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New York, NY, March 07, 2019 (GLOBE NEWSWIRE) -- mPhase Technologies, Inc. (OTC:XDSL) (“mPhase” or the “Company”) is pleased to announce the acquisition of Travel Buddhi, a technology platform focused on enhancing travel via ultra-customization tools that can tailor the travel experience in ways not previously available.THE TECHNOLOGY WAS ORIGINALLY DEVELOPED BY MEMBERS OF THE NEW MPHASE TECHNOLOGIES INDIA (MTI) TEAM AND WILL BE COMMERCIALIZED BY THAT DIVISION DURING 2019. This acquisition represents the first tangible product line to utilize mPhase’s growing commitment to develop real-world products via an in-house team of machine learning and artificial intelligence (AI) experts.
The team heading up MPHASE India ACTUALLY DEVELOPED the technology for Travel Buddhi. I find this interesting because there must have been some kind of CREATIVE agreement made with this team to bring this technology to the company and also join/create Mphase India division. I cannot see any monetary exchange because Mphase has no money. I cannot see any shares issued because there really are not many share available??? Maybe it was just a way of taking Travel Buddi Public and bringing the Travel Buddi team under the Mphase umbrella. And maybe that was the purchase agreement made. A whole lot of maybe's but i sure would like to hear from Anshu how he made this possible?????
Acquisition of Travel Buddhi,
How was this purchase financed???? And if this purchase has gone through, then i would assume that the debt has been taken care of first.
To do a RS the insiders will also take a hit. Would that not concern them at all??? I would assume that they would like to preserve the value of their shares. They do own a substantial amount! Is there any way that they Can liquidate their shares without reporting the sale ???.
This is what you posted not so long ago about a RS.
That can’t happen. Board member Durango failed to report an insider trade in 2007 with another company and finra refuses to allow a rs as long as he remains on the board. As he is the science genius of the company (no longer ceo or chairman tho) there cannot be a rs. Thanks for your input tho
Post #6778
Since you are very informed about this company, has somthing changed that Finra will allow a RS?
It dosent make since for a RS if the insiders have Millions of shares which would also be affected.
Thanks for clearing things up... I appreciate you sharing this most valuable information. I do read the 8, 10 ks etc but you cant always believe they are the whole truth but nothing but the truth. You seem to be very knowledgeable about what is going on in this company. More so than anyone posting on this board. Knowing that you have sold your shares, i think i will do the same. Thanks again for sharing all your DD and setting me straight.
I have had shares in this company for a few years so i am not here to bash but i have to point out the few subtle issues i see here.
1.Bidderman is listed twice because he recently gifted 2.75 bil to an unnamed charitable organization.
My question here is how is Bidderman associated with the unnamed charitable organization. Is this a Clinton or Trump charitable organization move in channeling a few shares (money) through which end up back in his pocket. If it is not then why not disclose who the charitable organization is. Isnt this what Dorando tried to do with his shares when he got caught??. May not be exactly the same way but the end result could be the same. More clarity is needed here because this does not pass the smell test!!!!!
2. Only reason the insiders are holding alot of shares is because they were not going to get any money from xdsl. The company was broke. Now insiders having alot of shares , encourages retail buying which may or may not increase the share price. They had nothing to lose by increasing the AS count and taking all those shares. At this point it means absolutely nothing that the insiders hold alot of shares unless they come up with some substantial and concrete news that is more than what may or may not happen in the future.
3. Setting up a research division in India????Why India and why not china or mexico or canada. I have seen this movie before with the Company called XKEM and i have nothing good to say about this move. It will be very difficult for share holders to confirm what will be going on in this Indian branch. What is true and what is just not. There are so many things wrong with this picture????? Xkems move to India was the beginning of its downfall and the shareholders lost all their money.
4.This just hit the news in vancouver bc.
https://www.nsnews.com/investigation-vancouver-s-bridgemark-stock-scandal-rocks-b-c-capital-markets-1.23624452
Lets hope these guys are ligit and Dorandos reputation does not corrupt the rest of the team.
I think the play here is buy 200,000,000 shares at .0001 let everyone know that you have this many shares and hope every one starts buying. Wait until it climbs to .0009 and sell your shares.
GOD IS WATCHING
This is just my opinion
If every shareholder placed an order to sell all there shares at a higher price, would this not take all the shares away that would be available for the naked short sellers. There would not be any shares available to borrow and to clear at the end of the day. the naked short sellers would be caught with their pants down.??????
Phase one of their research submission for the STTR grant.
https://www.sbir.gov/sbirsearch/detail/240440
SBIR/STTR 11 Agencies, 1 Vision: Seed the Future
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Long life, low power, multicell battery
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Award Information
Agency:
Department of Defense
Branch:
Army
Contract:
W911NF-07-C-0070
Agency Tracking Number:
A074-001-0031
Amount:
$99,687.00
Phase:
Phase I
Program:
STTR
Awards Year:
2007
Solicitation Year:
2007
Solicitation Topic Code:
A07-T001
Solicitation Number:
N/A
Small Business Information
MPHASE TECHNOLOGIES
150 Clove Rd., Little Falls, NJ, 07424
DUNS:
N/A
HUBZone Owned:
N
Woman Owned:
N
Socially and Economically Disadvantaged:
N
Principal Investigator
Name: Steve Simon
Title: EVP Research and Development
Phone: (973) 638-2451
Email: ssimon@mphasetech.com
Business Contact
Name: Martin Smiley
Title: General Counsel
Phone: (203) 831-2242
Email: msmiley@mphasetech.com
Research Institution
Name: RUTGERS UNIV.
Contact: G. Amatucci
Address: ESRG
North Brusnwick, NJ, 8902
Phone: (732) 932-6850
Type: Nonprofit college or university
Abstract
With the increased need to power portable electronic devices for long extended periods, a new approach needs to be taken for finding suitable battery technologies to meet this objective. This STTR proposal utilizes a novel miniature reserve battery design based on recent research in the manipulation of fluids on superhydrophobic nanostructured surfaces, to achieve the performance and life cycle objectives to power the SRAM module requirements of this proposal. In our design, long term stability and shelf life is achieved by initially separating the active materials of the power cell during storage, and controlling the activation of the cell until needed to provide power. In Phase 1 we will characterize the design, conduct capacity and stability measurements of a reserve style power cell based on Li/Mn02 chemistry and set the stage for a Phase 2 plan for an arrayed battery configuration capable of powering the SRAM for long term continuous use in temperature ranges from -400C to greater than 1000C.
* Information listed above is at the time of submission. *
Thanks for the reply, I understand that it is a shell play but I have to think that the patents are worth something and should be separated from the sale of the shell . I am not sure if you have seen this but have a look at the info that was filed with the gov in regards to what the grant money was used for. My question is ???did they succeed in their research and have a Long life, low power, multicell battery that can be produced. This would be worth Billions. I have seen this type of move before in Penny stocks were the share holders are eliminated by this type of transfer of shell and patents. There are some contact people and phone numbers that may provide these answers below.
https://www.sbir.gov/sbirsearch/detail/240443
SBIR/STTR 11 Agencies, 1 Vision: Seed the Future
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Long life, low power, multicell battery
Print
Award Information
Agency:
Department of Defense
Branch:
Army
Contract:
W911NF-08-C-0064
Agency Tracking Number:
A074-001-0031
Amount:
$749,700.00
Phase:
Phase II
Program:
STTR
Awards Year:
2008
Solicitation Year:
2007
Solicitation Topic Code:
A07-T001
Solicitation Number:
N/A
Small Business Information
MPHASE TECHNOLOGIES
150 Clove Rd., Little Falls, NJ, 07424
DUNS:
N/A
HUBZone Owned:
N
Woman Owned:
N
Socially and Economically Disadvantaged:
N
Principal Investigator
Name: Steve Simon
Title: CTO
Phone: (973) 638-2451
Email: ssimon@mphasetech.com
Business Contact
Name: Fred Allen
Title: CEO
Phone: (609) 933-8437
Email: fred.allen@alwaysready.com
Research Institution
Name: RUTGERS UNIV.
Contact: Chuck Wykoff
Address: 3 Rutgers Plaza, NewJersey
New Brunswck, NJ, 8901
Phone: (732) 932-0115
Type: Nonprofit college or university
Abstract
The purpose of the proposed Phase 2 work is to create a low-cost multi-cell battery capable of constant power draw in the 100 nA range to provide back-up power source for an SRAM memory chip such as those used in FPGA (field programmable gate array) architectures. The battery to be developed under the current work program will proved for up to 30 year active life (under 100 nA load). This will be achieved by utilizing an array of sub-cells that can be individually triggered to deliver the required amount of energy while keeping the rest of the array in the reserve (unused, fresh) state.
* Information listed above is at the time of submission. *
Small Business Technology Transfer Program (STTR) grant. Provides up to $150,000 for phase one and up to $1000000 for phase 2. It was under the Department of Defense that this company qualified for some financial assistance but that is all the money they were ever going to get. The Department of Defense was under no obligation to provide any additional funding if they came up with results or not.
I find that the news release about the Department of Defense being involved may have been somewhat misleading. All this funding was about a grant program set up by the gov.for Small Business Technology.
I wander if the US Gov. is interested in how their grant money was used and what the end result was from that funding.and who bennifitted and who didnt. .I would imagine that the company would have had to submit some kind of report to the gov in regards to their research and how the money was used. I sure would like to see that report if there actually was one. See below
STTR Participating Agencies
Each year, Federal agencies with extramural research and development (R&D) budgets that exceed $1 billion are required to reserve 0.45% of the extramural research budget for STTR awards to small businesses. These agencies designate R&D topics and accept proposals. Currently, five agencies participate in the STTR program:
Department of Defense
Department of Energy
Department of Health and Human Services
National Aeronautics and Space Administration
National Science Foundation
Each agency administers its own individual program within guidelines established by Congress. These agencies designate R&D topics in their solicitations and accept proposals from small businesses. Awards are made on a competitive basis after proposal evaluation.
Three-Phase Program
The STTR Program is structured in three phases:
Phase I. The objective of Phase I is to establish the technical merit, feasibility, and commercial potential of the proposed R/R&D efforts and to determine the quality of performance of the small businesses prior to providing further Federal support in Phase II. STTR Phase I awards normally do not exceed $150,000 total costs for 1 year.
Phase II. The objective of Phase II is to continue the R/R&D efforts initiated in Phase I. Funding is based on the results achieved in Phase I and the scientific and technical merit and commercial potential of the Phase II project proposed. Only Phase I awardees are eligible for a Phase II award. STTR Phase II awards normally do not exceed $1,000,000 total costs for 2 years.
Phase III. The objective of Phase III, where appropriate, is for the small business to pursue commercialization objectives resulting from the Phase I/II R/R&D activities. The STTR program does not fund Phase III. In some Federal agencies, Phase III may involve follow-on non-STTR funded R&D or production contracts for products, processes or services intended for use by the U.S. Government.
About mPHASE TECHNOLOGIES, INC. (OTCMKTS:XDSL)
mPhase Technologies, Inc. is focused on marketing its automotive battery jump starter designed for the mass market and developing new smart surface products through the sciences of microfluidics, microelectromechanical systems (MEMS) and nanotechnology. The Company is engaged in commercializing its nanotechnology-enabled product for military and commercial applications-The Smart NanoBattery providing Power On Command. Its battery technology, based on the phenomenon of electrowetting, offers a way to store energy and manage power. The platform technology behind the Smart NanoBattery is a porous nanostructured material used to repel and precisely control the flow of liquids. The material has a Smart Surface that can be designed for other product applications, including medical oxygen generation, hot/cold packs and emergency lighting. As of December 31, 2015, the Company had completed a Phase II Small Business Technology Transfer Program (STTR) grant.
Mphase has the patent on its battery system which is reflected in this news release by Digital Power. This should indicate the value of the patent Mphase holds.
New Growth Shows Digital Power is Recharged with Opportunities
“We must ensure that our courageous servicemen and women have the tools they need to deter war and, when called upon to fight in our name, only do one thing: win.” That was President Trump during his first speech to Congress in February. He followed up these words with a proposal to boost military spending by $54 billion next year. The increase is an effort to revitalize and shore up the nation’s armed forces. The budget would put the United States military budget at an estimated $639 billion, which would dwarf China, Russia and Britain. In fact, the United States spends more on its military than the next seven highest spenders worldwide. The reason for this gargantuan budget, in a time where conflicts are waning, is because of the United States’ global presence. While the U.S. military currently has over 200,000 active troops deployed in over 170 countries, the Department of Defense projects that the active duty end strength in the armed forces for 2017 to be 1,281,900 people, with an additional 801,200 people in the seven reserve components. One aspect of the increased budget would bolster deployments and stock troops with more advanced weaponry and supplies.
In effect, increased military spending can fuel defense research and promote new technology. As new technology and defense solutions improve, one aspect of the terrain will remain unchanged: the need for a reliable power supply. The core of every military operation is its power supply. Mission critical systems necessitate rugged high performance power platforms that will function and withstand the unforgiving environments in which our troops are called to serve. One company in this field that has an exciting new trajectory is Digital Power Corporation (NYSE Mkt:DPW). The California-based company develops a wide range of tough power supplies engineered for combat environments that meet numerous MIL-STD requirements.
Digital Power designs and manufactures best in class AC/DC or DC/DC power solutions from 20W to 80kW including but not limited to:
Full custom power solutions
Military Grade Uninterruptible Power Supplies (UPS)
Static Frequency Converters (SFC)
Transformer Rectifier Units (TRU)
AC-DC power switchers
DC-DC converters
Desktop adaptors
Compact PCI
Distributed power front-end power supplies
Capacitor chargers
Solar systems
Isolated power bricks
These products can work in a variety of sectors, primarily Health Care, Industrial and Telecommunications, Aerospace, as well as Defense, Automotive and Utilities. But recent developments at the company indicates that the potential applications of Digital Power’s technology to be much greater, and could provide the company opportunities to enter new markets to expand.
The Company
Digital Power is an innovative leader and supplier of cutting-edge power product solutions for medical, industrial, telecom, and defense markets. The company is recognized throughout the industry for flexible, cutting-edge, feature-rich, top-quality products.
Digital Power develops, manufactures, and modifies rugged and unique products for commercial and medical markets. The company provides custom, modified-standard (also known as value-added), and standard product solutions to customers leveraging our scalable low-leakage, high-density, superior efficiency power technology.
With headquarters in Fremont, California, Digital Power is publicly traded on the NYSE (symbol: DPW). The company was founded in 1969, incorporated in California. Its initial public offering occurred in 1997.
In 1998, Digital Power acquired Gresham Power Electronics with headquarters in Salisbury, England, which is now also a member of the Coolisys Technologies Power Solutions Group. Gresham Power designs, develops, manufactures, markets, and distributes commercial and military power products, focusing on the Naval defense sector.
Digital Power was one of the first companies to introduce a product strategy based on the premise that developing product lines with extremely flexible architecture enables rapid modifications to meet unique customer requirements for non-standard output voltages.
