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 September 30, 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 issue's common stock, as of September 30,
1999 was 229,385,996 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, 1999 [Unaudited]........................... 3..4
Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1999 and 1998 [Unaudited] ................. 5
Consolidated Statement of Stockholders'
Equity for the nine months ended
September 30, 1999 [Unaudited]........................... 6
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1999 and
1998 [Unaudited]......................................... 7..9
Notes to Consolidated Financial Statements................. 10..11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 12..15
Part II. Other Information ......................................... 16
Signatures .......................................................... 17
2
<PAGE>
<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
===========================================================================================
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999] [UNAUDITED]
AND DECEMBER 31, 1998 [AUDITED]
===========================================================================================
SEPTEMBER 30, 1999 DECEMBER 31,1998
------------------ ----------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 34,864 $ 40,978
Accounts Receivable 59,861 14,309
Inventories:
Raw Materials 237,462 212,064
Finished Goods 117,089 149,607
Prepaid Expenses and Other Current Assets 58,958 85,046
---------- ----------
TOTAL CURRENT ASSETS 508,234 502,004
---------- ----------
Equipment - Less Accumulated
Depreciation of $757,379 and $645,593 659,019 793,663
Leasehold Improvements - Less Accumulated
Amortization of $416,725 and $365,966 598,451 649,210
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 $1,833,754 $2,019,021
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
============================================================================================================
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999] [UNAUDITED]
AND DECEMBER 31, 1998 [AUDITED]
============================================================================================================
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 685,885 $ 677,912
Accrued Expenses 275,641 358,194
Loans Payable 15,000 1,143,399
Other Current Liabilities and Minority Interest 64,153 44,397
------------ ------------
TOTAL CURRENT LIABILITIES 1,020,679 2,223,902
------------ ------------
NOTES PAYABLE - RELATED PARTY 610,300 298,300
------------ ------------
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 C 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 (30,556,454) (30,066,348)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 202,775 (503,181)
------------ ------------
$ 1,833,754 $ 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,
--------------
1990 [Date of
Three months ended Nine months ended -------------
September 30, September 30, Inception] to
------------- ------------- -------------
1999 1998 1999 1998 Sept. 30, 1999
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 205,536 $ 11,591 $ 252,394 $ 73,703 $ 1,030,046
------------- ------------- ------------- ------------- -------------
EXPENSES:
Research & Development 98,209 248,673 329,463 962,263 8,642,632
Rent 14,736 -- 88,789 -- 710,704
Rent - Related Party -- 37,245 -- 104,070 --
General & Administrative 98,604 432,984 307,807 894,942 7,425,730
Writedown of Inventory -- -- -- -- 1,020,000
Writedown of Intangibles -- -- -- -- 517,000
------------- ------------- ------------- ------------- -------------
TOTAL EXPENSES 211,549 718,902 726,059 1,961,275 18,316,166
------------- ------------- ------------- ------------- -------------
(LOSS) FROM OPERATIONS (6,013) (707,311) (473,665) (1,887,572) (17,286,020)
Other Income (Expense) -- (12,185) -- 3,954 274,139
Interest Income 21 64 9,186
Interest (Expense) - Related Party (8,540) -- (26,354) -- (8,638,235)
Interest (Expense) (151) (6,399) (151) (15,802) (4,925,524)
------------- ------------- ------------- ------------- -------------
(LOSS) BEFORE INCOME TAXES (14,683) (725,895) (500,106) (1,899,420) (30,566,454)
Income Taxes
NET (LOSS) $ (14,683) $ (725,895) $ (500,106) $ (1,899,420) $ (30,566,454)
============= ============= ============= ============= =============
PREFERRED STOCK DIVIDENDS $ -- $ -- $ -- $ -- $ 101,594
============= ============= ============= ============= =============
NET (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ (14,683) $ (725,895) $ (500,106) $ (1,899,420) $ (30,668,048)
============= ============= ============= ============= =============
NET (LOSS) PER SHARE $ (.00006) $ (0.005) $ (0.002) $ (0.014)
============= ============= ============= =============
AVERAGE NUMBER OF SHARES OUTSTANDING 229,385,996 139,850,839 229,385,996 131,721,772
============= ============= ============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
============================================================================================================
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 -- -- -- -- --
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 Year - To - Date -- -- -- -- --
--------------------------------------------------------------------
Balance - September 30, 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 -- -- -- -- --
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 Year - To - Date -- -- -- -- --
--------------------------------------------------------------------
Balance - September 30, 1999 $ 0 0 $ 0 0 $ 0
====================================================================
Class C Additional
Series 4 Paid In Xechem International
Voting Conv. Preferred Capital Common Stock
-------------------------- ------------ --------------------------
# of Par # of Par
Shares Value Class C Shares Value
------------ ------------ ------------ ------------ ------------
Balance - December 31, 1998 -- -- -- 140,650,839 $ 1,405
