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 June 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 issuer's common stock, as of June 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
June 30, 1999 [Unaudited]................................... 3..4
Consolidated Statements of Operations
for the three months and six months ended
June 30, 1999 and 1998 [Unaudited] ......................... 5
Consolidated Statement of Stockholders'
Equity for the six months ended
June 30, 1999 [Unaudited]................................... 6
Consolidated Statements of Cash Flows for
the six months ended June 30, 1999 and
1998 [Unaudited]............................................ 7..8
Notes to Consolidated Financial Statements..................... 9..12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 13..17
Part II. Other Information ............................................. 18..19
Signatures............................................................... 20
2
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
================================================================================
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999] [UNAUDITED]
AND DECEMBER 31, 1998 [AUDITED]
================================================================================
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 34,709 $ 40,978
Accounts Receivable 63,313
14,309
Inventories:
Raw Materials 236,657 212,064
Finished Goods 118,717 149,607
Prepaid Expenses and Other Current Assets 68,759 85,046
------------- -----------
TOTAL CURRENT ASSETS 522,245 502,004
Equipment - Less Accumulated
Depreciation of $717,327 and $645,593 697,300 793,663
Leasehold Improvements - Less Accumulated
Amortization of $399,806 and $365,966 615,371 649,210
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 $ 1,902,965 $ 2,019,021
===============================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
================================================================================
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999
[UNAUDITED]
================================================================================
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 720,413 $ 677,912
Accrued Expenses 275,641 358,194
Loans Payable 15,000 1,143,399
Other Current Liabilities and Minority Interest 64,151 44,397
-------------- -------------
TOTAL CURRENT LIABILITIES 1,075,205 2,223,902
NOTES PAYABLE - RELATED PARTY 610,300 298,300
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 Outstanding1 --
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 (30,551,769) (30,066,348)
--------------- ------------
TOTAL STOCKHOLDERS' EQUITY 217,460 (503,181)
-------------- ---------
$ 1,902,965 $ 2,019,021
============== =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended Cumulative Period from
------------------ ---------------- ----------------------
June 30, June 30, March 15, 1990 [Date
-------- -------- --------------------
of Inception] to June
---------------------
1999 1998 1999 1998 30, 1999
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
REVENUES $ 37,968 $ 18,037 $ 46,858 $ 62,112 $ 824,510
------------- ------------- ------------- ------------ ------------
EXPENSES:
Research & Development 112,014 300,853 231,255 713,590 8,544,424
Rent 43,334 -- 74,053 -- 695,968
Rent - Related Party -- 32,798 -- 66,825 --
General & Administrative 83,989 173,848 209,202 461,958 7,327,125
Writedown of Inventory -- -- -- -- 1,020,000
Writedown of Intangibles -- -- -- 517,000
------------- ------------- ------------- ------------ ------------
-- -- --
TOTAL EXPENSES 239,337 507,499 514,510 1,242,373 18,104,516
------------- ------------- ------------- ------------ ------------
(LOSS) FROM OPERATIONS (201,369) (489,462) (467,652) (1,180,261) (17,280,006)
Other Income -- 9,336 -- 16,139 274,139
Interest Income 25 43 9,165
Interest (Expense) - Related Party (8,209) -- (17,812) -- (8,629,694)
Interest (Expense) -- (5,179) -- (9,403) (4,925,373)
------------- ------------- ------------- ------------ ------------
(LOSS) BEFORE INCOME TAXES (209,553) (485,305) (485,421) (1,173,525) (30,551,769)
Income Taxes -- -- -- -- --
------------- ------------- ------------- ------------ ------------
-- -- -- --
NET (LOSS) $ (209,553) $ (485,305) $ (485,421) $ (1,173,525) $ (30,551,769)
=============== ============== ============== =============== ===============
PREFERRED STOCK DIVIDENDS $ -- $ -- $ -- $ -- $ 101,594
=============== ============== ============== =============== ===============
NET (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ (209,553) $ (485,305) $ (485,421) $ (1,173,525) $ (30,653,363)
=============== ============== ============== =============== ===============
NET (LOSS) PER SHARE $ (.001) $ (0.004) $ (.002) (0.009)
=============== ============== ============== =============== ===============
AVERAGE NUMBER OF SHARES OUTSTANDING 229,385,996 133,984,172 229,385,996 126,927,505
=============== ============== ============== =============== ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Additional Class B Additional Class C Class C
Voting Preferred Paid in 8% Preferred Paid in Series 1 Series 2
Capital Capital 8% Conv. Voting Conv.