The development and implementation of this strategy provided the company with broad acceptance in the telecom market for its new line of high density power supplies. These products set a standard for providing power output in package sizes that were smaller than any other commercially available product.
Digital Power has substantially increased its manufacturing capacity in Asia. This approach allows Digital Power to increase production volumes of its standard products, meet the highest production quality, and provide customers with products at competitive prices.
Today, Digital Power is an innovative leader in many areas, including power density technology development. The company serves a global market with an emphasis on North America and Europe, offering a wide range of standard, custom and value-added power supply solutions that are consistently recognized for their high performance, innovation, and quality.
Digital Power Corporation is a member of the Coolisys Technologies Inc. Power Solutions Group, alongside Power-Plus Technical Distributors and Gresham Power Electronics.
So Scepter would be buying a shell with assets (patents). If one knew what these patents were worth than this should reflect on the share price. How many patents do they hold??
In regards to receiving shares of Digital Power , The Ergul Family and Durando exchanged all their shares of Microphase for shares of a company (Digital Power Corporation) that is very similar to Mphase.
I wander if there is any link between Mphase and Digital Power being that Durando has an invested interest in both companies that have similar interests and take contracts from the ARMY????
Just reading between the lines.... There may be nothing here...
https://digipwr.com/about-us/our-story/
Thanks for clearing that up. I see he traded his shares for stock in Digital Power Corporation..!!!NOw this company is an interesting read... They do some work for the ARMY> I wander if they would be interested in some of the Patents Mphase presently holds or are all the patents transferred in this reverse merger deal.
What happens to the patents????? They must have some value?
If i read this correctly,,as of June 2, 2017 Mr Durando and the Ergul Family (RCKJ Trust)exchanged all there shares of Microphase for shares of stock in Digital Power Corporation.
My Question is:
WHY WOULD THEY DO THIS?? ? Can someone please explain what motivated this trade?
Do they have 80% ownership to make this deal go through???
The Company leased office space from Microphase at its Norwalk location. Microphase also provided certain research and development services and shares administrative personnel from time to time. Mr. Necdet Ergul retired as the chairman of the board of mPhase in Nov 2007. Mr. Ergul and his family had owned a controlling interest and he is a director of Microphase Corporation. Mr. Durando was a strategic employee of Microphase Corporation from January 2, 2015 through May 31, of 2017. On February 9, 2015 Mr. Durando assigned all his interests in the Capital Stock of Microphase to the RCKJ Trust as the Grantor. On June 2, 2017 the RCKJ Trust, the holder of Durando’s prior interest in Microphase, and the Ergul Family Limited partnership, the holder of Ergul’s prior interest in Microphase, each exchanged all their respective shares of stock in Microphase in exchange for shares of stock in Digital Power Corporation, a publicly-held company then listed on the New York Stock exchange. As of September 30, 2018, the Company owed $32,545 to Microphase.
Extensions were made until july 15, 2018 for XDSL to be current with the SEC. Can anyone tell me if they were current July 15? and if they were not, the agreement below states that this agreement can be cancelled by either party. I can not see any further extensions!!
If you read the agreement below it states that Scepter would receive 80% of the fully diluted shares of common stock of the Company (on a post-reverse stock split basis) (the “Acquisition”). The LOI may be terminated (i) by mutual consent o.
My Question is: How many shares do the insiders hold and how many shares do the retailers/public hold.??? Do the insiders have 80% to meet this obligation???
There seems to be alot of escape hatches to this agreement were either party can cancel this LOI. Since we have not heard any news from XDSL , maybe the deal is not going to go through.!!!!!Especially if they dont have 80% of the shares!!!!???
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 5 TO FORM 8-K FILED DECEMBER 28, 2017
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 21, 2018
mPHASE TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Charter)
New Jersey 000-24969 22-2287503
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
688 New Dorp Lane, Staten Island, New York 10306-4933
(Address of Principal Executive Offices) (ZIP Code)
Registrant’s telephone number, including area code: (973) 256-3737
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
? Written communications pursuant to Rule 425 under the Securities Act
? Soliciting material pursuant to Rule 14a-12 under the Exchange Act
? Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
? Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ?
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ?
Item 8.01 Other Events.
On December 28, 2017, mPhase Technologies, Inc. (the “Company”) entered into a non-binding letter of intent (the “LOI”) with Scepter Commodities, LLC (“Scepter”) for the proposed acquisition by Scepter of 80% of the fully diluted shares of common stock of the Company (on a post-reverse stock split basis) (the “Acquisition”). The LOI may be terminated (i) by mutual consent of the parties, (ii) by either party if the Acquisition (A) has not been consummated by April 30, 2018, (B) is enjoined by a court or governmental body, (C) cannot be consummated due to a material breach on the part of the other party which breach cannot be cured within 30 days from the date of written notice of such breach or (D) by either party if such party is not satisfied with the results of its due diligence investigation of the other party or (iii) by Scepter if the Company’s financial condition or capitalization has materially changed since its most recently filed Annual Report on Form 10-K. Pursuant to the LOI both parties have expressed their intent and support for the cooperation and accomplishment of the Acquisition. Further, the Company has agreed, until the earlier of the closing of the Acquisition or termination of the LO,I that it will not solicit, discuss, accept, approve, respond to or encourage any inquiries or proposals relating to, or engage in any negotiations with, any third party with respect to any transaction similar to the Acquisition or any transaction involving the transfer of a significant or controlling interest in the assets or capital stock of the Company, including, but not limited to, a merger, acquisition, strategic investment or similar transaction. The closing of the Acquisition is subject to the negotiation and execution of a definitive acquisition agreement, as well as to the completion of full legal and financial due diligence.
As of February 15, 2018 the Company and Scepter entered into Amendment No. 1 to the LOI extending the time frame for the Company to become current in its SEC filings.
As of April 3, 2018 the Company and Scepter entered into Amendment No. 2 to the LOI extending the time frame for the Company to become current in its SEC filings until April 30, 2018 under the LOI.
As of April 27, 2018 the Company and Scepter have entered into Amendment No. 3 to the LOI extending the time frame for the Company to become current in its SEC filings until May 31, 2018.
As of May 30, 2018 the Company and Scepter have entered into Amendment No. 4 to the LOI extending the time frame for the Company to become current in its SEC filings until June 15, 2018.
As of June 21,2018 the Company and Scepter have entered into Amendment No. 5 to the LOI extending the time frame for the Company to become current in its SEC filings until July 15, 2018
Item 9.01 Financial Statements and Exhibits
(d)
10.3 Amendment No. 5 to Letter of Intent
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
mPHASE TECHNOLOGIES, INC.
Date: June 21, 2018 By: /s/ Martin S. Smiley
Martin S. Smiley
Executive Vice President,
Chief Financial Officer and
General Counsel
2
Exhibit 10.3
AMENDMENT NO.5 TO LETTER OF INTENT
mPhase Technologies, Inc.
688 New Dorp Lane,
Staten Island, New York 10306-4933
June 21, 2018
Scepter Commodities, LLC
9841 Washingtonian Blvd., Suite 390
Gaithersburg, MD 20878
Attention: Anshu Bhatnagar
Re: Amendment No. 5 to Letter of Intent (“LOI”)
Dear Anshu:
This Amendment No.5 (the “Amendment”) to our LOI Intent dated December 29, 2017, as amended on February 15, 2018, March 31, 2018, April 3, 2018 and May 30, 2018 hereby amends the LOI as follows:
1. The date on or before which we, mPhase Technologies, Inc. (the “Company”) will complete its outstanding reports with the Securities and Exchange Commission (the “SEC”) shall be July 15, 2018
2. All other terms shall remain intact.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW
Please indicate your acceptance of the terms outlined in this Amendment.
Sincerely,
/s/ Martin Smiley
Martin Smiley
CFO and General Counsel of mPhase Technologies, Inc.
on behalf of the Sellers.
/s/ Ronald Durando
Ronald Durando
President and CEO
mPhase Technologies, Inc.
Accepted and Agreed To:
/s/ Anshu Bhatnager
Anshu Bhatnager
Scepter Commodities LLC
Blue Sun Wednesday, 11/28/18 01:11:40 PM
Re: Monkey13 post# 51248 0
Post #
51251
of 51302 Go
Wrong ..Dead Wrong buddy.. just read the filing it clear as day .Sysco isn't mentioned..
This is a must READ post# 4571 !! it may explain some of what could be going on in the background based on the M & A deal.
Scepter Commodities LLC will take over as the major owner of Mphase
VRUS owns Scepter commodities LLC
https://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=12934372-963-4721&type=sect&TabIndex=2&dcn=0001213900-18-011684&nav=1&src=Yahoo
A/S 72 Billion shares..
https://backend.otcmarkets.com/otcapi/company/sec-filings/12826042/content/html
Scepter Commodities, LLC
9841 Washingtonian Blvd., Suite 390
Gaithersburg, MD 20878
Attention: Anshu Bhatnagar
Re: Amendment No. 5 to Letter of Intent (“LOI”)
Dear Anshu:
This Amendment No.5 (the “Amendment”) to our LOI Intent dated December 29, 2017, as amended on February 15, 2018, March 31, 2018, April 3, 2018 and May 30, 2018 hereby amends the LOI as follows:
I am just asking these questions because i am not very knowledgeable in the stock market, so if my questions are without merit please do not hesitate to correct me.
If Scepter has insider information that has not been released to the public and they are slowly accumulating shares on the open market and at the same time suppressing the share price, wouldn't that classify this as insider trading and stock manipulation.????? This can be avoided if the company was updating the shareholders on a regular basis and not keeping us in the dark. I cannot remember when was the last time we saw 3 days of 0 volume.HHHMMMMM??? No more slow accumulation??????
That seems to be the case and that is why the price has been suppressed to .0001 If you go back 2 years, you will see, as I have, a slow accumulation by someone maybe Scepter. Wouldnt you think that this has been a manipulation of the stock price to accumulate at .0001?????This opens them up to a lawsuit. I Believe that in a previous post someone tried to bump up the price at the end of the day just to see if it would be suppressed back down to .0001.????????As i have seen in the past (IE XKEM)Scepter or the Insiders dont give a $%^$# if the retail shareholder loses his or her money.
It would be appropriate to hear from them to prove that this is not the case. Keeping silent only supports my theory.
I have a feeling that Scepter is trying to buy out the shares the insiders so conveniently gave themselves in leu of wages and. They cannot come to a mutual agreement.The insiders do have a considerable amount of shares. Scepter maybe trying to accumulate as many shares on the open market at. 0001 before they buy out the insiders. Could that be the problem???
I have noticed exactly the same thing. But for every buy there must be someone selling. Does anyone know if this stock can be shorted?????
Hmm... Is this not the same company????
2 to 6 Million shares have been trading almost everyday for a few months now. With the occasional 50 million trading days. Obviously Someone is getting out of their position and someone is buying it up. Price is not going up or going down. So, I wander who is accumulating these shares indiscreetly?
Is it possible that the SEC will allow them to do a reverse split after a certain period of time. Does anyone know?????? I believe they were expecting to get away with a reverse split and suck more money out of the shareholders.
Does Karen Durando have insider information that she is dumping 100' s of millions of shares ????? we will know if they file for bankruptcy or do a reverse split. I am sure that the SEC would be interested in these transactions if thats the case.
DDirect Link between XKEM and BLECH: http://www.littleindia.com/archive/dec96/survive.htm
Excerpt: "On Nov 19 (1996-ish), Xechem announced that a group controlled by David Blech, a well-known but controversial investor in the biotechnology industry, will invest $5.5 million in the company over the next nine months. As a result of the deal, Blech and his associates will replace Pandey as Xechem's controlling shareholders, with a stake of more than 70 percent. Pandey, however, will remain the CEO as well as the second-largest shareholder. He is delighted at the deal because the capital infusion will allow Xechem to develop products that he believes could become big winners in the future. "With Blech's investment and expertise, our future is very bright," he says. "In the next three to five years, we could have sales of $30 million to $50 million.""
Those sales predictions came in 1996 for the future of 1997. Well, we all know that didn't happen as the loans continue today and XKEM continues to show massive losses.
Note XKEM / Chassman / Blech link:
While many on the boards are speaking zealously how the debt owed by XKEM will not have to be paid until 2008, please note the paragraph below from this link: http://biz.yahoo.com/e/050623/xkem.ob8-k.html
Excerpt: "For the period from November 11, 2003 through June 30, 2004, Marjorie Chassman, the spouse of David Blech ("Chassman") advanced $2,800,000 of convertible debt to Xechem, which debt accrued approximately $320,884 in interest (as of June 20, 2005) and is due and payable December 31, 2006, subject to the required sale of Xechem's holdings of CepTor Stock."
(the CepTor deal is an entirely other issue)
Blech's shady past:
http://www.bearstearnsfraudinfocente...nformation.php
Excerpt: "The case was a $77 million class action lawsuit filed against Bear Stearns on behalf of investors who claimed they had lost their money due to the fraudulent actions of David Blech, a Bear Stearns client. The judge stated that a summary judgment could not be made because there were not enough facts available to determine if Bear Stearns was guilty or not. Bear Stearns said that it had no knowledge of Blech’s stock manipulating (he pled guilty to charges of fraud in 1999). The investors who lost their money to Blech want to convince the jury otherwise."
Link demonstrating Chassman/Blech relationship:
http://freeadvice.brand.edgar-online...cJ4&ID=4327914
Excerpt: "In January 2005, we entered into an agreement with David Blech (the husband of Margie Chassman), which provided that he or his designees would lend us $500,000 (inclusive of $100,000 previously advanced to us in December 2004 by Ms. Chassman) for operating capital pending our debt restructuring and completion of our private placements of units, and up to an additional $500,000 on the same terms if the private placement was delayed.... The two loans, both of which were made by Ms. Chassman, totaled $500,000 and bore interest at 6% per annum.... According to the agreement, we also issued the following individuals the following number of shares of our common stock:
Investor
Number of Shares
of Common stock
Margie Chassman
2,475,000
Wood River Trust
3,850,000
Esther Blech
1,225,000
Milton Chassman
1,225,000
Aaron Eiger
1,225,000
Mark Germain
500,000
Wood River Trust is a trust formed for the benefit of Evan Blech, the son of Ms. Chassman and Mr. Blech. The trustees of the trust are Harvey Kesner and Michael C. Doyle (no relation to our director, Michael J. Doyle). Esther Blech is the mother-in-law of Ms. Chassman. Milton Chassman is the brother of Ms. Chassman. These investors have agreed not to publicly sell their shares of common stock until November 2006 and if they sell their shares in a private transaction, the buyer must also agree not to sell their shares publicly until November 2006."
(The whole family's in on that one!)
How did Blech do it? http://www.sec.gov/news/digest/02-07.txt
Excerpt: "From approximately June through September 1994, David Blech, the chief
executive officer of D. Blech & Co., orchestrated a massive manipulative
scheme designed to increase or stabilize the prices of a number of the
biotechnology securities for which D. Blech & Co. was a market maker.
