also grant a license to the companies to
manufacture and sell Xechem's patented new paclitaxel analogs as well as a new
paclitaxel formulation without Cremophor(TM) or ethanol. In return, Xechem will
be cross-licensed by the companies to produce, market and sell certain key
pharmaceutical products in the United States and India. Xechem will be
responsible for the registration of these products with the FDA. There can be no
assurances that the Company will sell any of these products in the international
market.
Xechem has expended 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 and/or subcontract or joint venture these activities with
17
<PAGE>
others. 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.
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 (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. Subsequent to December 31, 1996, the
Blech Purchase Agreement was amended to extend the purchase period. Through
December 31, 1997, Blech purchased 95,620,000 shares of Common Stock for a total
of $4,781,000. Subsequent to December 31, 1997, Blech purchased 14,380,000
shares of Common Stock for a total of $719,00. To date, cash payments of
$5,500,000 have been made under the Blech Purchase Agreement and 110,000,000
shares of Common Stock have been issued thereunder. This completed the
obligations under the Blech Purchase Agreement.
The Company continues to apply to the National Cancer Institute ("NCI") and
other governmental agencies to fund its research on specific projects and those
projects that are in the Company's expertise. At this time, there are no
applications pending; however, new applications are being prepared for
submission to NCI.
The Company conducted a rights offering (the "Rights Offering"), pursuant to
which it will offer to those holders ("Holders") of Xechem's Common Stock, who
purchased Common Stock pursuant to the Blech Purchase Agreement, the right to
subscribe for an aggregate of 275,000,000 additional shares of Common Stock at a
price of $.01 per share, subject to the proviso that until sufficient Common
Stock is authorized for issuance, the Company will issue a new series of Class C
Preferred Shares which will be converted to Common Stock when sufficient Common
Stock is authorized.
The offering was not fully subscribed and funds previously received in the
form of loans will be converted into shares of Common Stock.
The Company is currently planning a private offering of its Common Stock
which would offer for sale an additional 40,000,000 shares at a price based upon
the current market price (approximately $.10 per share). If the private offering
is not fully subscribed, the Company may be unable to obtain substitute
financing and may be unable to meet its obligations or continue its operations.
The Company cannot offer any assurances that all or any shares of Common Stock
will be sold in the private offering and it is expected that additional funds
will have to be raised by the Company to support ongoing operations even if the
private offering is fully subscribed.
Year 2000
The Company has completed an initial review of its information and
non-information technology systems. The Company believes that these systems will
be Year 2000 compliant no later than the second quarter of 1999. The Company has
made an initial determination that the costs and/or consequences associated with
the Year 2000 issue are estimated to be $10,000 and are not expected to have a
material adverse effect on its business operations or future financial
condition. The Company, however will continue to monitor the Year 2000 readiness
of these systems. The outside payroll service has informed the Company it is
Year 2000 compliant and certain manufacturers of research and development
equipment have assured the Company that any recently purchased software will be
Year 2000 compliant. An accounting software package is currently being installed
and the financial systems will be in Year 2000 compliance by the end of the
first quarter 1999, the Company will conduct appropriate testing of this system
to insure Year 2000 compliance. The Company will complete a further review by
soliciting and obtaining certification of Year 2000 compliance from certain
third-party software vendors and determining the readiness of its suppliers and
customers.
To the extent that the Company's assessment is finalized without identifying
any non-compliant systems operated by the Company or by third parties, the Year
2000 issue could have a material effect on the operations of the Company. The
severity of these possible problems would depend on the nature
18
<PAGE>
of the problem and how quickly it could be corrected or an alternative
implemented, which is unknown at this time.
By the end of the first quarter 1999, the Company will develop appropriate
contingency plans to address situations in which various systems of the Company,
or of third parties, with which the Company does business, is not Year 2000
compliant. No preparations or contingency plan will protect the Company from a
downturn in economic activity caused by the possible ripple effect throughout
the entire economy caused by the Year 2000 issue.
19
<PAGE>
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
(a).Exhibits
None
(b).Reports on Form 8-K
None
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: December 12, 1998
/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 data extracted from the
consolidated balance sheet and the consolidated statement of operations and is
qualified in its entirety by reference to such statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1998
<CASH> 52,669
<SECURITIES> 0
<RECEIVABLES> 62,447
<ALLOWANCES> 0
<INVENTORY> 357,753
<CURRENT-ASSETS> 652,468
<PP&E> 840,626
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,215,649
<CURRENT-LIABILITIES> 2,098,852
<BONDS> 0
0
2,500
<COMMON> 1,397
<OTHER-SE> 112,900
<TOTAL-LIABILITY-AND-EQUITY> 2,215,469
<SALES> 73,703
<TOTAL-REVENUES> 73,703
<CGS> 2,564,429
<TOTAL-COSTS> 2,564,429
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10,283)
<INCOME-PRETAX> (2,538,494)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,538,494)
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</TABLE>
