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, 1999
-------------------------------------------------
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 [ ] No [X]
Number of shares outstanding of the issuer's common stock, as of June 5, 1999
was 229,385,996 shares.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
1
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
Page No.
--------
Part I. Financial Information
Item 1. Consolidated Balance Sheets as of
March 31, 1999 [Unaudited] and December 31, 1998 [Audited].. 3..4
Consolidated Statements of Operations
for the three months and nine months ended
March 31, 1999 and 1998 [Unaudited] ........................ 5
Consolidated Statement of Stockholders'
Equity for the three months ended
March 31, 1999 [Unaudited].................................. 6
Consolidated Statements of Cash Flows for
the three months ended March 31, 1999 and
1998 [Unaudited]............................................ 7..8
Notes to Consolidated Financial Statements..................... 9..11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 12..16
Part II. Other Information ............................................. 17..18
Signatures .............................................................. 19
2
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<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
========================================================================================
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999] [UNAUDITED]
AND DECEMBER 31, 1998 [AUDITED]
========================================================================================
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 44,650 $ 40,978
Accounts Receivable 60,076 14,309
Inventories:
Raw Materials 236,657 212,064
Finished Goods 120,937 149,607
Prepaid Expenses and Other Current Assets 83,446 85,046
---------- ----------
TOTAL CURRENT ASSETS 545,766 502,004
Equipment - Less Accumulated
Depreciation of $676,988 and $645,593 737,353 793,663
Leasehold Improvements - Less Accumulated
Amortization of $382,886 and $365,966 632,290 649,210
Loans Receivable - Related Party; Less Allowance for
Doubtful Accounts of $118,418, 4,009 11,732
Cash Surrender Value of Officers Life Insurance 43,544 43,544
Deposits 20,497 18,867
---------- ----------
TOTAL ASSETS $1,983,459 $2,019,021
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
================================================================================================================
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999
[UNAUDITED]
================================================================================================================
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 709,696 $ 677,912
Accrued Expenses 295,298 358,194
Loans Payable 15,000 1,143,399
Other Current Liabilities and Minority Interest 64,152 44,397
TOTAL CURRENT LIABILITIES 1,084,146 2,223,902
------------ ------------
NOTES PAYABLE - RELATED PARTY 472,300 298,300
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS DEFICIENCY:
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 2,500
Class B 8% Preferred Stock, $.00001 Par Value, 1,150 Shares
Authorized; None Outstanding -- --
Class C Preferred Stock, $.00001 Par Value, 2,996,350
Shares Authorized; -- --
Class C Series 4, Par Value $.00001, Voting Convertible
100,000 Shares Authorized; 100,000 Issued and Outstanding 1 --
Additional Paid-in Capital [Class A Voting Preferred] 399,999 --
Common Stock, $.00001 Par Value, 247,000,000
Shares Authorized; 229,385,996 Shares Issued and Outstanding 2,293 1,405
Additional Paid-in Capital 30,364,436 29,559,262
Deficit Accumulated During the Development Stage (30,342,216) (30,066,348)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 427,013 (503,181)
------------ ------------
$ 1,983,459 $ 2,019,021
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
================================================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
================================================================================================================
Cumulative Period
-----------------
from March 15,
--------------
Three months ended 1990 [Date of
------------------ -------------
March 31, Inception] to
--------- -------------
1999 1998 March 31, 1999
---- ---- --------------
<S> <C> <C> <C>
REVENUES $ 8,890 $ 44,075 $ 786,542
EXPENSES:
Research & Development 119,240 412,737 8,432,409
Rent 30,719 34,027 652,634
General & Administrative 125, 212 288,110 7,243,135
Writedown of Inventory -- -0- 1,020,000
Writedown of Intangibles -- -0- 517,000