As part of this scheme, David Blech routinely sold biotechnology stocks from D. Blech &
Co.'s inventory accounts to brokerage accounts that Blech controlled
that were in the names of other individuals and entities. These
controlled accounts then sold the biotechnology stocks back to the
brokerage firm or to other accounts controlled by David Blech. These
trades created the appearance of active trading in the biotechnology
stocks. Additionally, through this trading, Blech was able to reduce D.
Blech & Co.'s inventory position in the biotechnology stocks, yet still
artificially withhold from the market the supply of the biotechnology
stocks."
So, with XKEM, how many shares of this roughly 1.3 billion O/S count do we all REALLY own? Long. For Real. No Flipping? Your guess is as good as mine.
The Phat Man
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ont know if this is usefull:
chassman and blech
How about Chassman, What happened to her.
Is there an email address for the creditors committee . I personally would like to email them as a shareholder and show support for Monty<s plan. I think everyone here should do the same.
Does XI Have any Patents filed???? If they do, thats got to be worth somthing.
The legal issues regarding xkem international are directly related to xkem international.
As a result of the foregoing, for purposes of Reg. Section 240.13d-3, Opportunity Partners is deemed to beneficially own 4,266,375 Common Shares of the Company, or 9.1% of the Common Shares of the Company deemed issued and outstanding as of January 11, 2009.
The following table details all of the transactions in Common Shares of the Company, or securities convertible into, exercisable for or exchangeable for Common Shares of the Company, by the persons referenced in Item 2 (each of which were effected by the Funds in ordinary brokerage transactions), since the transactions reported in Item 5 of Opportunity Partners' most recent Schedule 13D filing on December 1, 2008:
Type of Number Price per
Date Transaction of Shares Security Type Share ($)
---- ----------- --------- ------------- ----------12/08/2008 Purchase 10,000 Common Shares $0.7303
12/10/2008 Purchase 10,000 Common Shares $0.6200
12/24/2008 Purchase 20,000 Common Shares $0.4540
12/26/2008 Purchase 20,000 Common Shares $0.4603
12/29/2008 Purchase 15,000 Common Shares $0.4505
12/30/2008 Purchase 15,000 Common Shares $0.4487
12/31/2008 Purchase 125,000 Common Shares $0.5329
BUYOUT?????New changes to the termination package could mean that PHiZER might be looking at taking over this company, They do have a huge interest in them now. For Manegement to be worried about this could mean that the Executives are setting up a package so they dont walk away empty handed....after the buyout. HHHHMMMMM could there be somthing in the works????
Just my opinion
Excuse me if this has been posted before.
http://www.scidev.net/en/news/sickle-cell-drug-mired-in-controversy.html
Sickle cell drug mired in controversy
Adole Hassan and Christina Scott
30 June 2008 | EN | FR
WHO/P.Viriot
[ABUJA] A high-profile Nigerian initiative to produce large quantities of a new sickle cell anaemia drug has become mired in accusations of fraud and corruption.
Both the Nigerian branch of the private US-based company Xechem International and its state-owned partner, the Sheda Science and Technology Complex (SHESTCO) are under investigation by the country's Economic and Financial Crime Commission (EFCC) over an alleged fraud involving 400 million Nigerian naira (US$3.5 million) of public funds.
No charges have been laid, according to EFCC investigators.
The Nigerian government funded SHESTCO to help Xechem Nigeria produce and commercialise Nicosan, a drug based on a local herbal medication that combats the painful symptoms of sickle cell anaemia, the inherited red blood cell disease.
Meanwhile, question marks surround the spending of separate loans previously obtained for Nicosan production from Nigerian and US banks, whilst Xechem International is embroiled in a legal battle with its founder and former chief executive Ramesh Pandey.
The early days of Nicosan
According to the International Biomedical Research Institute (IBRI) in Abuja, about 70 per cent of sickle cell anaemia patients reside in Africa — estimated at over 12 million people. About 80 per cent of rural babies with the genetic illness die by five years of age in Africa. Charles Wambebe, chief executive officer of IBRI, says the disease is "probably the most neglected serious public health disorder in Africa".
Nigeria's population is amongst the worst affected by the disease. Nigerian Minister of State for Science and Technology Alhassan Zaku says that there are four million sufferers in the country.
Nicosan, developed by Nigeria's National Institute for Pharmaceutical Research Development as Niprisan, is based on extracts from local West African plants. In 2003, Xechem bought the rights to develop the drug under the trade name Nicosan in a controversial deal (see Row over Nigeria sickle cell patent).
At the time of the sale, the drug had only passed early stages of clinical trials. But results were so positive that by 2005 both the US Food and Drug Administration (FDA) and the European Medicine Evaluation Agency (EMEA) had given the treatment 'orphan drug' status — qualifying it for financial incentives to produce drugs considered too expensive or unprofitable to develop.
The drug also received the personal backing of Olusegun Obasanjo, then president of Nigeria, who pledged to help fast track its production in the country.
Nicosan received approval from the Nigerian Food and Drug Administration in March 2006 and, according to Xechem, was first produced two months later (6 July 2006) "on a limited basis".
Xechem International announced in 2007 that it was also pursuing regulatory approval to market Nicosan in the United States and Europe as Hemoxin.
By February this year, according to a report in Nigerian newspaper the Daily Trust, Iretiolu Oniyide, managing director of Xechem Nigeria, claimed that 50,000 capsules of the drug were being produced daily, with full scale-up expected to produce one million capsules a day.
Sickle cell anaemia is characterised by sickle-shaped cells
NIH
Xechem secured two loans from the federal government-owned Nigerian Export-Import Bank (Nexim), starting with US$1.15 million in June 2006 and an additional US$2.7 million in April 2007. A Xechem press release stated that these were for "construction of manufacturing facility-related costs".
In addition, a further loan of US$9.38 million from the US bank UPS was obtained (21 May 2007), guaranteed by the Export-Import Bank, the official export credit agency of the United States federal government, which provides financing for high-risk transactions.
The US loan, like the Nigerian loan, was meant to "purchase the US manufactured prefabricated corporate offices, warehouse, plant equipment and machinery needed by Xechem Nigeria to establish a state-of-the-art facility in the outskirts of Abuja".
According to the Xechem press release, the factory was due to be completed in the fourth quarter of 2007 and would "enable Xechem Nigeria to produce commercial scale quantities of Nicosan".
But a visit (12 March 2008) by SciDev.Net to the site found no activity at the facility and construction appeared to have been stopped.
Missing money
On top of the bank loans, Xechem also obtained public funding from the Nigerian government.
But on 7 March 2008 a fraud complaint was formally brought before the EFCC against Xechem Nigeria. According to a source within the commission, who wished to remain anonymous, the complaint alleges that none of the US$3.5 million of public money was spent on drug manufacture.
An EFCC spokesperson told SciDev.Net that the commission would not comment on the allegations until after the investigation had been carried out and an interim report was complete. He could not confirm when that report would be available.
A staff member of Xechem Nigeria, who also asked to remain anonymous, told SciDev.Net that the money was spent instead, among other things, on buying luxury cars for the directors of SHESTCO and Xechem Nigeria.
Oniyide denies this, telling SciDev.Net that SHESTCO collected the government money and Xechem Nigeria had no control of the public funds.
He claims that the public funds were used by SHESTCO to support research and development on a separate Xechem project to produce vitamin C, glucose and ethanol from cassava starch and peels, as well as to support Xechem's staff with items such as a club house and company cars.
Several attempts to contact Ayodele Coker, director-general of SHESTCO, for comment were unsuccessful. On SciDev.Net's most recent effort to speak to Coker, staff said that he had gone abroad.
An international affair
Further confusion surrounds the status of Xechem International, its subsidiaries and its founder, northern India-born Ramesh Pandey.
Pandey is the founder, chairman and president of the G. D. Pandey Ayurvedic University, an organisation investigating India's traditional medicine which he set up in 2001. The organisation is based in the New Brunswick Technology Center in New Jersey in the United States — the same site that has housed the offices of Xechem.
Pandey founded Xechem International Inc. in the United States in 1994. By 2002, he was in an arrangement with the State Industries Promotion Corporation of Tamil Nadu in India for a Xechem factory to produce the anti-cancer compound paclitaxel in India, a deal that appeared to fall through.
He founded Xechem Pharmaceuticals Nigeria in 2003, primarily to develop Nicosan. But in July 2007, Pandey was forced out as a member of Xechem Nigeria's board of directors. And on 7 December 2007, Xechem International announced in a press release that Pandey had been replaced as chairman and chief executive officer of the company, although he remains a member of the board of Xechem International.
At the same time, Xechem International announced a cost-cutting plan to "increase the focus on its Nigerian operations". This would see the closure of the company's US headquarters, with a move to smaller facilities in the United States.
American biochemist and banker Robert Swift, who joined the board in May 2007 and succeeded Pandey as chief executive three months later, said in the press release that, "The Board feels that all available resources must be focused on production of Nicosan at our Nigerian operation".
Xechem confirmed the downsizing in a statement on 4 June 2008. The company maintains an office in New Jersey with three full time employees, two employees at Rutgers University in New Jersey and "several people part time". Xechem is currently utilising laboratories at Rutgers for the further development of Nicosan, as well as another sickle cell treatment, 5HMF.
The statement also points to the transfer of laboratory equipment worth over US$2 million from its US premises to Xechem Nigeria.
'False blame'
According to Pandey, his removal from the Xechem International board was the result of false accusations over misappropriated funds. He claims that the move was brought about by some recent investors in Xechem and members of the Xechem Nigeria board, who "falsely blamed" him for misappropriating funds at Xechem Nigeria.
"It is unfortunate that some of the old board members and the people whom I brought in [to] Xechem Nigeria were also part of this coup. They thought that since the drug is already standardised and ready to be launched, why do we need to keep Dr. Pandey in the company and share the reward," Pandey told SciDev.Net.
But according to Xechem Nigeria's Oniyide, there are questions over the use of the Nigerian and American loans Pandey obtained to build the drug production factory in Nigeria.
Oniyide claims that the Nexim and UPS loans were instead used to establish a parallel facility in India to produce Nicosan.
According to documents filed with the US Securities and Exchange Commission (SEC) in February this year by Swift, in his capacity as Xechem's chief foresight officer, Xechem's financial statements from 2002 to 2007 "may be inaccurate due to unrecorded financial issues related to Xechem (India)" as no documents tracing ownership could be found and loans from Xechem International to an Indian company have not been properly accounted for.
"It should be noted that the company has not engaged in any active operations of the [Indian] subsidiary since Dr. Pandey's departure as CEO", the report to the SEC says. The report also says Xechem International has proceeded to litigation in India against Pandey and others named as shareholders of Xechem India.
According to Oniyide, Xechem is taking court action because the Indian subsidiary was registered under Pandey's own name.
A second SEC document from a few days later (27 February 2008), also signed by Swift, states that Xechem International is "in default on its Debentures with Investors" totalling US$7 million and "cannot determine now whether it will be able to cure any or all of the defaults" as the company "does not have funds or revenues sufficient".
Pandey denies rerouting funds, saying the loans from Nexim were used for the "construction of the buildings and purchase of some equipment" for a commercial-scale production facility at SHESTCO in Nigeria, with extra equipment purchased using the US loans.
Nicosan rolls on
Meanwhile, Oniyide says Xechem International can no longer raise funds in the United States as investors have suspicions about the company.
He adds that Xechem Nigeria currently lacks the resources to scale up operations, although he says the company continues to produce 10,000–15,000 capsules a day from limited facilities installed by Pandey at SHESTCO.
Stephen Burg, director at Xechem International, confirmed with SciDev.Net that Nicosan is still available on the Nigerian market. He said production at the Xechem facility at SHESTCO near Abuja remains small-scale but that they were meeting demand, although he would not confirm the volumes being produced.
According to a Xechem International press statement (4 June 2008), Xechem Nigeria is currently able to produce about 50 million Naira (US$420,000) of Nicosan a month. According to the statement, Nicosan shipped to three out of the 36 Nigerian states (Niger, Nassarawa and Ondo) in 2008, generating revenue of around $350,000, which Xechem Nigeria say is enough support day to day operations but not to service any of its debt to Xechem International, Nexim or UPS.
The statement says that Nicosan Xechem Nigeria currently employs around 90 people and has made "improvements" to the Nicosan production pricess, allowing it to "support a greater number of regular customers" than in 2007.
Xechem Nigeria is currently able to produce about 50 million Naira (US$420,000) of Nicosan a month
Flickr/quiquemendizabal
Burg confirmed that Pandey is still a member of the Xechem International board as an "outside director" with no direct influence on the day-to-day running of the company. Athough Burg says Pandey still participates in board meetings, he could not confirm when Pandey last attended a Xechem meeting.
Burg says that due to ongoing legal cases, he cannot reveal further details of Xechem International, its subsidiaries or the court action taking place in India.
Xechem International's statement of 4 June 2008 confirmed that the company is still involved in several lawsuits, including that with Pandey, and "still in settlement discussions in India with respect to stock ownership of Xechem India".
Xechem say they have developed a tablet form of Nicosan for sale in the United States, and identified a US manufacturing facility for production. It expects the drug to be on the market later in 2008, "if there is sufficient working capital".
However, the statement confirms that Xechem International is still experiencing debt problems and "difficulty in raising working capital necessary to run its operations". The company estimates it needs "up to an additional US$1million to continue operations in 2008" and holds debts of over US$14 million. The statement also reveals that Swift has lent two sums of US$28,676 and US$118,255 of his own money to Xechem.
The company warns that there is a "substantial risk that Xechem International will not be able to obtain sufficient proceeds from capital raising efforts or other sources to enable it to continue to operate" and that it may need court protection from creditors if it is unable to raise additional capital "in the very near future". Bankruptcy is mentioned as a possible option.
The statement also advises that the SEC, in a letter dated 30 May 2008, has threatened to deregister Xechem from the stock market if it is unable to meet its public filing requirements.
Additional reporting by David Dickson and Mun-Keat Looi
Comments
Yuguda Henshaw ( Nigeria )
2 July 2008
Pls this must be investigated to logical conclusion, and also the money meant to buy chemicals worth over $2.1 million for 2007 allocation from the government has not been spent. Pls this should be investigated. The construction of the gamma irradiation facility should be investigated for fraud too. The cost was inflated astronomically. What should have build 5 was used in building one.
Scott Whitney ( United States of America )
5 July 2008
It appears that this news may mire another attempt to advance an indigenous science effort, it is staggering to imagine that with all the monies virtually wasted in the US and Europe on 'potential this' and 'potential that' for the treatment of sickle cell disease that the fiscal mismanagement of a company, an institute of science, a government body, a country, etc... have squandered away an important advancement such as this. I find that this 'Nicosan' drug was only launched in 2006 and in less than 2 years
"personal guaranty issued by the CEO, Dr. Ramesh Pandey, backed by a notarized statement of net worth;"
Seems to me that Dr Pandey has alot to loose also. Loans gauranteed by personal assets
Who is the Diamond Trustee Company and has anyone contacted them??