Private Placement-Common Stock and
conversion of debt at $.01 per Share -- -- -- 15,744,302 $ 158
Private Placement-Common Stock and
conversion of debt at $.01 per Share -- -- -- 1,187,500 $ 12
Private Placement-Series 3
Preferred Stock Class C 100,000 1 399,999 -- --
Private Placement-Common Stock
at $.01 per Share -- -- -- 44,554,495 $ 446
Private Placement-Common Stock and
conversion of debt at $.01 per Share -- -- -- 1,029,400 $ 10
Private Placement-Common Stock and
conversion of debt at $.01 per Share -- -- -- 9,551,300 $ 96
Private Placement-Common Stock and
conversion of debt at $.01 per Share -- -- -- 3,848,160 $ 38
Private Placement-Common Stock and
conversion of debt at $.01 per Share -- -- 12,820,000 $ 128 $ 128,072
Net Loss Year - To - Date -- -- -- -- --
--------------------------------------------------------------------
Balance - September 30, 1999 100,000 $ 1 $ 399,999 229,385,996 $ 2,293
====================================================================
Additional (Deficit)
Paid In Accumulated
Capital During the
------------ ------------
Development
Common Stage
------------ ------------
Balance - December 31, 1998 $ 29,480,468 ($30,066,348)
Private Placement-Common Stock and
conversion of debt at $.01 per Share $ 157,288 --
Private Placement-Common Stock and
conversion of debt at $.01 per Share $ 11,863 --
Private Placement-Series 3
Preferred Stock Class C -- --
Private Placement-Common Stock
at $.01 per Share $ 445,099 --
Private Placement-Common Stock and
conversion of debt at $.01 per Share $ 10,283 --
Private Placement-Common Stock and
conversion of debt at $.01 per Share $ 95,417 --
Private Placement-Common Stock and
conversion of debt at $.01 per Share $ 35,946 --
Private Placement-Common Stock and
conversion of debt at $.01 per Share --
Net Loss Year - To - Date -- ($ 500,105)
--------------------------
Balance - September 30, 1999 $ 30,364,436 ($30,566,454)
==========================
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
========================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
========================================================================================================
March 15,
---------
1990 (Date of
-------------
Nine months ended Inception) to
----------------- -------------
September 30, September 30,
------------- -------------
1999 1998 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Loss $ (500,106) $ (1,899,420) $(30,566,454)
------------ ------------ ------------
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation 120,159 132,004 668,952
Amortization 50,759 -- 587,601
(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
(Gain)/Loss on investment in related party 12,147 (34,500) 46,647
Changes in Operating Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (45,552) 58,492 (59,861)
Inventories 7,210 (146,246) (1,369,871)
Prepaid Expenses 24,132 (61,858) 14,510
Other Current Assets 1,956 60,290 44,682
Deposits (1,630) 1,650 (20,497)
Organizational Costs -- -- (13,828)
Other Assets 7,723 -- 6,131
Increase (Decrease) in:
Accounts Payable (12,025) 6,223 665,888
Other Current Liabilities 19,756 57,236 24,752
Accrued Expenses (82,553) 39,814 275,641
------------ ------------ ------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES (398,114) (1,786,315) (13,893,358)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent Issuance Costs -- -- (548,174)
Purchases of Equipment and
Leasehold Improvements -- (6,387) (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 $ (6,387) $ (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
[UNAUDITED]
========================================================================================================
March 15,
---------
1990 (Date of
-------------
Nine months ended Inception) to
----------------- -------------
September 30, September 30,
------------- -------------
1999 1998 1999
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Proceeds from Related Party Loans $ 392,000 $ -- $ 1,686,582
Proceeds from Notes Payable - Others -- 220,000 628,300
Proceeds from Interim Loans -- 855,545 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 -- 719,000 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 -- -- 2,131,630
Proceeds from Exercise of Options -- -- 10,250
------------ ------------ ------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 392,000 1,794,545 16,477,109
------------ ------------ ------------
NET CHANGE IN CASH (6,114) 1,843 34,864
CASH, BEGINNING OF YEAR 40,978 50,826 --
------------ ------------ ------------
CASH, END OF YEAR $ 34,864 $ 52,669 $ 34,799
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest Paid - Related Party $ 26,354 $ -- $ 140,951
============ ============ ============
Interest Paid - Other $ 279 $ 16,031 $ 162,097
============ ============ ============
Income Taxes Paid $ -- $ -- $ --
============ ============ ============
NONCASH FINANCING ACTIVITIES
Net Assets of Xechem India Contributed to
Capital and Minority Interest $ -- $ -- $ 118,191
============ ============ ============
</TABLE>
8
<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:
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.
9
<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, 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 September 30, 1999 and the consolidated results of its operations for
the nine months ended September 30, 1999 and 1998 and for the cumulative period
from March 15, 1990 (date of inception) to September 30, 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 nine month periods ended September 30, 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.
[4] RELATED PARTIES
A) LOANS PAYABLE, RELATED PARTIES -
i) As of September 30, 1999 Dr. Pandey has made numerous advances to the
Company which amounts to $312,000 and is due to Dr. Pandey. No interest has
been recorded or paid.
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 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 September 1999 interest was paid on
these loans amounting to $26,354.