Preferred Preferred
- ---------------------------------------------------------------------------------------------------------------
# of Par # of Par # of Par # of Par
Shares Value Class A Shares Value Class B Shares Value Shares Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>>
Balance - December 31, 2,500 -- $2,500 $ -- $
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 - June 30, 1999 $2,500 $ 0 $2,500 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
=====================================================================================
Class C AdditionalXechem, Inc. Xechem Additiona (Deficit)
Series 3 International
Voting Conv. Paid in Common Stock Common Stock Paid in Accumulated
Preferred Capital Capital During the
- ------------------------------------------------------------------------------------------------------------------
# of Par # of Par # of Par Development
Shares Value Class C Shares Value Shares Value Common Stage
- ------------------------------------------------------------------------------------------------------------------
Balance - December 31, 140,650,839 $1,405 $29,480,468 ($30,066,348)
1998
Private Placement-Common -- -- -- -- -- 15,744,302 $ 158 $ 157,288 --
Stock and conversion of
debt at $.01 per Share
Private Placement-Common -- -- -- -- -- 1,187,500 $ 12 $ 11,863 --
Stock and conversion of
debt at $.01 per Share
Private Placement-Series 100,000 1 399,999 -- -- -- -- -- --
3 Preferred Stock Class
C at $.01 per Share
Private Placement-Common -- -- -- -- -- 44,554,495 $ 446 $ 445,099 --
Stock at $.01 per Share
Private Placement-Common -- -- -- -- -- 1,029,400 $ 10 $ 10,283 --
Stock and conversion of
debt at $.01 per Share
Private Placement-Common -- -- -- -- -- 9,551,300 $ 96 $ 95,417 --
Stock and conversion of
debt at $.01 per Share
Private Placement-Common -- -- -- -- -- 3,848,160 $ 38 $ 35,946 --
Stock and conversion of
debt at $.01 per Share
Private Placement-Common -- -- -- -- 12,820,000 $ 128 $ 28,072 --
Stock and conversion of
debt at $.01 per Share
Net Loss for Year -- -- -- -- -- -- -- -- ($485,421)
=======================================================================================
Balance - June 30, 1999 100,000 $ 1 $399,999 $ 0 $ 0 229,385,996 $2,293 $30,364,436 ($30,551,769)
==========================================================================--===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
March 15,
---------
1990 (Date of
-------------
Six months ended Inception) to
---------------- -------------
June 30, June 30,
-------- --------
1 9 9 9 1 9 9 8 1 9 9 9
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (485,421) $ (1,173,525) $ (30,551,769)
--------------- --------------- ---------------
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation 80,105 86,401 628,898
Amortization 33,840 -- 570,682
(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 13,920 -- 48,420
Changes in Operating Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (49,004) (22,274) (63,313)
Inventories 6,297 (148,504) (1,370,694)
Prepaid Expenses 14,331 (37,915) 4,709
Other Current Assets 1,956 (218,981) 44,682
Deposits (1,630) 1,650 (20,497)
Organizational Costs -- -- (13,828)
Other Assets 7,723 -- 6,131
Increase (Decrease) in:
Accounts Payable 42,501 36,958 720,414
Other Current Liabilities 19,756 19,858 24,752
Accrued Expenses (82,553) 88,730 275,641
--------------- --------------- --------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES (398,179) (1,367,602) (13,893,423)
--------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent Issuance Costs -- -- (548,174)
Purchases of Equipment and
Leasehold Improvements -- (3,984) (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>
March 15,
---------
1990 (Date of
-------------
Six months ended Inception) to
---------- ----- -------------
June 30, June 30,
-------- --------
1999 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Related Party Loans $ 392,000 $ -- $ 1,686,582
Proceeds from Notes Payable - Others -- -- 628,300
Proceeds from Interim Loans -- 685,545 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 1,404,545 16,477,109
-------------- ------------- --------------
NET CHANGE IN CASH (6,179) 32,959 34,799
CASH, BEGINNING OF YEAR 40,978 50,826 --
-------------- ------------- --------------
CASH, END OF YEAR $ 34,799 $ 83,785 $ 34,799