Dr Pandey gave his personal gaurantee for this money.
This link below is a complete read of all events over the last few years up to 2007. Just in case any one wants to reread.
http://sec.edgar-online.com/xechem-international-inc/10qsb-quarterly-report-of-financial-
condition/2007/05/21/Section14.aspx
The loan is in the principal amount of 150,000,000 Naira or approximately One Million One Hundred Eighty One Thousand Dollars (US) ($ 1 ,181,000 ). The loan proceeds are being used primarily to facilitate the full-scale commercial production of NICOSAN™ through the expansion and integration of existing production facilities at Sheda Science and Technology Complex, Gwagwalada-Abuja. The loan facility will extend for a period of up to three years, with no principal payments due during the first year. The loan facility bears interest at the rate of 15% per year, payable during the first year in installments in November 2006 and May 2007. Thereafter, the loan facility is to be repaid through four consecutive semi-annual installments of principal and interest with the first repayment (of approximately $400,000 US) occurring on November 29, 2007. The loan facility is secured by: (a) an all assets debenture on the assets of the company which has been incorporated into a trust for all lenders to be managed by Diamond Trustees Company; (b) personal guaranty issued by the CEO, Dr. Ramesh Pandey, backed by a notarized statement of net worth; and (c) promissory notes
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
March 31, 2007 December 31, 2006
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 129,000 $ 105,000
Prepaid expenses and other current assets 265,000 197,000
Inventories 723,000 710,000
Total Current Assets 1,117,000 1,012,000
Property and Equipment
Land and building 674,000 674,000
Furniture and equipment 3,543,000 3,429,000
Leasehold improvements 1,015,000 1,015,000
Less accumulated depreciation and amortization 2,475,000 2,441,000
2,757,000 2,677,000
Deposits 31,000 31,000
TOTAL ASSETS $ 3,905,000 $ 3,720,000
LIABILITIES & STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 1,627,000 $ 1,368,000
Accrued expenses to related parties 514,000 449,000
Accrued expenses to others 1,426,000 1,365,000
Note payable to bank 55,000 55,000
Notes payable to related parties 1,346,000 1,346,000
Notes payable others 2,921,000 2,160,000
Other current liabilities 63,000 63,000
Total Current Liabilities 7,952,000 6,806,000
Notes payable to related parties 265,000 265,000
Notes payable, net of discount of $1,074,000 2,895,000 2,689,000
Other liabilities 24,000 30,000
TOTAL LIABILITIES 11,136,000 9,790,000
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' DEFICIENCY
Class A voting preferred stock, $.00001 par value, 2,500 shares
authorized; 2,500 shares issued and outstanding - -
Class B 8% convertible preferred stock, $.00001 par value, 1,150 shares
authorized; none outstanding - -
Class C preferred stock,$ .00001 par value, 49,996,350 shares authorized;
38,745 issued and outstanding. - -
Common stock, $.00001 par value 3,500,000,000 shares authorized;
1,552,467,995 issued and outstanding 16,000 15,000
Additional paid in capital 78,374,000 76,325,000
Deficit accumulated during development stage (85,621,000 ) (82,410,000 )
Total Stockholders' Deficiency (7,231,000 ) (6,070,000 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,905,000 $ 3,720,000
See accompanying notes to consolidated financial statements
4
--------------------------------------------------------------------------------
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UAUDITED)
THREE MONTHS ENDED Cumulative from MARCH 15, 1990 (Date of Inception) to
MARCH 31, MARCH 31,
2007 2006 2007
Revenues $ 130,000 $ 1,000 $ 2,453,000
Costs and expenses:
Cost of Sales 95,000 - 174,000
Research and development 175,000 356,000 15,653,000
General and administrative 2,763,000 2,058,000 32,691,000
Sales and Marketing - - 275,000
Writedown of inventory
and intangibles - - 1,861,000
3,033,000 2,414,000 50,654,000
Loss from Operations (2,903,000 ) (2,413,000 ) (48,201,000 )
Other Income(Expense)
Interest expense - related parties (15,000 ) (23,000 ) (9,230,000 )
Interest expense - others (516,000 ) (3,556,000 ) (24,724,000 )
BMS Settlement - 4,200,000 4,200,000
Other 222,000 - 354,000
Gain from sale of affiliate's stock - - 2,930,000
Share of Net Loss from Affiliate - - (13,587,000 )
(309,000 ) 621,000 (40,057,000 )
Loss before Income Tax Benefit (3,212,000 ) (1,792,000 ) (88,258,000 )
Income Tax Benefit 1,000 - 2,637,000
NET LOSS $ (3,211,000 ) $ (1,792,000 ) $ (85,621,000 )
Net loss per share - basic and diluted $ (0.00 ) $ (0.00 )
Weighted average number of common shares outstanding - basic & diluted 1,531,202,509 658,136,687
See accompanying notes to consolidated financial statements
5
--------------------------------------------------------------------------------
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Common Stock Deficit Accumulated
Number of
Shares Unearned
Compensation Additional
Paid-in During Development Total Stockholders'
Issued Par Value Expense Capital Stage [ Deficit ]
Common stock issued to Dr. Pandey in 1990 in exchange for equipment recorded at transferor's cost — $ — $ — $ 125,000 $ — $ 125,000
Laboratory and research equipment contributed to capital by Dr. Pandey in 1990 and 1991 — — — 341,000 — 341,000
Contribution to capital relating to unconsummated acquisition in 1992 — — — 95,000 — 95,000
Exchange of securities of newly formed parent for outstanding securities of entities owned by Dr. Pandey 1,000 — — 13,840,000 — 13,840,000
Initial public offering in 1995 at $5.00 per share, less related expenses 1,000 — — 4,543,000 — 4,543,000
Stock options granted at exercise prices below market:
1994 — — — 51,000 — 51,000
1995 — — — 1,110,000 — 1,110,000
1996 — — — 18,000 — 18,000
1997 — — — 31,000 — 31,000
Private placements, less related expenses:
In 1995 at $3.00 per share — — — 389,000 — 389,000
In 1996 at $3.00 per share, net of a related 66,000 shares returned by Dr. Pandey — — — 53,000 — 53,000
In 1997 at $0.05 per share 15,000 — — 2,291,000 — 2,291,000
Stock issued in 1996 at $0.38 per share upon termination of agreement to sell a minority interest in a subsidiary — — — 100,000 — 100,000
Totals - Forward 17,000 $ — $ — $ 22,987,000 $ — $ 22,987,000
6
--------------------------------------------------------------------------------
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY - (continued)
Common Stock Deficit Accumulated
Number of
Shares Unearned
Compensation Additional
Paid-in During Development Total Stockholders'
Issued Par Value Expense Capital Stage [Deficit]
Totals - Forwarded 17,000 $ — $ — $ 22,987,000 $ — $ 22,987,000
Conversion of preferred stock into common stock at $1.25 to $1.75 per share less related costs:
In 1996 1,000 — — 1,995,000 — 1,995,000
In 1997 15,000 1,000 — 2,131,000 — 2,132,000
Conversion of debt into common stock in 1996 at $0.25 per share — — — 369,000 — 369,000
Stock issued in settlement of a lawsuit in 1996 valued at $1.31 per share — — — 33,000 — 33,000
Conversion of Dr. Pandey's preferred stock and debt into common stock in 1997 at $0.0625 per share 6,000 — — 1,214,000 — 1,214,000
Other — — — 16,000 — 16,000
Private placement at $0.05 per share 4,000 — — 559,000 — 559,000
Contribution to capital by stockholders of equity interest in Xechem India — — — 79,000 — 79,000
Conversion of debt into common stock at $0.05 per share 3,000 — — 440,000 — 440,000
Return of capital to David Blech or his designees — — — (261,000 ) — (261,000 )
Sale of common stock in 1999 pursuant to Blech agreement at $0.01 per share 15,000 1,000 — 444,000 — 445,000
Conversion of debt due related parties in 1999 at $0.01 per share 15,000 — — 360,000 — 360,000
Stock issued to directors, employees and consultants in 1999 for services valued at $0.037 per share 4,000 — — 410,000 — 410,000
Capital arising from issuance of Class C Stock (Note 7):
Series 4 — — — 400,000 — 400,000
Series 5 — — — 1,564,000 1,564,000
Net loss from inception to December 31, 1999 — — — — (32,493,000 ) (32,493,000 )
Balances At December 31, 1999 - Forward 80,000 $ 2,000 $ — $ 32,740,000 $ (32,493,000 ) $ 249,000
7
--------------------------------------------------------------------------------
XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY - (continued)
Common Stock Deficit Accumulated
Number of
Shares Unearned
Compensation Additional
Paid-in During Development Total Stockholders'
Issued Par Value Expense Capital Stage [Deficit]
Balances At December 31, 1999 - Forwarded 80,000 $ 2,000 $ — $ 32,740,000 $ (32,493,000 ) $ 249,000
Stock options exercised at $.01 per share — — — 4,000 — 4,000
Issuance of 1,500,000 options at $.01 per share with a FMV of $ .06 per share for services rendered — — — 75,000 — 75,000
Conversion of Class C preferred stock to common Stock 27,000 1,000 — (1,000 ) — —
Conversion of debt to Stock of Common Stock at $0.01 per share 5,000 — — 164,000 — 164,000
Private placement of Stock of Common Stock at $0.08 per share — — — 80,000 — 80,000
Issuance of Common Stock at $0.096 per share for services rendered 1,000 — — 107,000 — 107,000
Stock options exercised at $.01 per share with a FMV of $0.076 per share — — — 5,000 — 5,000
Conversion of debt to Stock of Common Stock at $0.01 per share 1,000 — — 22,000 — 22,000
Stock options exercised at $.01 per share — — — 1,000 — 1,000
Beneficial Conversion feature of notes payable — — — 286,000 — 286,000
Charge to operations resulting from Options granted to Directors, Consultants and Employees — — — 192,000 — 192,000
Unearned Stock Compensation Expense Related to Options granted to Directors, Consultants and Employees — — (406,000 ) 406,000 — —
Increase in Equity Interest in Xechem India — — — 19,000 — 19,000
Net loss for year ended December 31, 2000 — — — — (1,971,000 ) (1,971,000 )
Balances At December 31, 2000 - Forward 114,000 $ 3,000 $ (406,000 ) $ 34,100,000 $ (34,464,000 ) $ (767,000 )
8
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Common Stock Deficit Accumulated
Number of
Shares Unearned
Compensation Additional
Paid-in During Development Total Stockholders'
Issued Par Value Expense Capital Stage [Deficit ]
Balances At December 31, 2000 - Forwarded 114,000 $ 3,000 $ (406,000 ) $ 34,100,000 $ (34,464,000 ) $ (767,000 )
Stock issued for services rendered 2,000 — — 68,000 — 68,000
Amortization of unearned stock compensation — — 197,000 — — 197,000
Stock options exercised at $.01 per share — — — 6,000 — 6,000
Beneficial Conversion feature of notes payable — — — 216,000 — 216,000
Unearned Stock Compensation Expense Related to Options granted to Directors and Employees — — (75,000 ) 76,000 — 1,000
Stock Options Granted to Consultants — — — 16,000 — 16,000
Stock issued for cancellation of indebtedness 1,000 — — 15,000 — 15,000
Stock issued upon conversion of debentures 9,000 1,000 — 68,000 — 69,000
Net loss for year ended December 31, 2001 — — — — (1,744,000 ) (1,744,000 )
Balances At December 31, 2001 126,000 4,000 (284,000 ) 34,565,000 (36,208,000 ) (1,923,000 )
Stock issued upon conversion of debentures at $.001 per share 44,000 1,000 — 188,000 — 189,000
Stock issued for services rendered at $.007 per share — — — 10,000 — 10,000
Amortization of unearned stock compensation — — 45,000 — — 45,000
Beneficial conversion feature of notes payable 52,000 — 52,000
Stock issued upon conversion of debentures at $.001 per share 20,000 1,000 — 74,000 — 75,000
Amortization of unearned stock compensation — — 44,000 — — 44,000
Stock options issued at $.006/share:
16,000,000 options — — (160,000 ) 160,000 — —
Amortization of stock options compensatory charge over service period — — 40,000 — — 40,000
Stock options exercised at $.006/share 2,000 — — 30,000 — 30,000
Totals - Forward 192,000 $ 6,000 $ (315,000 ) $ 35,079,000 $ (36,208,000 ) $ (1,438,000 )
9
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY - (continued)
Common Stock Deficit Accumulated
Number of
Shares Unearned
Compensation Additional
Paid-in During Development Total Stockholders'
Issued Par Value Expense Capital Stage [Deficit]
Totals - Forwarded 192,000 $ 6,000 $ (315,000 ) $ 35,079,000 $ (36,208,000 ) $ (1,438,000 )
Beneficial conversion feature of debentures — — — 148,000 — 148,000
Record value of warrants issued — — — 272,000 — 272,000
Beneficial conversion feature of notes payable — — — 35,000 — 35,000
Stock issued upon conversion of debentures at $.001 per share 95,000 3,000 — 318,000 — 321,000
Stock issued for services rendered at $.003 per share 7,000 — — 60,000 — 60,000
Amortization of unearned stock compensation — — 45,000 — — 45,000
Amortization of beneficial conversion feature of notes payable — — — 104,000 — 104,000
Amortization of stock options compensatory charge over service period — — 40,000 — — 40,000
Stock issued upon conversion of debentures at $.0005 per share 362,000 11,000 — 533,000 — 544,000
Stock issued for services rendered at $.0007 per share 3,000 — — 7,000 — 7,000
Amortization of unearned stock compensation — — 32,000 — — 32,000
Amortization of beneficial conversion feature of notes payable — — — 662,000 — 662,000
Amortization of stock options compensatory charge over service period — — 40,000 — — 40,000
Finders fee for convertible debt issuance — — — (130,000 ) — (130,000 )
Record debt discount on notes and debentures — — — 1,068,000 — 1,068,000
Cost incurred with stock options issued for service — — — 18,000 — 18,000
Net loss for the year ended December 31, 2002 — — — — (3,599,000 ) (3,599,000 )
Balances At December 31, 2002 - Forward 659,000 $ 20,000 $ (158,000 ) $ 38,174,000 $ (39,807,000 ) $ (1,771,000 )
10
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY- (continued)
Common Stock Deficit Accumulated
Number of
Shares Unearned
Compensation Additional
Paid-in During Development Total Stockholders'
Issued Par Value Expense Capital Stage [Deficit]
Balances At December 31, 2002 - Forwarded 659,000 $ 20,000 $ (158,000 ) $ 38,174,000 $ (39,807,000 ) $ (1,771,000 )
Effect of Reverse Stock Split — (19,000 ) — 19,000 — —
Stock issued upon conversion of notes at an average of $.0002 per share 422,000 — — 254,000 — 254,000
Stock issued upon conversion of notes at an average of $.00006 per share 972,000 — — 171,000 — 171,000
Stock issued upon conversion of notes & debentures at $.000025 per share 1,091,000 — — 84,000 — 84,000
Stock issued upon conversion of notes at an average of $.06 per share 789,000 — — 47,000 — 47,000
Stock issued upon conversion of notes at an average of $.055 per share 63,000 — — 3,000 — 3,000
Stock issued upon conversion of notes at an average of $.03 per share 10,673,000 — — 320,000 — 320,000
Stock issued upon conversion of notes at an average of $.0025 per share 49,571,000 — — 125,000 — 125,000