-------------- -------------- --------------
TOTAL EXPENSES 275,171 734,874 17,865,178
-------------- -------------- --------------
(LOSS) FROM OPERATIONS (266,281) (690,799) (17,078,636)
Other Income - Net -0- 54 274,139
Interest Income 18 6,749 9,140
Interest (Expense) - Related Party (9,605) -0- (8,621,486)
Interest (Expense) -0- (4,224) (4,925,373)
-------------- -------------- --------------
(LOSS) BEFORE INCOME TAXES (275,868) (688,220) (30,342,216)
Income Taxes -- -- --
-------------- -------------- --------------
NET (LOSS) $ (275,868) $ (688,220) $ (30,342,216)
============== ============== ==============
PREFERRED STOCK DIVIDENDS $ -- $ -- $ 101,594
============== ============== ==============
NET (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ (275,868) $ (688,220) $ (30,443,810)
============== ============== ==============
NET (LOSS) PER SHARE $ (0.001) $ (0.001)
============== ==============
BASIC AND FULLY DILUTED
AVERAGE NUMBER OF SHARES OUTSTANDING 229,385,996 119,879,839
============== ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
=================================================================================================================
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
=================================================================================================================
Class A Additional Class B
Voting Preferred Paid In 8% Preferred
Capital
-------------------------- ------------ --------------------------
# of Par # of Par
Shares Value Class A Shares Value
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1998 2,500 -- $ 2,500 $ -- $ --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Series 3
Preferred Stock Class C at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Net Loss for Year -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Balance - March 31, 1999 $ 2,500 $ 0 $ 2,500 $ 0 $ 0
=================================================================================================================
Additional Class C Class C
Paid In Series 1 Series 2
Capital Voting Conv. Preferred Voting Conv. Preferred
------------ -------------------------- --------------------------
# of Par # of Par
Class B Shares Value Shares Value
------------ ------------ ------------ ------------ ------------
Balance - December 31, 1998 $ -- $
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Series 3
Preferred Stock Class C at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Net Loss for Year -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Balance - March 31, 1999 $ 0 $ 0 $ 0 $ 0 $ 0
=================================================================================================================
Class C Additional
Series 3 Paid In Xechem Inc.
Voting Conv. Preferred Capital Common Stock
-------------------------- ------------ --------------------------
# of Par # of Par
Shares Value Class C Shares Value
------------ ------------ ------------ ------------ ------------
Balance - December 31, 1998
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Series 3
Preferred Stock Class C at $.01 per Share 100,000 1 399,999 -- --
Private Placement-Common Stock
at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- -- --
Private Placement-Common Stock
and conversion of debt at $.01 per Share -- -- -- --
Net Loss for Year -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Balance - March 31, 1999 100,000 $ 1 $ 399,999 $ 0 $ 0
=================================================================================================================
Additional (Deficit)
Xechem International Paid In Accumulated
Common Stock Capital During the
-------------------------- ------------ ------------
# of Par Development
Shares Value Common Stage
------------ ------------ ------------ ------------
Balance - December 31, 1998 140,650,839 $ 1,405 $ 29,480,468 ($30,066,348)
Private Placement-Common Stock
and conversion of debt at $.01 per Share 15,744,302 $ 158 $ 157,288 --
Private Placement-Common Stock
and conversion of debt at $.01 per Share 1,187,500 $ 12 $ 11,863 --
Private Placement-Series 3
Preferred Stock Class C at $.01 per Share -- -- -- --
Private Placement-Common Stock
at $.01 per Share 44,554,495 $ 446 $ 445,099 --
Private Placement-Common Stock
and conversion of debt at $.01 per Share 1,029,400 $ 10 $ 10,283 --
Private Placement-Common Stock
and conversion of debt at $.01 per Share 9,551,300 $ 96 $ 95,417 --
Private Placement-Common Stock
and conversion of debt at $.01 per Share 3,848,160 $ 38 $ 35,946 --
Private Placement-Common Stock
and conversion of debt at $.01 per Share 12,820,000 $ 128 $ 128,072 --
Net Loss for Year -- -- -- ($ 275,868)