============== ============= ==============
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>
Following is imported from 1Q1999
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 June 30, 1999 and the consolidated results of its operations for the
six months ended June 30, 1999 and 1998 and for the cumulative period from March
15, 1990 (date of inception) to June 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 six month periods
ended June 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. 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 PAYABLE, RELATED PARTIES -
i) As of June 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. Dr. Pandey was also due prior year deferred salary of
$51,425 and unpaid expenses of $27,000.
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 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 June 1999 interest was paid on these
loans amounting to $17,814.
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
10
<PAGE>
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 six months ended June 30, 1999 and 1998, respectively. As of June 30,
1999, the Company is in arrears with respect to rental payments in the
amount of $122,679. In addition, the future minimum payments under
non-cancelable operating leases consisted of the following at June 30,
1999:
1999 $ 58,568
2000 87,853
-----------
$ 146,421
[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 the
company has paid $200,000 as a consulting fee for the services of the Company.
In October the Company is planning on issuing 49,388,959 shares of common stock
as an award to certain key employees. This will result in a change in percentage
of ownership as set forth in the following schedule:
11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and total voting stock (including the Class A and
Class C Preferred Stocks) as of November 1, 1999 by: (i) each stockholder known
by Xechem to beneficially own in excess of 5% of the outstanding shares of
Common Stock or Class A Preferred Stock; (ii) each director or nominee for
director; and (iii) all directors and executive officers as a group. All of the
outstanding Class A Preferred Stock is owned by Ramesh C. Pandey. Except as
otherwise indicated in the footnotes to the table, the persons named below have
sole voting and investment power with respect to the shares beneficially owned
by such persons.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Class A Preferred Class C Preferred
Common Stock Stock Stock
- ------------------------------------------------------------------------------------------------------------------------
Number of Percent Number of Percent Number of Percent Percent of
Name and Address Shares of Class Shares of Class Shares of Class Voting Stock
(1)(12)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Edward A. Blech Trust (2) 72,300,000 25.6% 0 - 0 - 22.3%
(4)
- ------------------------------------------------------------------------------------------------------------------------
David Blech (5) 92,089,498 32.6% 0 - 0 - 28.4%
(4)(6)
- ------------------------------------------------------------------------------------------------------------------------
Michael G. Jesselson (7) 15,000,000 5.3% 0 - 0 - 4.6%
(8)(9)
- ------------------------------------------------------------------------------------------------------------------------
EER Systems (10) 20,000,000 7.1% 0 - 100,000 100% 18.5%
(12)
- ------------------------------------------------------------------------------------------------------------------------
Stephen Burg (12) 500,000 .2% 0 - 0 - .2%
- ------------------------------------------------------------------------------------------------------------------------
Dr. Ramesh C. Pandey (13) 64,423,863 22.8% 2,500 100% 0 - 20.1%
(14) (1)
- ------------------------------------------------------------------------------------------------------------------------
All directors and executive 64,923,863 23.0% 2,500 100% 0 - 20.1%
officers as a group (2 persons) (14) (1)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Gives effect to the voting rights of 2,500 shares of Class A Voting
Preferred Stock, all of which are owned by Dr. Pandey and which entitle him
to cast 1,000 votes per share on all matters as to which shareholders are
entitled to vote.