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
10
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
================================================================================
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
$72,796 and $66,825 for the nine months ended September 30, 1999 and 1998,
respectively. As of September 30, 1999, the Company is in arrears with
respect to rental payments in the amount of $112,427. In addition, the
future minimum payments under non-cancelable operating leases consisted of
the following at September 30, 1999:
1999 $ 29,284
2000 87,853
---------
$ 117,137
[5] SUBSEQUENT EVENTS
During 1999, Xechem has entered into negotiations with a Southeast Asian company
to help promote, market and produce Xechem's products. As of November 29, 1999
the company has paid $300,000 as a consulting fee for the services of the
Company.
In 1999 the Company is planning on issuing 52,009,318 shares of common stock as
an award to certain key employees.
On November 19, 1999 the Company's application to the New Jersey Economic
Development Authority for the sale of tax credits has been approved in the
amount of $784,236. The Company is in negotiations to transfer these credits to
a North Jersey corporation for a cash value of $650,915.
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 Nine Months Ended September 30, 1999 vs. The Nine Months Ended September 30,
1998
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, 1999 and for each of the nine months ended September 30, 1999 and September
30, 1998.
NINE MONTHS CUMULATIVE
ENDED INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999
(in thousands)
Revenue $ 252.4 $ 73.7 $ 1,030.0
Research and Development Expense $ 329.5 $ 962.3 $ 8,642.6
Rent $ 88.8 $ 104.1 $ 710.7
General and Administrative $ 307.8 $ 894.9 $ 7,425.7
Writedown of Inventory $ -- $ -- $ 1,020.0
Writedown of Intangibles $ -- $ -- $ 517.0
(Loss) from operations $ (473.7) $(1,887.6) $(17,286.0)
- ------------------
1 Some of the statements included in Item 2, Management Discussion and
Analysis, may be considered to be Aforward 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 $178,700 increase in sales from nine months ended September 30, 1998 to
the nine months ended September 30, 1999 brought total revenue to $252,400.
$18,670 was from product sales by the Company's subsidiary XetaPharm, Inc.. All
other revenues from 1999 consisted mainly of $200,200 for consulting fees and
$31,200 was for services with a reserve of $15,000.
Research and Development
- ------------------------
The Company's research and development expenditures continue to emphasize
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 $632,800 to $329,463, or
(65.8%), for the nine months ended September 30, 1999 as compared to the nine
months ended September 30, 1998.
Research and development decreased expenditures consisted mainly of reduced
compensation of $421,000 which represents a 88% decrease from 1998 , reduced
consulting fees of $50,000 which represents a 96% decrease from 1998 , reduced
insurance of $88,000 which represents a 90% decrease from 1998 , and reduced
repairs ,supplies and office expense of $45,000 which represents a 51% decrease
from 1998. These reductions were due to limited operations.
Expenditures for research and development will increase during the fiscal
year 2000 when the Company finalizes its sale of authorized tax credits from the
State of New Jersey 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.
Rent, General and Administrative
- --------------------------------
Rent, general and administrative expenses decreased $600,316 or 60.1% for
the nine months ended September 30, 1999 as compared to the nine months ended
September 30, 1998. These reductions consisted mainly of reduced compensation of
$131,000 which represents a 62% decrease from 1998 , reduced bad dept expense of
$246,000 which represents a 94% decrease from 1998 , and reduced legal fees of
$143,000 which represents a 95% decrease from 1998.
The Company anticipates that the general and administrative expenses will
increase in the year 2000 as a result of the expansion of its operations and
marketing efforts.
13
<PAGE>
Liquidity and Capital Resources; Plan of Operations
- ---------------------------------------------------
On September 30, 1999, the Company had cash and cash equivalents of
$34,864, negative working capital of $512,446 and stockholder's equity of
$202,775.
As a result of its net losses to September 30, 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 November 1999 the Company's application to the New Jersey Economic
Development Authority for the sale of tax credits has been approved in the
amount of $784,236. The Company is in negotiations to transfer these credits to
a North Jersey corporation for a cash value of $650,915. The company also has a
carryforward tax credit of $517,541 which can become available for transfer in
the State Fiscal Year 2001(July 1, 2000 to June 30, 2001).
The Company is currently in negotiations with a Southeast Asian company to
help promote, market, and produce the Company's products. The Company has
received $300,000 for services rendered and anticipates a monthly fee as well as
other considerations.
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
aggregate market for these products currently exceeds $1,000,000,000.
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
14
<PAGE>
revenue or profit from any such products. In addition, Xechem may encounter
unanticipated problems, including developmental, regulatory, manufacturing or
marketing difficulties, some of which may be beyond Xechem's ability to resolve.
Xechem may lack the capacity to produce its products in-house and there can be
no assurances that it will be able to locate suitable contract manufacturers or
be able to have them produce products at satisfactory prices.
The Company continues to apply to various governmental agencies to fund its
research on specific projects and those projects that are in the Company's
expertise. In August 1999 the Company has received a grant from the National
Cancer Institute in the amount of $87,000 for the project "Bioactive Natural
Products from Marine Extremophiles".
15
<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
16
<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 10, 1999
/s/ Ramesh C. Pandey
--------------------
Ramesh C. Pandey, Ph.D.
President/Chief Executive
Officer/Chief Officer
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