- ---------------------------------------------------------------------------------------------------
Balance - March 31, 1999 229,385,996 $ 2,293 $ 30,364,436 ($30,342,216)
===================================================================================================
</TABLE>
6
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<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. ND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
========================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
========================================================================================================
March 15,
---------
1990 (Date of
-------------
Three months ended Inception) to
------------------ -------------
March 31, March 31,
--------- ---------
1 9 9 9 1 9 9 8 1 9 9 9
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Loss $ (275,868) $ (688,220) $(30,342,216)
------------ ------------ ------------
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation 40,052 45,065 588,845
Amortization 16,920 -- 553,762
(Gain)/Loss on Sale of Assets -- -- 5,609
Interest and Compensation Expense
in Connection with Issuance of Equity Securities -- -- 14,259,740
Write Down of Inventories -- -- 1,020,000
Write Down of Patents -- -- 517,000
Loss on investment in related party 17,121 -- 51,621
Changes in Operating Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (45,767) (69,144) (60,076)
Inventories 4,077 (43,363) (1,372,914)
Prepaid Expenses 5,085 (12,096) (4,537)
Other Current Assets (6,685) (211,081) 36,041
Deposits (1,630) 1,650 (20,497)
Organizational Costs -- -- (13,828)
Other Assets 7,723 -- 6,131
Increase (Decrease) in:
Accounts Payable 31,784 55,611 709,697
Other Current Liabilities 19,756 (12,939) 24,752
Accrued Expenses (62,896) 32,251 295,298
------------ ------------ ------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES (250,328) (901,726) (13,745,572)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent Issuance Costs -- -- (548,174)
Purchases of Equipment and
Leasehold Improvements -- (6,888) (1,951,369)
Proceeds from Sale of Asset -- -- 28,700
Investment in Related Party -- -- (34,500)
Increase in Cash Surrender Value of
Officers Life Insurance -- -- (43,544)
Purchase of Marketable Securities -- -- (1,476,449)
Proceeds from Sale of Marketable Securities -- -- 1,476,449
------------ ------------ ------------
NET CASH FLOWS FROM INVESTING
ACTIVITIES $ 0 $ (6,888) $ (2,548,887)
------------ ------------ ------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
===================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
===================================================================================================
March 15,
---------
1990 (Date of
-------------
Three months ended Inception) to
------------------ -------------
March 31, March 31,
--------- ---------
1 9 9 9 1 9 9 8 1 9 9 9
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Proceeds from Related Party Loans $ 254,000 $ -- $ 1,548,582
Proceeds from Notes Payable - Others -- -- 628,300
Proceeds from Interim Loans -- 964,545 2,306,694
Proceeds from Bridge Financing -- -- 640,000
Capital Contribution -- -- 95,000
Payments on Interim Loans -- -- (498,000)
Payments on Notes Payable -Others -- -- (520,000)
Payment on Stockholder Loans -- -- (207,037)
Proceeds from Issuance of
Common Stock -- -- 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 -- -- 2,131,630
Proceeds from Exercise of Options -- -- 10,250
------------ ------------ ------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 254,000 964,545 16,339,109
------------ ------------ ------------
NET CHANGE IN CASH 3,672 55,931 44,650
CASH, BEGINNING OF YEAR 40,978 50,826 --
------------ ------------ ------------
CASH, END OF YEAR $ 44,650 $ 106,757 $ 44,650
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest Paid - Related Party $ 9,605 $ -- $ 114,597
============ ============ ============
Interest Paid - Other $ -- $ 6,089 $ 161,818
============ ============ ============
Income Taxes Paid $ -- $ -- $ --
============ ============ ============
NONCASH FINANCING ACTIVITIES
Net Assets of Xechem India Contributed to
Capital and Minority Interest $ $ -- $ 118,191
============ ============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
8
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the first quarter of 1999, $441,860 of debt was converted to 44,180,662
shares of common stock. The Company also converted $400,000 of debt to 100,000
shares of Class C Series 4 voting Convertible Preferred Stock. The shares can be
converted to Common Stock at a ratio of 400:1.