(2) The address of The Edward A. Blech Trust is 418 Avenue I, Brooklyn, New
York 11230.
(3) As reported in a Schedule 13D filed jointly by Mr. Blech and the Trust.
(4) The owner of these shares has granted to Dr. Pandey irrevocable proxy to
vote these shares.
(5) The address of Mr. Blech is 225 Lafayette Street, New York, New York 10012.
(6) Includes shares owned by the Trust and shares owned by Mr. Blech's spouse.
(7) The address of each of The Michael G. Jesselson 12/18/80 Trust, the
Benjamin J. Jesselson 12/18/80 Trust, the Jesselson Grandchildren 12/18/80
Trust and Michael G. Jesselson is 1301 Avenue of the Americas, Suite 4101,
New York, N. Y. 10019.
(8) As reported in a Form 3.
(9) Includes shares owned by the Michael G. Jesselson 12/18/80 Trust, the
Benjamin J. Jesselson 12/18/80 Trust and the Jesselson Grandchildren
12/18/80 Trust .
(10) As reported in a Schedule 13D and whose address is 10289 Aerospace Road,
Seabrook, MD 20706
(11) Gives effect to the voting rights of 100,000 shares of Class C Voting
Preferred Stock, all of which are owned by EER Systems and which entitle
them to cast 400 votes per share on all matters as to which shareholders
are entitled to vote.
(12) The address of Stephen Burg is 3257 Winged Foot Drive, Fairfield, CA 94533
(13) The address of Dr. Pandey is c/o Xechem International, Inc., 100 Jersey
Avenue, Building B, Suite 310, New Brunswick, New Jersey 08901.
(14) Does not include 707,000 shares subject to the Pandey Options, which
presently are not exercisable, and will not be exercisable, within 60 days
from June 9, 1999.
12
<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 Six Months Ended June 30, 1999 vs. The Six Months Ended June 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 June 30,
1999 and for each of the six months ended June 30, 1999 and June 30, 1998.
SIX CUMULATIVE
MONTHS ENDED INCEPTION TO
JUNE 30, JUNE 30,
1999 1998 1999
(in thousands)
Revenue 46.8 $ 62.1 $ 824.5
Research and Development Expense 231.2 $ 713.6 $ 8,544.4
Rent 74.0 $ 66.8 $ 696.0
General and Administrative 209.2 $ 462.0 $ 7,327.1
Writedown of Inventory and Intangibles $ -- $ 1,537.0
(Loss) from operations (467.6) $ (1,180.3) $(17,280.0)
- --------
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.
13
<PAGE>
Revenue
- -------
The $15,300 decrease in sales from six months ended June 30, 1998 to the
six months ended June 30, 1999 was due to the Company's inactivity and operating
with a skeleton staff and limited sales and marketing efforts. All revenues from
1999 consisted of the following $13,600 was from product sales by the Company's
subsidiary XetaPharm, Inc., $2,000 was from sales of Paclitaxel for testing and
$31,200 was for services with a reserve of $15,000. The revenue is net of cost
of goods sold.
Research and Development
- ------------------------
The Company's research and development expenditures were made in conjuction
with the development of 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 $482,400
to $231,200, or 67.6%, for the six months ended June 30, 1999 as compared to the
six months ended June 30, 1998.
Research and development costs decreased due to lack of funding and limited
operations. Costs consisted mainly of fixed expenditures. These lower costs will
contiue 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.
Rent, General and Administrative
- --------------------------------
Rent, general and administrative expenses decreased $475,108 or 60.9% for
the six months ended June 30, 1999 as compared to the six months ended June 30,
1998.
Rent expenses remained constant for the six month period comparing 1999 to
1998 while all other areas decreased significantly due to reduced operations
until additional funding becomes available.
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. The Company
anticipates that general and administrative expenses will increase as a result
of expansion of its operations and marketing efforts.