Amortization of unearned stock compensation — — 158,000 — — 158,000
Fair value of Stock to be issued in conjunction with loans — — — 78,000 — 78,000
Fair value of Stock to be issued in conjunction with consulting — — — 25,000 — 25,000
Issuance of warrants — — — 2,647,000 — 2,647,000
Beneficial conversion feature of loans — — — 70,000 — 70,000
Net loss for the year ended December 31, 2003 — — — — (3,828,000 ) (3,828,000 )
Balances At December 31, 2003 - Forward 64,240,000 $ 1,000 $ — $ 42,017,000 $ (43,635,000 ) $ (1,617,000 )
11
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' - (continued)
Common Stock Deficit Accumulated
Number of
Shares Unearned
Compensation Additional
Paid-in During Development Total Stockholders'
Issued Par Value Expense Capital Stage [Deficit]
Balances At December 31, 2003 - Forwarded 64,240,000 $ 1,000 $ — $ 42,017,000 $ (43,635,000 ) $ (1,617,000 )
During the 1st quarter of 2004, Stock issued upon conversion of notes at an average of $.0025 per share 185,886,000 2,000 — 461,000 — 463,000
In March 2004 Stock issued pursuant to private placement for cash at $.07 per share 9,143,000 — — 640,000 — 640,000
In March 2004 Stock issued for services rendered at an average of $.12 per share 200,000 — — 24,000 — 24,000
In January 2004 Stock issued for services rendered and charged in prior year 200,000 — — — — —
Stock of Preferred Class C issued for Ceptor purchase — — — 4,760,000 — 4,760,000
Beneficial conversion feature of loan — — — 1,500,000 — 1,500,000
Capitalization of deferred finance charges — — — 2,065,000 — 2,065,000
Stock sale by CepTor — — — 9,135,000 — 9,135,000
Net loss for the year ended December 31, 2004 — — — — (17,606,000 ) (17,606,000 )
Balances At December 31, 2004 259,669,000 $ 3,000 $ — $ 60,602,000 $ (61,241,000 ) $ (636,000 )
Beneficial conversion feature of loan — — — 3,986,000 — 3,986,000
Shares issued upon conversion of notes @$ .005 - $ .0075 per share 99,500,000 1,000 — 775,000 — 776,000
Shares issued to Sickle Cell Advisory Board @$ .013 per share 4,000,000 — — 52,000 — 52,000
Shares issued for services rendered @ $.013 per share 10,000,000 — — 130,000 — 130,000
Totals - Forward 373,169,000 $ 4,000 $ — $ 65,545,000 $ (61,241,000 ) $ 4,308,000
12
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY - (continued)
Common Stock Deficit Accumulated
Number of
Shares Unearned
Compensation Additional
Paid-in During Development Total Stockholders'
Issued Par Value Expense Capital Stage Deficiency
Totals - Forward 373,169,000 $ 4,000 $ — $ 65,545,000 $ (61,241,000 ) $ 4,308,000
Net loss for the year ended Dec. 31, 2005 — — — (10,039,000 ) (10,039,000 )
Balances At December 31, 2005 373,169,000 4,000 — 65,545,000 (71,280,000 ) (5,731,000 )
Beneficial conversion feature of loan — — — 4,868,000 — 4,868,000
Shares issued upon conversion of notes @$ .0025 - $ .0075 per share 1,004,114,000 11,000 — 4,490,000 — 4,501,000
Conversion of Class C Preferred Stock to Common Stock 25,943,000 — — — — —
Exercise of warrants 116,726,000 — — 1,422,000 — 1,422,000
Net loss for the year ended Dec. 31, 2006 — — (11,130,000 ) (11,130,000 )
Balances At December 31, 2006 1,519,952,000 $ 15,000 $ — $ 76,325,000 $ (82,410,000 ) $ (6,070,000 )
Shares issued upon conversion of notes @$ .005 (unaudited) 32,516,000 1,000 — 2,049,000 — 2,050,000
Net loss for the three months ended Mar.31, 2007 (unaudited) — — (3,211,000 ) (3,211,000 )
Balances At March 31, 2007 (Unaudited) 1,552,468,000 $ 16,000 $ — $ 78,374,000 $ (85,621,000 ) $ (7,231,000 )
See accompanying notes to consolidated financial statements
13
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, Cumulative from March 15, 1990 (inception) to
March 31,
2007 2006 2007
Cash flows from operating activities:
Net loss $ (3,211,000 ) $ (1,792,000 ) $ (85,621,000 )
Adjustments to reconcile net loss to net cash
used in operating activities:
Share of Net loss from unconsolidated affiliate - 13,587,000
Depreciation 17,000 19,000 1,714,000
Amortization 17,000 17,000 1,098,000
Amortization of debt discount and beneficial
conversion features 321,000 2,571,000 16,142,000
Amortization of warrants issued - - 215,000
Value of stock and stock options issued for services 1,841,000 2,549,000
Unearned compensation 284,000
Interest and compensation expense in connection
with issuance of equity securities 19,038,000
Write down of inventories - - 1,344,000
Write down of patents - - 517,000
Loss on investment in related party - - 89,000
Amortization of deferred consulting charge - - 1,330,000
Gain from sale of affiliate's stock - - (2,930,000 )
Changes in operating assets and liabilities
Accounts receivable - - (67,000 )
Inventories (12,000 ) - (2,061,000 )
Prepaid expenses and other current assets (68,000 ) (29,000 ) (70,000 )
Other assets - (3,000 ) 2,000
Accounts payable 352,000 (152,000 ) 1,742,000
Other current liabilities - - (66,000 )
Accrued expenses 126,000 (226,000 ) 1,934,000
Net cash used in operating activities: (617,000 ) 405,000 (29,230,000 )
Cash flows from investing activities:
Patent issuance costs - - (548,000 )
Purchases of equipment and leasehold improvements (114,000 ) (136,000 ) (4,908,000 )
Return of Investment in unconsolidated affiliate - - 3,669,000
Other - - (7,000 )
Net cash used in investing activities: (114,000 ) (136,000 ) (1,794,000 )
Cash flows from financing activities:
Proceeds from related party loans - - 3,009,000
Proceeds from notes payable and convertible notes 761,000 550,000 15,786,000
Proceeds from short term loans - - 4,271,000
Capital contribution - - 95,000
Net payments on capital leases (6,000 ) (10,000 ) (128,000 )
Payments on interim loans - - (808,000 )
Payments on notes payable - others (1,000,000 ) (3,348,000 )
Payments on stockholder loans - - (773,000 )
Proceeds from issuance of capital stock - - 12,949,000
Net cash provided by financing activities : 755,000 (460,000 ) 31,053,000
Net increase (decrease) in cash and cash equivalents 24,000 (191,000 ) 29,000
Effect of exchange rate translation - - 100,000
Cash and cash equivalents, beginning of period 105,000 329,000 -
Cash and cash equivalents, end of period $ 129,000 $ 138,000 $ 129,000
(continued)
14
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
(UNAUDITED)
Three Months Ended
March 31, Cumulative from March 15, 1990 (inception) to March 31,
2007 2006 2007
Supplemental Disclosures of Non-cash Financing and Investing Activities:
Cash paid during the periods for:
Interest - related party $ 10,000 $ 15,000 $ 498,000
Interest - other $ 201,000 $ 1,207,000 $ 2,139,000
Income Taxes $ - $ - $ -
Supplemental disclosures of Non-cash financing and investing activities in 2007 and 2006:
Net assets of Xechem India contributed to capital and
minority interest. $ - $ - $ 118,000
Liabilities exchanged for preferred and common stock $ - $ - $ 1,270,000
Equipment purchased through financing $ - $ - $ 134,000
Securities issued as payment on related party note $ - $ - $ 20,000
Common stock issued upon conversion of debentures, notes
and related accrued interest $ 163,000 $ 2,477,000 $ 4,139,000
Common stock issued for services $ - $ 14,417,000
Convertible notes refinanced by notes payable $ - $ - $ 367,000
Warrants Issued $ - $ - 193,000
Warrants Issued for services $ - $ - 1,330,000
Beneficial Conversion Features to financing agreements $ 321,000 $ 2,571,000 13,319,000
Common stock of subsidiary issued in conjunction with
financing agreement $ - $ - $ 16,662,000
Preferred Stock issued in asset acquisition $ 4,760,000 $ - $ 14,280,000
Assets acquired and liabilities assumed in asset acquisition: $ - $ -
Long-term Debt $ 275,000 $ 4,760,000 $ 1,100,000
Prepaid Expenses $ 18,000 $ 72,000
Preferred Stock issued in Ceptor acquisition $ - $ - $ 4,760,000
Assets acquired & Liabilities assumed in Asset acquisition:
Long Term Debt $ - $ - $ 275,000
Prepaid Expenses $ - $ - $ 18,000
Accrued Expenses $ - $ - $ 36,000
See accompanying notes to consolidated financial statements
15
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XECHEM INTERNATIONAL, INC. AND SUBSIDIARIES
[A DEVELOPMENT STAGE ENTERPRISE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
[1] Significant Accounting Policies
The accompanying consolidated financial statements have been prepared assuming Xechem International, Inc. and its subsidiaries Xechem, Inc., Xechem Laboratories, Inc., Xetapharm, Inc., Xechem (India) Pvt. Ltd., Xechem UK, Ltd., and Xechem Pharmaceuticals Nigeria , Ltd. will continue as a going concern. As a result of our net losses through December 31, 2006 and accumulated deficit since inception, our auditors, in their report on our financial statements for the year ended December 31, 2006, included an explanatory paragraph indicating there is substantial doubt about our ability to continue as a going concern. This condition has not changed as of March 31, 2007.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Significant accounting policies and other matters relating to us and our subsidiaries, Xechem, Inc., Xechem Laboratories, Inc., Xetapharm, Inc, Xechem (India) Pvt. Ltd., Xechem UK, Ltd., and Xechem Pharmaceuticals Nigeria , Ltd. are set forth in the financial statements for and as of the year ended December 31, 2006 included in our 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 (of a normal recurring nature) which are considered necessary to make the interim financials not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Form 10-KSB for the year ended December 31, 2006. The results of operations for the three month period ended March 31, 2007 are not necessarily indicative of the operating results for a full year.
Foreign Currency Translation - The consolidated financial statements of the foreign affiliates have been translated at current exchange rates for balance sheet items and at average rates for income and expense items. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss). Foreign currency transaction gains (losses) resulting from exchange rate fluctuations on transactions denominated in a currency other than the Naira and Rupee are included in other income and expenses. As a result, the transactions of those operations that are denominated in foreign currencies are remeasured into U.S. dollars, and any resulting gains or losses are included in other income and expenses. The net foreign currency translation was not material.
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[3] Going Concern
Through the end of the current reporting period, the resources and attention of the Company were being directed primarily toward efforts of its subsidiary, Xechem Pharmaceuticals Nigeria Ltd. (Xechem Nigeria) to launch and commercialize our drug NICOSAN™/HEMOXIN™ (formerly named NIPRISAN), which has shown efficacy in the treatment of Sickle Cell Disease (SCD). On July 3, 2006, the drug was approved by the National Agency for Food and Drug Administration and Control (NAFDAC), which is Nigeria’s drug regulatory agency, on a limited term basis. The approval was for an initial term of two years, during which time, the Company will work toward completing confirmatory Phase III clinical trials in Nigeria. In the meantime, Xechem Nigeria faces no restrictions on its ability to market and sell the drug in Nigeria. Three days following the drug’s approval, on July 6, 2006, Xechem Nigeria officially launched the drug in Nigeria, The drug is being produced and a modern, pilot facility operated by Xechem Nigeria at Sheda Science and Technology Complex (SHESTCO), Abuja, Nigeria. Construction of a full scale production facility recently began adjacent to Xechem Nigeria’s pilot facility at SHESTCO. The Company is also planning to embark upon the stringent U.S. FDA approval process, which includes conducting pre-clinical and clinical trials in the United States in anticipation of the sale of the drug in this country. Substantial cash expenditures over a considerable period of time will be required to complete construction of the scale-up facility, to produce, market and sell large scale quantities of NICOSAN™/HEMOXIN™ and to fund the cost of the clinical trials, and the Company is in the process of identifying potential sources of financing, including loans and equity infusions, that will allow it to accomplish these objectives. There can be no assurance that the necessary funds will be obtained to complete construction of its full scale production facility in Nigeria, to successfully produce, market and sell the drug in large quantities in Nigeria or to successfully launch the drug in the United States. Our research and development activities are at an early stage and the time and money required to develop the commercial value and marketability of our proposed products will require significant cash expenditures for an indefinite period in the future. In order to meet these cash needs, we have entered into the following recent financing agreements.
(1) The agreement with Alembic Limited was restructured in December 2005. In accordance with the terms of the loan, in January 2006, from the proceeds from the BMS settlement, $1,000,000 of principal and $190,700 of accrued interest was paid. The remaining principal balance of $2,000,000 due on the Alembic Promissory Note, together with unpaid interest, was due and payable December 31, 2006.
Xechem did not pay the amounts due Alembic on December 31, 2006. Xechem and Alembic have extended the Maturity Date, pursuant to a Letter Agreement, dated January 4, 2007 to January 31, 2007. Pursuant to a second Letter Agreement, dated January 31, 2007, the parties agreed to extend the Maturity Date to February 24, 2007. As consideration for this extension, Xechem agreed to pay to Alembic, in reduction of the indebtedness due under the Note, the sum of $100,000. Pursuant to a third Letter Agreement, dated as of February 24, 2007 (executed March 1, 2007), the parties agreed to extend the Maturity Date to March 31, 2007. As consideration for the third extension, Xechem paid Alembic, in reduction of the indebtedness due under the Note, the sum of $100,000 on March 1, 2007, which payment was a condition to the extension. As of March 31, 2007, we have a balance of $2,000,000 in principal and $89,300 in accrued interest.
Furthermore, the parties agreed that if Xechem made a principal payment to Alembic in reduction of the Note of not less than $1,000,000, together with accrued interest, on or before March 31, 2007, then the Maturity Date will be extended for an additional six months. Due to finalization of new funding ( See Note 7(B) ), Alembic agreed to extend the payment date five days and payment was made on April 5, 2007.
(2) On May 31, 2006, Nigeria Export-Import Bank (NEXIM) funded a direct loan to our wholly-owned subsidiary, Xechem Pharmaceuticals Nigeria, Ltd. (Xechem Nigeria).