$5,038.00 of debt converted to 503,800 shares of common stock are still in
transition. The Company had a Rights Offering under the Blech Purchase Agreement
for 44,554,495 shares of common stock.
See Accompanying Notes to Consolidated Financial Statements.
9
<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, 1998 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, 1999 and the consolidated results of its operations for the
three months ended March 31, 1999 and 1998 and for the cumulative period from
March 15, 1990 (date of inception) to March 31, 1999. 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, 1998. The results of operations for the three month
periods ended March 31, 1999 and 1998 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.
[4] RELATED PARTIES
A) LOANS RECEIVABLE - RELATED PARTIES - In 1998 and 1997, the Company made loans
totaling $60,000 and $90,000, respectively to Consumers Choice Systems, Inc.
("CCS"), a company engaged in the marketing and distribution of products in the
over-the-counter pharmaceutical market.
In September 1998, the Company agreed to accept 46,000 shares of stock with an
agreed upon value of $34,500 as partial repayment of the loan. However, a 100%
valuation allowance was recorded due to the financial condition of CCS. Thus,
the investment in CCS was reduced to zero. At December 31, 1998, CCS had an
outstanding loan balance of $11,000 after a reserve of $44,000. In March 1999
CCS made a payment of $11,000.
B) LOANS PAYABLE, RELATED PARTIES -
i) As of March 31, 1999 Dr. Pandey has made numerous advances to the Company
and was due $174,000. No interest has been recorded or paid. Dr. Pandey was
also due prior year deferred salary of $51,425 and unpaid expenses of
$11,000.
ii) An individual made two loans to the Company during 1996 aggregating to
$115,000. Each of these loans were evidenced by 10% and 12% (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 1998, the individual made four additional loans to the
Company aggregating $170,000. Each of these loans was evidenced by 10% and
12% (simple interest) promissory notes, due one year from the
10
<PAGE>
date of the loan. The individual has agreed to extend the term of the
loans, which aggregate $298,300, to expire in September 2000 and simple
interest will be at 12% per annum. Between January and March 1999 interest
was paid on these loans amounting to $9,605.
iii. 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 $30,719 and $34,027 for the three
months ended March 31, 1999 and 1998, respectively. As of March 31, 1999,
the Company is in arrears with respect to rental payments in the amount of
$100,741. In addition, the future minimum payments under non-cancelable
operating leases consisted of the following at March 31, 1999:
1999 $ 87,852
2000 87,853
----------
$ 175,705
[5] SUBSEQUENT EVENTS
During 1999, Xechem entered into negotiations with a Southeast Asian company to
help promote, market and produce Xechem's products. As of October 15, 1999
Xechem Inc. has received $200,000 in consulting service fees from the Southeast
Asian company.
11
<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 niche 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),
XetaPharm, Inc. (formed in 1996) and Xechem (India) Pvt. Ltd. are subsidiaries
of the Company. Xechem (Europe) an affiliate of Xechem, Inc., was closed in June
1999.
Results of Operations
- ---------------------
The Three Months Ended March 31, 1999 vs. The Three Months Ended March 31, 1998
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,
1999 and for each of the three months ended March 31, 1999 and March 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS CUMULATIVE
ENDED INCEPTION TO
MARCH 31, MARCH 31,
------------------------- ----------
1999 1998 1999
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Revenue $ 8.9 $ 44.1 $ 786.5
Research and Development Expense $ 119.2 $ 412.7 $ 8,432.4
Rent, general and administrative expenses $ 155.9 $ 322.1 $ 7,895.8
Writedown of Inventory and intangibles $ -- $ -- $ 1,537.0
(Loss) from operations $ (266.2) $ (690.7) $(17,078.7)
</TABLE>
- ------------------
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.