14
<PAGE>
Liquidity and Capital Resources; Plan of Operations
- ---------------------------------------------------
On June 30, 1999, the Company had cash and cash equivalents of $34,799,
negative working capital of $552,961 and stockholder's equity of $217,459.
As a result of its net losses to June 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 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, the Company 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 (IND) 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.
15
<PAGE>
Xechem has expended and will continue to expend substantial funds in
connection with the research and development of its products. As a result of
these expenditures, and even with revenues anticipated from commencement of
sales of paclitaxel, the Company anticipates that losses will continue for the
foreseeable future.
Xechem's planned activities will require the addition of new personnel,
including management, and the continued development of expertise in areas such
as preclinical testing, clinical trial management, regulatory affairs,
manufacturing and marketing. Further, if Xechem receives regulatory approval for
any of its products, in the United States or elsewhere, it will incur
substantial expenditures to develop its manufacturing, sales and marketing
capabilities 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 and closed the initial stage
of a Stock Purchase Agreement (the "Blech Purchase Agreement") with David Blech
or his designees ("Blech").
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 issued a new series 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.
16
<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.
17
<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
Subsequent to the date of this Report, Blech and Dr. Pandey agreed to amend
those portions of a stockholder agreement as to which they are parties.
Specifically, Blech and Dr. Pandey has amended this agreement to: (i) eliminate
the prohibition against Dr. Pandey's sale of any shares of Company capital stock
for five years except with Blech's consent; (ii) eliminate Blech's right to sell
his prorata portion (relative to the holdings of Dr. Pandey) of any proposed
sale of shares by Dr. Pandey, and a reciprocal right in favor of Dr. Pandey to
sell his prorata portion of any shares sold by Blech; (iii) eliminate the
requirement that Blech vote for Dr. Pandey as a director of the Company, and to
use his best efforts to cause Dr. Pandey to remain Chairman President and Chief
Executive Officer of the Company; and (iv) eliminate the requirement that 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. For
further information concderning the terms and conditions of this stockholders;
agreement, see Note 4 to Company's financial statements included in Part I, Item
1 of this Report.
Also subsequent to the date of this Report, Blech, his wife and the trustee
of the Edward A. Blech Trust granted to Dr. Pandey an irrevocable proxy to vote
all of the shares under their control. These proxies relate to 92,089,498 shares
of Company Common Stock or approximately 32.6% of the Company's presently
outstanding shares of Common Stock.
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.
18
<PAGE>
- --------------------------------------------------------------------------------
U.S. PATENT TITLE OF PATENT DATE OF
NUMBER ISSUE
- --------------------------------------------------------------------------------
#5,654,448 "Isolation and Purification of Paclitaxel from 1997
Organic Matter containing Paclitaxel,
Cephalomannine and Other Related Taxanes"
- --------------------------------------------------------------------------------
# 5,817,510 "Device and Method for Evaluating 1998
Microorganisms"
- --------------------------------------------------------------------------------
#5,840,748 "Dihalocephalomannine and Methods of Use 1998
Therefor"
- --------------------------------------------------------------------------------
# 5,854,278 "Preparation of Chlorinated Paclitaxel Analogues 1998
and Their Use Thereof as Antitumor Agents"
- --------------------------------------------------------------------------------
# 5,807,888 "Preparation of Brominated Paclitaxel Analogues 1998
and Their Use as Effective Antitumor Agents"
- --------------------------------------------------------------------------------
# 5,840,930 "Method for Production of 2",3" 1998
Dihalocephalomannine"
- --------------------------------------------------------------------------------
# Des. 411,308 "Covered, Multi-Well Assay Plate" 1999
- --------------------------------------------------------------------------------
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
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XECHEM INTERNATIONAL, INC.
Date: November 23, 1999
/s/ Ramesh C. Pandey
---------------------------------------
Ramesh C. Pandey, Ph.D.
President/Chief Executive Officer/Chief
Accounting Officer
20
<PAGE>
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