17
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The loan is in the principal amount of 150,000,000 Naira or approximately One Million One Hundred Eighty One Thousand Dollars (US) ($ 1 ,181,000 ). The loan proceeds are being used primarily to facilitate the full-scale commercial production of NICOSAN™ through the expansion and integration of existing production facilities at Sheda Science and Technology Complex, Gwagwalada-Abuja. The loan facility will extend for a period of up to three years, with no principal payments due during the first year. The loan facility bears interest at the rate of 15% per year, payable during the first year in installments in November 2006 and May 2007. Thereafter, the loan facility is to be repaid through four consecutive semi-annual installments of principal and interest with the first repayment (of approximately $400,000 US) occurring on November 29, 2007. The loan facility is secured by: (a) an all assets debenture on the assets of the company which has been incorporated into a trust for all lenders to be managed by Diamond Trustees Company; (b) personal guaranty issued by the CEO, Dr. Ramesh Pandey, backed by a notarized statement of net worth; and (c) promissory notes.
Xechem Nigeria is obligated to pay the following fees: (a) a facility fee of 1% flat on the facility amount or 1,500,000 Naira (approximately $12,500 US); (b) a management fee of 0.5% flat on the principal amount outstanding from time to time, payable annually on the anniversary of the facility; and (c) a monitoring fee of 100,000 Naira (approximately $800 US), payable annually on the anniversary of the facility. Nexim reserves the right to vary the rates as dictated by market realities. Nexim is also entitled to name a director to the Xechem Nigeria board of directors pending the repayment of the facility.
(3) We have been in extended negotiations with UPS Capital Business Credit (“UPS Capital”) to obtain financing to cover the cost of acquiring the plant equipment and machinery needed to establish a commercial scale production facility in Nigeria under the U.S. Ex-Im (“Ex-Im”) Bank Loan Guarantee Program. Based on the estimated cost of the project, as well as the criteria utilized under Ex-Im’s guidelines, the Ex-Im statutory fees, etc., the total amount sought by our subsidiary, Xechem Pharmaceuticals Nigeria, Ltd. (“XPNL”) from UPS Capital is $9.38 million. In March 2006, we paid a $50,000 non-refundable good faith deposit to UPS Capital.
On October 17, 2006, we received notification from UPS Capital that Ex-Im has approved a comprehensive credit guarantee to support UPS Capital’s $9.38 million loan to XPNL, and that UPS has approved XPNL for a $9.38 million credit facility on the following principal terms:
(i) Proceeds to be used to fund up to 85% of XPNL’s cost (i.e, $8,538,542) of the US manufactured equipment and machinery needed for the establishment of a commercial scale pharmaceutical plant in Nigeria, plus certain local costs, fees, etc., for a total credit facility of $9,388,981;
(ii) Principal plus interest at a rate of LIBOR + 2.75% repayable semi-annually in arrears over five years;
(iii) Loan to be supported by a 100% Ex-Im guarantee, which has been approved, together with local bank guarantees from two Nigerian banks, Access Bank, Plc, and Diamond Bank, Plc. (Subsequently, B ank PHB Plc replaced Access Bank).
(iv) Part of UPS Capital loan will be used to cover 100% of the cost of Ex-Im Statutory Exposure Fee of $850,439.
(v) Total up-front fees payable to UPS Capital are $190,795 (net of the $50,000 good faith deposit).
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Upon payment by XPNL of the UPS Capital Fees and the receipt by UPS Capital of the final commitments from Access Bank (subsequently replaced by Bank PHB) and Diamond Bank, the loan documents will be finalized and upon payment of the 15% equity contribution required of XPNL, the proceeds will be released in accordance with the terms of the loan. Both local Nigerian banks have their guarantees (in turn backed by the personal guarantee of Ramesh Pandey with respect to the Bank PHB guarantee and by Dr. Soji Adelaja and Mr. Isaac Inyang with respect to the Diamond Bank guarantee. XPLN is as of the date of this report considering its strategic alternatives as to whether it will seek the funding of the UPS Capital loan. If for any reason such loan is not funded, we will consider identifying a suitable alternative financing or continue forward initially on a smaller scale than with a full scale production facility, but at a level that we expect (but cannot guarantee) would generate sufficient cash flow to meet our needs in the foreseeable future. We will also in such event consider other alternative sources of debt and/or equity financing as necessary for completion of a full scale facility. As of this date we have not identified alternative sources to fully fund the Nigerian Pharmaceutical Project or our ongoing operations.
If and when the UPS loan (or alternate financing for the full scale production facility) closes, there will be additional expenses associated with the completion of the Nigerian facility and start-up of production. We are hopeful that these additional monies will be obtained from potential local financing in Nigeria (debt, equity and/or possible prepayment for product or other product sales) and/or from potential domestic funding sources, although no commitments have been obtained for such funding. In the event all of such financing can be obtained, we have the further risk that cost overruns and/or delays in bringing the product to market could adversely impact execution of our business plan.
(4) In the three months ended March 31, 2007, holders of Xechem debt converted Xechem debt (in the form of principal and interest) in the aggregate amount of $162,600 ($116,900 of which is principal and $45,700 of which is interest) into 32,515,556 shares of Xechem’s common stock (exercised at a conversion rates of $0.005 per share) representing approximately 2% of Xechem’s then issued and outstanding stock.
(5) In the three months ended March 31, 2007, Xechem received loans totaling $100,000 from Ms. Chassman and $569,600 from eight unrelated parties. Notes are to be issued with terms of six months and a per annum interest rate of 8%. ( See Note 7(F))
(6) Sales of our product NICOSAN™, a sickle cell drug, commenced in Nigeria in the second quarter 2006 and for the three months ended March 31, 2007 totaled $130,000. While revenues are not significant, they should help in covering the costs of the operation until the full scale production facility is completed.
(7) On April 4, 2007 , the Company entered into and closed its initial funding of a securities purchase agreement (“Purchase Agreement”) with a number of investors (“Purchasers”).
The Company, on April 4, 2007, issued $4,960,000 of Units in the Initial Closing.
On April 18, 2007, the Company completed a private placement of $2,089.375 of Units pursuant to a Purchase Agreement with a number of investors. This brought the total Units proceeds issued by the Company to $7,049,375, representing the final closing (“Second Closing”) of the Purchase Agreement offering (“Offering”).
The Units from the new issuance are comprised of (i) 8% convertible debentures (“Debentures”) in an aggregate principal amount of $7,049,375, convertible into Common Stock of the Company at $0.0175 per share (representing 402,819,288 shares of Common Stock on an as converted basis, subject to possible adjustment as discussed below); and (ii) two warrants per Debenture, each providing a right to purchase 37.5% of the number of shares of Common Stock purchasable with the original principal amount of the Debentures (i.e. up to 75% of the Common Stock in the aggregate or 302,114,473 additional Warrants), at a price of $0.0225 per share (subject to possible adjustment as discussed below); the first warrant has a term ending on the second anniversary of the applicable closing (April 4 or April 18, 2009 ) and is not callable (the “Two Year Warrant”), and the second warrant has a term ending on the second anniversary of the applicable closing (April 4 or April 18, 2010 ) and is callable by the Company at a purchase price of $0.06 per share provided the volume weighted average price (“VWAP”) of the Company’s Common Stock exceeds $0.06 for 30 consecutive trading days (the “Three Year Warrant” - together with the Two Y ear Warrant, collectively, the “Warrants”). The Company has entered into a “Registration Rights Agreement,” pursuant to which it is obligated to file a registration statement to register the Common Stock of the Company underlying the Debentures and Warrants, which contains certain penalties if not timely filed. In connection with the transaction the principal officers and directors of the Company were required to lock up their shares of the Company for a period ending 6 months after the registration of the common stock underlying the Debentures and Warrants and in addition, the Company’s CEO pledged certain personal assets (his 25% beneficial ownership in the entity that owns the New Brunswick, NJ facility leased to the Company) to secure the Debentures. The Company has agreed to grant to the advisor on the transaction an option to purchase 12% of the shares of Common Stock of the Company issuable upon the immediate conversion of the Debentures (i.e. 48,338,315 shares) at a price of $0.001 per share, expiring April 18, 2009 for advising it in connection with the transaction. In addition, in the event of the exercise of any of the warrants issued as part of the offering, it is entitled to a 5% fee for the amount of the warrant exercise. The Company has also paid the advisor and his designees the sum of $141,000 and reimbursed it $15,000 of his legal fees in connection with the transaction.
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The Company has entered into a “Registration Rights Agreement,” pursuant to which it is obligated to file a registration statement to register the Common Stock of the Company underlying the Debentures and Warrants, which contains certain penalties if not timely filed. In connection with the transaction the principal officers and directors of the Company were required to lock up their shares of the Company for a period ending 6 months after the registration of the common stock underlying the Debentures and Warrants and in addition, the Company’s CEO pledged certain personal assets (his 25% beneficial ownership in the entity that owns the New Brunswick, NJ facility leased to the Company) to secure the Debentures. In addition, in the event of the exercise of any of the warrants issued as part of the offering, the advisor is entitled to a 5% fee for the amount of the warrant exercise. The Company has also agreed to reimburse the Purchasers for interest at the rate of 8% per annum for the monies deposited by them in escrow pending the initial closing of the Purchase Agreement and its legal fees in connection with the transaction.
(8) On April 3, 2007 Xechem Nigeria closed on its 500,000,000 Naira loan with the Nigerian Export Import Bank (“Nexim”), which represented a consolidation of the existing 150,000,000 Naira loan of Xechem Nigeria with an increase in the loan by an additional 350,000,000 Naira (approximately $2,600,000 US dollars of additional funding). The loan is for a five year duration, inclusive of one year’s moratorium of debt service, but subject to biannual payments of interest during the moratorium period. Interest accrues on the loan at the rate of 16% per annum.
(9) In the period April 1, 2007 through May 2, 2007, holders of Xechem debt converted Xechem debt (in the form of Principal and interest) in the aggregate amount of $444,600 ($407,000 of which is principal and $37,600 of which is interest) into 88,928,888 shares of Xechem’s common stock (exercised at the conversion rate of $0.005 per share) representing approximately 5.4% of Xechem’s then issued and outstanding stock.
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[4] Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
[5] Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates, jointly owned companies and other investees in which the Company owns 20% to 50% interest and or exercises significant influence are carried at cost or equity, adjusted for the Company's proportionate share of their undistributed earnings or losses.
[6] Note Payable Bank
Note payable bank at March 31, 2007 totaled $55,000. This loan has been collateralized by all tangible assets plus accounts receivable. The $55,000 loan represented borrowings against a $60,000 line-of-credit at an interest rate of 10.25% as of March 31, 2007 from the Bank of New York. The line-of-credit renews annually. On April 30, 2007, this note was paid in full including interest of $450.
[7] Notes Payable
Notes Payable at March 31, 207 consist of the following:
Long-Term:
Unsecured Loan (A) $ 400,000
Unsecured Loan (D) 2,388,000
Secured Loan (E) 1,181,000
Less Debt Discount (1,074,000 )
$ 2,895,000
Current:
Alembic, Ltd. (B) $ 2,000,000
Others - Non-Related Parties (C) 160,000
Others - Non-Related Parties (F) 670,000
Unsecured Loan (G) 91,000
$ 2,921,000
(A) Pursuant to an Amended Term Sheet, Chassman and the Investors agreed to invest up to $1,500,000 into the Company. A total of $1,000,000 was funded. If the Company’s allocation of tax credits for fiscal year 2005 from the State of New Jersey was less than $500,000, the Investors agreed to advance the difference between such allocation and $500,000 in the form of convertible notes. The Company received $566,000 in tax credits from the State and no additional investment was necessary.
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For each $100,000 of the first $1,000,000 of notes funded, the Company agreed to issue 1,500,000 shares of its $0.00001 par value common stock to the investor funding same for the aggregate issuance of 15,000,000 shares. The intrinsic value of the beneficial conversion feature of $194,000 was allocated to paid in capital. These shares were issued in June 2006.
The notes are convertible into the Company’s common stock. Prior to February 1, 2006, the notes and accrued interest were convertible at the rate of $0.05 per share. From February 1, 2006 and thereafter, the notes and accrued interest are convertible at the rate of $0.005 per share. The intrinsic value of the beneficial conversion of $540,000 has been allocated to paid in capital. In the year ended December 31, 2006, $600,000 and $50,000 in principal and accrued interest were converted into 130,069,984 shares of common stock (exercised at a conversion rate of $.005 per share). As of December 31, 2006, we had a balance of $400,000 from this loan, which is due May 31, 2008, and $40,000 in accrued interest.
In the three months ended March 31, 2007, accrued interest totaling $35,600 was converted into 7,115,556 shares of common stock (exercised at a conversion rate of $0.005 per share). As of March 31, 2007, we have a balance of $400,000 from this loan and $12,000 in accrued interest.
(B) In April 2004, we executed definitive documents with Alembic Limited, which included a commitment to loan $3,000,000 to us. The entire $3,000,000 of the loan amount was funded. The note had an interest rate of 8% per annum and matured April 2008. The loan was convertible into our common stock, with maximum discount of 60% of FMV. The intrinsic value of the beneficial conversion feature of $3,000,000 on the debt funded as of December 31, 2004 had been allocated to paid in capital. Pursuant to the terms of the Alembic Agreements, we had a contractual commitment to issue Alembic a fifteen percent (15%) ownership interest in Xechem Nigeria.
On December 22, 2005, Xechem and Alembic agreed to terminate the Old Note and enter into the New Note. Pursuant to the terms of the New Note, Xechem agreed to repay Alembic in full the outstanding principal and interest remaining from the New Note as follows: $1,000,000 to be paid on or before January 31 2006 (the “Initial Payment”), with the balance (the “Remaining Balance”) due on or before December 31, 2006. Furthermore, for every month beginning July 2006, in which any portion of the New Note remains unpaid, Xechem agreed to pay to Alembic as additional consideration the sum of $16,600, for a total of up to $99,600. The Initial Payment of $1,000,000 together with accrued interest of $190,700 was paid to Alembic on or about January 31, 2006. The New Note continues to bear interest at the rate of 8%. The New Note is not convertible into shares of Xechem’s common stock.
The parties agreed to terminate the MOU and the Cooperation Agreement. Under the MOU and the Cooperation Agreement, Alembic had previously lent Xechem $3,000,000 (the “Old Note”). As additional consideration for the Old Note, Xechem agreed to pay Alembic a fee (the “Investment Fee”) during the License Term (15 years) equal to the product of the Alembic Applicable Percentage multiplied by the Gross Product Sales Amount, as those terms are defined herein. The Gross Product Sales Amount means the amount of gross sales revenue generated by the company from sales of NICOSAN™/HEMOXIN™ in Nigeria and other African countries, calculated on a cash received basis. From the commencement date through the fifth anniversary, the Alembic Applicable percentage is 15%, from the fifth to the tenth anniversary, the Alembic Applicable percentage is 10%, and from the tenth anniversary to the end of the term, 5%. During the License Term, the company also agreed to pay Alembic a U.S. Export Fee in an amount equal to one percent of the amount of purchase price paid by the company for any NICOSAN™/HEMOXIN™ sold by the company in the United States and internationally, except Nigeria (the “Export Fee”). Xechem also issued Alembic a warrant to purchase 10,000,000 shares of Xechem’s common stock at an exercise price of $0.20 per share (the “Warrant”). Alembic also agreed to provide certain production and regulatory compliance personnel to assist Xechem Nigeria, which services would be compensated upon terms agreeable to the parties (the “Services”). The company also gave Alembic the right of first offer regarding the licensing of any distribution rights with respect to NICOSAN™/HEMOXIN™ in the territory of Africa and India (the “Distribution Rights”).