12
<PAGE>
Revenue
- -------
The $35,200 decrease in sales from three months ended March 31, 1998 to the
three months ended March 31, 1999 was due to the Company's inactivity and
operating with a skeleton staff and limited sales and marketing efforts. All
revenues from the first quarter of 1999 were from product sales by the Company's
subsidiary XetaPharm, Inc.. The revenue is net of cost of goods sold.
Research and Development
- ------------------------
The Company's research and development expenditures were made in
conjunction with the development of compounds to make niche 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 $293,500 to $119,200, or 71.1%, for the three months ended March
31, 1999 as compared to the three months ended March 31, 1998.
Research and development costs decreased due to lack of funding and limited
operations. Costs consisted mainly of fixed expenditures. These lower costs will
continue until additional financing becomes available.
Expenditures for research and development may increase during 1999 if the
Company is able to finalize its pending application with the State of New Jersey
for a credit based upon net operating losses, obtain additional financing and
increase nutraceutical sales. The Company believes that increased research and
development expenditures could significantly hasten the development of new
products as well as the marketability of paclitaxel and its second generation
analogs.
The Company has received and anticipates additional financing from an Asian
investor. See Subsequent Events.
Rent, General and Administrative
- --------------------------------
Rent, general and administrative expenses decreased $166,200 or 51.6% for
the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998.
Rent expenses remained constant for the three month period comparing 1999
to 1998 while all other areas decreased significantly due to reduced operations
until additional funding becomes available.
Legal and accounting expenses totaled $1,100 for the three months ended
March 31, 1999.
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 additional
funding to finance these efforts.
13
<PAGE>
Liquidity and Capital Resources; Plan of Operations
- ---------------------------------------------------
On March 31, 1999, the Company had cash and cash equivalents of $44,650,
negative working capital of $538,381 and stockholder's equity of $427,012.
As a result of its net losses to March 31, 1999 and accumulated deficit
since inception, the Company's accountants, in their report on the Company's
financial statements for the year ended December 31, 1998, 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 ("DMF") with the Food and
Drug Administration ("FDA") for the Company's facilities. The Company has
completed its technology validation and filed a DMF for bulk paclitaxel
manufacturing in June 1997; however, the Company's facilities have yet to be
inspected by the FDA for current Good Manufacturing Practices ("cGMP"). The
Company has sufficient raw materials to produce commercial bulk paclitaxel that
has a market value of approximately $2,000,000 at current prices, however the
book value was written down to $0.00 in 1997, and anticipates, but can provide
no assurances, that it will commence sales of paclitaxel in the international
market in 2000. Prior to commencing such sales, the Company must file for and
obtain approvals from appropriate regulatory agencies in foreign jurisdictions.
Additionally, to the extent the Company elects to manufacture bulk paclitaxel
domestically and ship it overseas for packaging, the Company's 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). Alternatively, 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 assurance that necessary approvals will not be
delayed or subject to conditions or that the Company will be able to meet such
conditions. In addition, the Company has no experience in marketing
pharmaceutical products for human consumption and there can be no assurance that
the Company will be able to successfully market its paclitaxel product in bulk,
or indirectly through others, or be able to obtain satisfactory packaging of the
product in single dosage vials from an independent manufacturer.
The Company has "Strategic Alliance Agreements" with two European
companies, and is negotiating with several other companies outside of the United
States to license production, market and sell bulk and injectable paclitaxel.
These companies will be responsible for the registration of injectable
paclitaxel in their respective countries. Xechem will also grant a license to
these 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 these 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. The
Company estimates that the aggregate market for these products currently exceeds
$1,000,000,000.
14
<PAGE>
Xechem has expended and will continue to expend substantial funds in
connection with the research and development of its products. As a result of
these expenditures, and even with revenues anticipated from commencement of
sales of paclitaxel, the Company anticipates that losses will continue for the
foreseeable future.