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Pursuant to the Termination Agreement entered into between the parties on December 22, 2005, all existing agreements and understandings between Xechem and Xechem Nigeria, on the one hand and Alembic on the other regarding the Cooperation Agreement, the MOU and the Old Note were terminated, including the Investment Fee, the Export Fee, the Warrant, the Services and the Distribution Rights. Notwithstanding the foregoing, the parties agreed that the provisions addressing the disclosure of confidential information, non-circumvention, confidentiality and nonsolicitation shall not be terminated and shall remain in full force and effect.
Xechem and Alembic entered into a Security Agreement, as security for the payment of the Initial Payment and the Remaining Balance of the New Note. Xechem granted Alembic a security interest in: (a) 500,000 shares of restricted stock in Ceptor Corporation owned by Xechem (the “Ceptor Shares”), (b) 15% of the issued and outstanding shares of common stock of Xechem Nigeria; and (c) 5,000,000 shares of common stock of Xechem. The parties also signed mutual releases.
At December 31, 2005 we had a balance of $3,000,000 from this loan and $175,400 in accrued interest. In January 2006, from the proceeds received from the BMS settlement, $1,000,000 of principal and $190,700 of accrued interest was paid. As of December 31, 2006, we have a balance of $2,000,000 in principal and $249,400 in accrued interest.
As of December 31, 2006, Xechem had paid Alembic $1,000,000 of the principal amount due plus interest in the amount of $190,000 on the New Note. The Remaining Balance of the New Note ($2,000,000) plus interest and penalty in the combined amount of approximately $250,000 was due on or before December 31, 2006. According to the Termination of Agreements, if the Remaining Balance and interest is not paid on or before December 31, 2006, subject to written notice from Alembic and a right to cure within 10 days as set forth in the New Note, Xechem would be in breach of the Termination of Agreements and the New Note.
Xechem did not pay the amounts due Alembic on December 31, 2006. Xechem and Alembic extended the Maturity Date, pursuant to a Letter Agreement, dated January 4, 2007, to January 31, 2007. Pursuant to a second Letter Agreement, dated January 31, 2007, the parties agreed to extend the Maturity Date to February 24, 2007. As consideration for the second extension, Xechem agreed to pay to Alembic, in reduction of the indebtedness due under the Note, the sum of $100,000. Pursuant to a third Letter Agreement, dated as of February 24, 2007 (executed March 1, 2007), the parties agreed to extend the Maturity Date to March 31, 2007. As consideration for the third extension, Xechem paid Alembic, in reduction of the indebtedness due under the Note, the sum of $100,000 on March 1, 2007, which payment was a condition to the extension.
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Furthermore, the parties agreed that if Xechem made a principal payment to Alembic in reduction of the Note of not less than $1,000,000, together with accrued interest, on or before March 31, 2007, then the Maturity Date will be extended for an additional six months. Due to finalization of new funding, Alembic agreed to extend the payment date five days and payment was made on April 5, 2007.
As of March 31, 2007, we had a balance due of $2,000,000 from this loan and accrued interest of $89,000. On April 5, 2007, we paid $1,000,000 of this loan and accrued interest as of January 31, 2007 of $62,700.
C) In 2005 and cumulatively, five non-related parties loaned to the Company a total of $50,000 and $65,000, respectively, for six months to one year with an interest rate of 8% - 12%. The individuals also received five year stock warrants to purchase a total of 1,900,000 shares of common stock at $.01 per share.
In May 2006 an individual loaned $30,000 to the Company for six months with an interest rate of 10%. A note was issued convertible into shares of common stock at $0.0117 per share for a total of approximately 2,564,103 shares excluding interest. The individual also received a five year option to purchase a total of 300,000 shares of common stock at $0.0117 per share. In December 2006, two individuals loaned $65,000 to the Company for six months with an interest rate of 8%. The notes are convertible into shares of common stock at $0.019 - $0.021 per share for a total of approximately 3,170,425 shares excluding interest. The individuals also received five year options to purchase 1,593,226 shares of common stock at $0.019 - $0.021 per share. At March 31, 2007, accrued interest totaled $17,900.
(D) Over the period from February 22, 2006 through May 10, 2006, Marjorie Chassman (“Chassman”) infused $780,000 into Xechem. The note that will be issued to Chassman in the amount of $780,000 will bear interest at 8% and will be due May 31, 2008. The note is convertible into shares of common stock at $0.005 per share (approximately 156,000,000 shares, excluding interest, which is also convertible into stock at $0.005 per share). The loan has not been documented at this time.
In June 2006, Chassman infused $200,000 into Xechem. The note will be issued to Chassman in the amount of $200,000; it will bear interest at 8% and is due May 31, 2008. It will be convertible into shares of common stock at $0.01 per share (20,000,000 shares, excluding interest, which will also be convertible into stock at $0.01 per share). The loan has not been documented at this time.
Chassman agreed to loan $1,025,000 to Xechem, in two tranches, one in the amount of $500,000 and the other in the amount of $525,000, which were received by June 20, 2006. The note converts into shares of common stock at $0.015 per share (approximately 66,666,667 shares, excluding interest). The note bears interest at 8% and is due May 31, 2008. As additional consideration for infusion of the capital, Xechem will issue Chassman 66,666,667 warrants, exercisable at $0.02 per share for a period of 5 years. In addition, Chassman has agreed to extend the due date on all existing notes held by the company to May 31, 2008. The loan has not been documented at this time.
Over the period from August 14, 2006 through September 26, 2006, Chassman infused $300,000 into Xechem. A note will be issued to Chassman in the amount of $300,000, with interest at 8% and is due May 31, 2008. The note will be convertible into shares of common stock at $.03 per share (10,000,000 shares, excluding interest). As additional consideration for infusion of the capital, Xechem will issue Chassman 8,333,333 warrants exercisable at $0.04 for a period of five years. The loan has not been documented at this time.
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In the three months ended March 31, 2007, Chassman converted Xechem debt (in form of principal and interest) in the aggregate amount of $162,000 ($117,000 of which is principal and $45,000 of which is interest) into 32,515,556 shares of common stock (exercised at the conversion rate of $0.005 per share).
At March 31, 2007, accrued interest on these loans totaled $152,000.
(E) On May 31, 2006, Nigeria Export-Import Bank (NEXIM) funded a direct loan to our wholly-owned subsidiary, Xechem Pharmaceutical Nigeria, Ltd. (Xechem Nigeria).
The loan is in the principal amount of 150,000,000 Naira or approximately One Million Two Hundred Thousand Dollars (US) ($1,181,000). The loan proceeds are to be used primarily to facilitate the full-scale commercial production of NICOSAN™ through the expansion and integration of existing production facilities at the company’s research and production facilities at Sheda Science and Technology Complex, Gwagwalada-Abuja. The loan facility will extend for a period of up to three years, with no principal payments due during the first year. The loan facility bears interest at the rate of 15% per year, payable during the first year in installments in November 2006 and May 2007. Thereafter, the loan facility will be repaid through four consecutive semi-annual installments of principal and interest with the first repayment (of approximately $400,000 US) occurring on November 29, 2007. The loan facility is secured by: (a) an all assets debenture on the assets of the company which has been incorporated into a trust for all lenders to be managed by Diamond Trustees Company; (b) personal guaranty issued by the CEO, Dr. Ramesh Pandey, backed by a notarized statement of net worth; and (c) promissory notes. Xechem Nigeria is obligated to pay the following fees: (a) a facility fee of 1% flat on the facility amount or 1,500,000 Naira (approximately $12,500 US); (b) a management fee of 0.5% flat on the principal amount outstanding from time to time, payable annually on the anniversary of the facility; and (c) a monitoring fee of 100,000 Naira (approximately $800 US), payable annually on the anniversary of the facility. Nexim reserves the right to vary the rates as dictated by market realities. At March 31, 2007, accrued interest totaled $59,200.
(F) In the three months ended March 31, 2007, Xechem received loans totaling $100,000 from Ms. Chassman and $569,600 from eight unrelated parties. Notes are to be issued with terms of six months and a per annum interest rate of 8%. Six of these loans totaling $57,100 are convertible into shares of common stock at $0.023 per share (2,482,600 shares, excluding interest). As additional consideration for these loans, Xechem issued 1,241,304 warrants, exercisable at $0.023 for a period of 5 years. As of March 31, 2007, accrued interest totaled $4,100. These loans have not been documented at this time.
(G) On February 15, 2007 an unsecured loan of 11,845,000 Naira (approximately $91,000 US) was received from the United Bank of Africa, Nigeria. The documentation has not been received at this time. The interest rate is 13% per annum and at March 31, 2007, the accrued interest totaled $1,500.
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[8] Notes Payable to Related Parties
During the three months ended March 31, 2007, we made no payments to reduce the outstanding December 31, 2006 principal of $1,611,000.
As of March 31, 2007, we had accrued interest totaling $55,300 including $9,000 for the three months then ended.
Notes Payable - Related Party consists of the following:
As of March 31, 2007
Loans Payable - Dr. Renuka Misra $ 598,000
Loans Payable - Beverly Robbins 390,000
Loans Payable - Xechem China 140,000
Loans Payable - Former Employee 55,000
Loans Payable - Dr. Pandey 125,000
Loans Payable - Family Members of Dr. Pandey 303,000
Total Notes Payable - Related Party $ 1,611,000
Less Current Portion 1,346,000
Total Long-Term Notes Payable $ 265,000
[9] Net Income (Loss) Per Share
Net income (loss) per share is presented under SFAS No. 128 “Earnings Per Share.” Under SFAS No. 128, basic net income (loss) per share is computed by dividing net loss per share available to common stockholders by the weighted average shares of common stock outstanding for the period and excludes any potential dilution that would occur upon the exercise or conversion of all dilutive securities into common stock. Under SFAS No. 128, diluted net income per share is computed by dividing net income available to common stock shareholders by the weighted average share of common stock outstanding for the period and including dilution that would occur upon the exercise of conversion of all dilutive securities into common stock. As of March 31, 2007, the potentially dilutive securities totaled approximately 2.882 billion shares of common stock, which exceeded the unissued authorized shares at March 31, 2007. On October 24, 2006, an Annual Stockholders’ meeting was held, at which time the shareholders approved an increase in the authorized number of common shares to 5 billion. On the same day, the Company’s Board of Directors passed a resolution agreeing to limit to 3.5 billion the total number of issued shares of common stock without further action by the shareholders.
[10] Stock Options and Warrants
Options - During the three months ended March 31, 2007 and 2006, options were granted to purchase 59,000,000 and 32,626,000 shares, respectively.
Warrants - During the three months ended March 31, 2007 and 2006, there were 1,241,304 and 0 warrants issued, respectively.
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[11] Common Stock
In the three months ended March 31, 2007, we issued 32,515,556 shares of common stock upon conversion by holders of Xechem debt (in the form of principal and interest) into common stock at a conversion rate of $0.005.
[12] Stock-Based Compensation
On January 1, 2006, we adopted the provisions of SFAS No. 123-R “Share-Based Payment” using the modified prospective method. SFAS No. 123-R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. Under the modified prospective method of adopting SFAS No. 123-R, we recognized compensation cost for all share-based payments granted after January 1, 2006, plus any awards granted to employees prior to January 1, 2006 that remain unvested at that time. Under this method of adoption, no restatement of prior periods is made.
Prior to January 1, 2006 we recognized the cost of employee services received in exchange for equity instruments in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued Employees” (APB 25). APB 25 required the use of the intrinsic value method, which measures compensation cost as the excess, if any, of the quoted market price of the stock over the amount the employee must pay for the stock. Compensation expense for substantially all of our equity based awards was measured under APB 25 on the date the shares were granted. Under APB 25, no compensation expense was recognized for stock options.
For the three months ended March 31, 2007, stock based compensation expense totaled $848,900 related to 59,000,000 stock options during the first three months of 2007.
In the three months ended March 31, 2007, 43,150 ,000 shares of common stock were granted to individuals for past and present services and the charge to operations totaled $992,000.
For the three months ended March 31, 2007, had the cost of employee services received in exchange for equity instruments been recognized based on the grant-date fair value of those instruments in accordance with the provisions of SFAS No. 123-R, our net income and earnings per share would have been impacted as shown in the following table:
Three Months Ended
March 31,
2007 2006
Net Loss (In Thousands) $ (3,211 ) $ (1,792 )
Stock-based employee compensation expense under fair value method, net of related tax effects 1,841 0
Pro forma net income (loss) $ (1,370 ) $ (1,792 )
Income (loss) per share:
Basic, as reported $ 0.00 $ 0.00
Basic, pro forma $ 0.00 $ 0.00
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The historical pro-forma impact of applying the fair value method prescribed by SFAS No. 123-R is not representative of the impact that may be expected in the future due to changes resulting from additional grants in future years and changes in assumptions such as volatility, interest rates and expected life used to estimate fair value of the grants in future years.
[13] New Authoritative Pronouncements
In February 2006, FASB issued FASB 155, Accounting for Certain Hybrid Financial Instruments an amendment to FASB 133, Accounting for Derivative Instruments and Hedging Activities, and FASB 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. FASB 155, provides the framework for fair value remeasurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation as well as establishes a requirement to evaluate interests in securitized financial assets to identify interests. FASB 155 further amends FASB 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The FASB 155 guidance also clarifies which interest-only strips and principal-only strips are not subject to the requirement of FASB 133 and concentrations of credit risk in the form of subordination are not embedded derivatives. This statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. FASB 155 is not expected to have a material impact on our consolidated financial statements.
In March 2006, FASB issued FASB 156, Accounting for Servicing of Financial Assets--an amendment of FASB Statement No. 140. FASB 156 requires the recognition of a servicing asset or servicing liability under certain circumstances when an obligation to service a financial asset by entering into a servicing contract. FASB 156 also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value utilizing the amortization method or fair market value method. FASB 156 is effective the beginning of the first fiscal year that begins after September 15, 2006. FASB 156 is not expected to have a material impact on our consolidated financial statements.
FIN 48, which is effective January 1, 2007, clarifies the accounting for the uncertainty in tax positions by requiring companies to recognize in their financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit based on the technical merits of the position. Among other provisions, FIN 48 also requires expanded disclosures at the end of each annual period presented. The Company continues to evaluate the impact of FIN 48 on its financial position and results of operations. At this time, the effects of adoption have not yet been determined.
FAS 157, which will be effective January 1, 2008, clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. The effect of adoption of FAS 157 on the Company’s financial position and results of operations is not expected to be material.