Xechem's planned activities will require the addition of new personnel,
including management, and the continued development of expertise in areas such
as preclinical testing, clinical trial management, regulatory affairs,
manufacturing and marketing. Further, if Xechem receives regulatory approval for
any of its products, in the United States or elsewhere, it will incur
substantial expenditures to develop its manufacturing, sales and marketing
capabilities and/or subcontract or joint venture these activities with 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 a Stock Purchase Agreement
(the "Blech Purchase Agreement") with David Blech 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. 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.
The Company has conducted a rights offering (the "Rights Offering"),
pursuant to which it has 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 Company continues to apply to various governmental agencies to fund its
research on specific projects and those projects that are in the Company's
expertise.
15
<PAGE>
Year 2000
- ---------
The Company has reviewed its critical information systems for Year 2000
(Y2K) compliance and has upgraded its main software to be year 2000 compliant.
As a result of the review and action plan, the Company anticipates no major
problems for the year 2000.
As part of our review and action plan:
1. A complete test of the computer system for compliance is planned.
2. Purchases are low and are primarily from nationally known
Pharmaceutical suppliers which must be Y2K compliant by FDA standards.
Therefore it was deemed unnecessary to verify their compliance.
3. All our major software has been purchased from well known
manufacturers and certified Y2K compliant, i.e. Microsoft Windows 95 &
98 and Peachtree Accounting Software.
4. The Company has demonstrated minimal risks from our computer systems
if at any point they are shown not to be Y2K compliant. The computer
system is not necessary for pharmaceutical operations to continue on a
daily basis.
16
<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. Patents
The Company's success depends in part on its ability to obtain patent protection
for its proprietary products and to preserve its trade secrets. The Company
obtained one U.S. patent in 1997, five US patents in 1998 and one in 1999. The
Company has submitted several additional patent applications in the United
States and internationally. Any present or future patents may not prevent others
from developing competitive products.
U.S. PATENT DATE OF
NUMBER TITLE OF PATENT ISSUE
- --------------------------------------------------------------------------------
#5,654,448 "Isolation and Purification of Paclitaxel from
Organic Matter containing Paclitaxel,
Cephalomannine and Other Related Taxanes" 1997
- --------------------------------------------------------------------------------
# 5,817,510 "Device and Method for Evaluating Microorganisms" 1998
- --------------------------------------------------------------------------------
#5,840,748 "Dihalocephalomannine and Methods of Use Therefor" 1998
- --------------------------------------------------------------------------------
# 5,854,278 "Preparation of Chlorinated Paclitaxel Analogues
and Their Use Thereof as Antitumor Agents" 1998
- --------------------------------------------------------------------------------
# 5,807,888 "Preparation of Brominated Paclitaxel Analogues
and Their Use as Effective Antitumor Agents" 1998
- --------------------------------------------------------------------------------
# 5,840,930 "Method for Production of 2",3" Dihalocephalomannine" 1998
- --------------------------------------------------------------------------------
# Des. 411,308 "Covered, Multi-Well Assay Plate" 1999
- --------------------------------------------------------------------------------
17
<PAGE>
The Company's licensing agreement with the MD Anderson Cancer Center
requires the Company to expend significant sums to maintain its exclusivity
under such agreement, as well as to prosecute infringers at its cost and
expense. There can be no assurance that the Company will have the sufficient
funds to continue its rights under this agreement or to commercialize the
licensed technology.
The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants and others. There can be no assurance that these agreements will not
be breached, that the Company would have adequate remedies for any breach or
that the Company's trade secrets will not otherwise become known or
independently developed by competitors.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
None
(b). Reports on Form 8-K
None
18
<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: November 19, 1999
/s/ Ramesh C. Pandey
---------------------------
Ramesh C. Pandey, Ph.D.
President/Chief Executive Officer/
Chief Accounting Officer
19
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