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[14] Subsequent Events
(A) On May 2, 2007 Xechem International, Inc. (the “Company”) delivered to UPS Capital Business Credit, a US bank and trust company (“UPS Capital”) the documentation and local (Nigerian) bank guarantees necessary for the closing and funding of the up to $9,388,981 credit facility to be provided to Xechem Pharmaceuticals Nigeria, Limited (“Xechem Nigeria”), as evidenced by a Term Credit Agreement. The actual closing of the transaction is contingent upon Xechem Nigeria delivering the 15% equity component necessary to fund the purchase of scheduled items of equipment, and Xechem Nigeria is considering its strategic options as to the proposed transaction. The following summary specifies the terms of the transaction in the event the closing is consummated.
The Term Credit Agreement is dated as of April 18, 2007, but will not be effective until the closing referenced above. Draws are permitted under the facility for up to $8,538,542, either directly or with respect to letters of credit, for financial consulting services and the purchase of equipment with at least 50% US content, to be used in the construction and equipping of Xechem Nigeria’s production facility in Abuja, Nigeria, designed for the production of NICOSAN™ (NIPRISAN), a product proven effective in the treatment of sickle cell disease. The balance of the funds from the Term Credit Agreement will be used to pay the $850,439 exposure fee to the US Export-Import Bank (“Ex-Im Bank”) for the provision of a guarantee to UPS Capital to support the loan. In turn, UPS Capital was provided joint and several guarantees by two local Nigerian banks, Diamond Bank, PLC and Platinum Habib Bank, PLC (“PHB Bank”), which local bank guarantees were supported by personal guarantees of Dr. Ramesh Pandey as to PHB Bank and by Dr. Soji Adelaja and Isaac Inyang, as to Diamond Bank.
The Term Credit Agreement is evidenced by a promissory note (“Note”), which permits draws of up to the maximum amount available under the facility, calls for the payment of principal in 10 equal semiannual installments of 10% of amount drawn under the facility, commencing on September 25, 2007, and continuing on March 25, 2008 and the next 8 semiannual periods thereafter. The Note bears interest at LIBOR plus 2.75% and calls for payment of “Special LIBOR” in the event of a claim by the Ex-Im Bank against UPS under its April 3, 2001 Master Guarantee Agreement (which would be a rate specified as the “S Libor BBA Fixing - Interbank Fixing” rate as quoted in the Financial Times). Draws are permitted under the Term Credit Agreement through July 25, 2007. Xechem Nigeria is required to include a “Cash Payment” of 15% of the amount of each item for which a draw request is made. Prepayment is permitted without penalty, provided no less that $938,893.10 is paid on each prepayment date.
An additional fee of 0.125% per annum is payable with respect to the unused portion of the facility, payable to Ex-Im Bank. In addition, UPS Capital is entitled to a $187,780 facility fee and a $46,945 document handling fee, as well as reimbursement for its Nigerian counsel ($40,000). Financial Bridge, Inc. assisted Xechem Nigeria in all aspects of the loan and is entitled to a fee of $432,429 with respect to the project, assuming maximum draws under the facility.
In order to obtain the local Nigerian bank guarantees, which were critical to the closing of the facility, Diamond Bank required the personal guarantees of two members of the board of directors of Xechem Nigeria with local Nigerian ties, which guarantees were provided by Soji Adelaja (who also serves on the Company’s board) and Isaac Inyang (who serves only on Xechem Nigeria’s board). The Company has not finalized agreements for compensation to the guarantors for provision of their guarantees, which may include cash and/or an equity interest in Xechem Nigeria. In addition, it is anticipated that in the event of the closing of the funding of the loan, Mr. Inyang will receive a payment of $250,000 related to his prior severance and expense reimbursements, which payment was contingent on the closing of a loan guaranteed by Ex-Im Bank. Diamond Bank required payment of a $40,000 commitment fee, a 0.5% per annum management fee on its share of the guaranteed amount outstanding from time to time and a 2.0% per annum exposure fee on its share of the guaranteed amount. The guarantee will be secured by a lien on the Xechem Nigeria assets.
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Dr. Pandey provided his personal guarantee to secure the Bank PHB loan. Bank PHB also required payment of a $40,000 processing fee, as well as an up front guarantee fee of 0.5% of its exposure amount (plus a like percentage each 6 months thereafter) and an up front management fee of 0.25% of its exposure amount (plus a like percentage each 6 months thereafter).
(B) In the three months ended March 31, 2007, two unrelated parties, including Chassman loaned $600,000 to the Company (See Note 7 (F)) . In April, an additional $150,000 was loaned to the Company. On May 8, 2007, $500,000 of the principal amount of these loans and accrued interest of $7,300 was repaid.
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Item 2. Management's Discussion and Analysis.
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
Overview
Xechem International, Inc. (“Xechem”), a Delaware corporation formed in 1994, is a holding company which owns 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 a subsidiary of LyphoMed, Inc. (later known as Fujisawa/LyphoMed, Inc.), a publicly traded company before it was acquired with all of its assets by Dr. Ramesh C. Pandey in 1990. Xechem Laboratories, Inc. (formed in 1993), XetaPharm, Inc. (formed in 1996), Xechem (India) Pvt. Ltd. (acquired in 1996), and Xechem UK Ltd. (formed in 2005) are all our subsidiaries. Xechem Pharmaceutical China Ltd. (formed in 2000) is an inactive affiliate. Xechem Pharmaceuticals Nigeria Limited (formed in 2002) is currently wholly-owned by us. Xechem’s principal product is NICOSAN™/HEMOXIN™, which has shown efficacy in the prophylactic management of Sickle Cell Disease (SCD), and the development and production of this product at this time is being conducted through Xechem Nigeria, Xechem Research Laboratories of Xechem, Inc. and Children’s Hospital of Philadelphia (CHOP). In July 2006, Xechem Nigeria received approval for the marketing and sale of NICOSAN™ in Nigeria.
We are in the process of expanding our production facility in Nigeria for our Sickle Cell drug, NICOSAN™, and preparing for the clinical testing and trials of HEMOXIN™ in the United States. We anticipate that expenses will increase, with the expansion of our operations and marketing efforts, as described more fully herein. Our 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. In order to pursue these activities, we must obtain additional financing, whether in the form of loans or equity infusions. There can be no certainty that we will be able to obtain the financing in the amounts or at the times required.
Results of Operations
The Three months Ended March 31, 2007 vs. The Three months Ended March 31, 2006
The following table sets forth certain statement of operations data for the cumulative period from inception (March 15, 1990) to March 31, 2007 and for each of the three months ended March 31, 2007 and March 31, 2006.
Three months Ended
March 31, Cumulative
Inception to
March 31,
2007 2006 2007
(in thousands)
Revenue $ 130 $ 1 $ 2,453
Cost of Sales $ 95 $ — $ 174
Research and Development Expense $ 175 $ 356 $ 15,653
General and Administrative Expenses $ 2,763 $ 2,058 $ 32,691
Sales and Marketing $ — $ — $ 275
Writedown of Inventory And Intangibles $ — $ — $ 1,861
Loss from Operations $ (2,903 ) $ (2,413 ) $ (48,201 )
Other Income (Expense) $ (309 ) $ 621 $ (40,057 )
Net Loss before Income Taxes $ (3,211 ) $ (1,792 ) $ (88,258 )
Income Tax Benefit $ — $ — $ 2,637
Net Loss before Income Taxes $ (3,211 ) $ (1,792 ) $ (85,621 )
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Revenue
Xechem Nigeria received approval on July 3, 2006 from Nigeria’s drug regulatory authority, the National Agency for Food and Drug Administration and Control (NAFDAC), for the marketing and sale of NICOSAN™, for the prophylactic management of Sickle Cell Disease (SCD). The approval is for an initial term of two years, which we believe will allow Xechem to complete confirmatory Phase III clinical trials in Nigeria. During the two year term, the company faces no restrictions on its ability to market and sell the drug in Nigeria. However, currently Xechem Nigeria can produce the product only in limited quantities at its pilot-scale facility in Abuja, Nigeria.
We had revenues of $130,000 for the three months ended March 31, 2007 as compared to $1,000 for the three months ended March 31, 2006. This represents $130,000 from the sales of NICOSAN™ by our subsidiary Xechem Nigeria for the three months ended March 31, 2007 as compared to $1,000 from the product sales by our subsidiary Xetapharm, Inc. for the three months ended March 31, 2006.
Research and Development
Our research and development expenditures have been directed primarily toward the development of our new Sickle Cell treatment drug NICOSAN™/HEMOXIN™, which is being developed by our wholly-owned subsidiary, Xechem Nigeria. Our research and development expenditures are also 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.
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In the three months ended March 31, 2007, our research and development expenditures decreased by $181,000 to $175,000. In the three months ended March 31, 2007, our costs associated with the development of our Sickle Cell Disease drug NICOSAN ™ totaled $17,000, a decrease of $225,000, as compared to the same period for 2006. Other major expenses for the three months ended March 31, 2007 were: (a) salaries and wages of our research personnel which were approximately $52,000 for the three months ended March 31, 2007, as compared to approximately $57,000 for the three months ended March 31, 2006; (b) repairs and maintenance was $9,000 for the three months ended March 31, 2007 as compared to $21,000 for the three months ended March 31, 2006; (c) outside service was $55,000 for the three months ended March 31, 2007 as compared to $0 for the three months ended March 31, 2006; and (d) other fees increased $7,000 from $1,000 for the three months ended March 31, 2006 to $8,000 for the three months ended March 31, 2007
We anticipate expenses to increase with the expansion of our production facility in Nigeria for our Sickle Cell drug, NICOSAN™, and the clinical testing and trials of HEMOXIN™ in the United States. In order to pursue these activities, we must obtain additional financing. There can be no certainty that we will be able to obtain the financing in the amounts or at the times required.
General and Administrative
General and administrative expenses increased by $705,000 or 34% to $2,763,000 for the three months ended March 31, 2007 as compared to the three months ended March 31, 2006. This increase in expenses is primarily due to $1,841,000 of expense associated with the issuance of stock options and grants for the three months ended March 31, 2007.
The other major expenses for the three months ended March 31, 2007 were: (a) salaries and wages of approximately $303,000 an increase of approximately $46,000 or 18% as compared to 2006; (b) consulting fees which increased to $46,000 for the three months ended March 31, 2007 as compared to $8,000 for the three months ended March 31, 2006; (c) rent expense increased $4,000 from $46,000 for the three months ended March 31, 2006 to $50,000 for the three months ended March 31, 2007; (d) legal fees totaled $1,558,000 in 2006, as compared to $113,000 in 2007, a decrease of $1,445,000. The decrease was primarily due to legal costs of approximately $1,485,000 paid as part of the Xechem, Inc. and Xechem International, Inc. vs. Bristol-Myers Squibb Company, 03 C 1920 lawsuit settlement in 2006. In return for Xechem’s full release of all claims that were or could have been asserted against BMS in connection with the case, BMS agreed to pay us $4,200,000 and further agreed to release us from all claims BMS could have asserted against us in the case; (e) directors and officers insurance decreased $1,000 from $26,000 for the three months ended March 31, 2006 to $25,000 for the three months ended March 31, 2007; (f) medical and property insurance increased $1,000 from $28,000 for the three months ended March 31, 2006 to $29,000 for the three months ended March 31, 2007; (g) advertising expense increased approximately $10,000 from $9,000 for 2006 as compared to $19,000 in 2007; (h) accounting fees decreased approximately $4,000 from $15,000 in 2006 to $11,000 in 2007; (i) travel expenses increased approximately $43,000 from $37,000 in 2006 to $80,000 in 2007; (j) professional services increased $10,000 from $2,000 in 2006 to $12,000 in 2007; (k) utilities and office expenses increased approximately $3,000 from $19,000 in 2006 to $22,000 in 2007; and (l) other expenses increased $159,000 from $52,000 for the three months ended March 31, 2006 to $211,000 for the three months ended March 31, 2007.
Interest expense for non-related parties equaled approximately $516,000 for the three months ended March 31, 2007, a decrease of approximately $3,040,000 as compared to the three months ended March 31, 2006. The decrease in expense was primarily the result of one time non-cash transaction in 2006 due to amortization of beneficial conversion feature related to then converted debentures and notes. Interest expense for related parties was approximately $15,000 for the three months ended March 31, 2007 as compared to $23,000 for the three months ended March 31, 2006.
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For the three months ended March 31, 2007, we had other income of $222,000 as part of the SBIR grant awarded in October 2006 from the National Institutes of Health, National Heart, Lung and Blood Institute (NIH-NHLBI) to carry out the toxicity studies on the five-membered heterocyclic anti-sickling compound known as 5-HMF as compared to $4,200,000 of other income for the three months ended March 31, 2006, which was a result of Xechem, Inc. and Xechem International, Inc. vs. Bristol-Myers Squibb Company, 03 C 1920 lawsuit settlement. In return for Xechem’s full release of all claims that were or could have been asserted against BMS in connection with the case, BMS agreed to pay us $4,200,000 and further agreed to release us from all claims BMS could have asserted against us in the case.
We anticipate expenses to increase for the remainder 2007 with our proposed launching of NICOSAN™ in Nigeria and the commencement of clinical testing and trials of HEMOXIN™ in the United States. We anticipate that general and administrative expenses will increase, with the expansion of our operations and marketing efforts. Our 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 our expenses for such persons will depend on many factors, including the capabilities of those persons who seek employment with us and the availability of additional funding to finance these efforts.
We expect to incur continued costs related to the proposed launching of NICOSAN™ in Nigeria and the clinical testing and trials of our new drug HEMOXIN™ in the United States. In order to pursue these activities, we must obtain additional financing. There can be no certainty that we will be able to obtain the financing in the amounts or at the times required.
Liquidity and Capital Resources; Plan of Operations
On March 31, 2007, we had cash and cash equivalents of $129,000, negative working capital of $6,835,000 and stockholders’ deficit of $7,231,000.
As a result of our net losses through December 31, 2006 and accumulated deficit since inception, our accountants, in their report on our financial statements for the year ended December 31, 2006, included an explanatory paragraph indicating there is substantial doubt about our ability to continue as a going concern. This condition has not changed as of March 31, 2007. With respect to NICOSAN ™ /HEMOXIN ™ , the Company is planning for the commercial launch of the drug in Nigeria on a limited basis by second or third quarter 2007 and to begin pursuit of the pre-clinical and clinical trials in the United States as required for Food and Drug Administration (FDA) approval. These planned activities are entirely dependent on financings. There can be no assurance that the necessary funds will be obtained to complete construction of its full scale production facility in Nigeria, to successfully produce, market and sell the drug in large quantities in Nigeria or to successfully launch the drug in the United States.
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In order to meet these cash needs, we have entered into the following recent financing agreements.
(1) The agreement with Alembic Limited was restructured in December 2005. In accordance with the terms of the loan, in January 2006, from the proceeds from the BMS settlement, $1,000,000 of principal and $190,700 of accrued interest was paid. The remaining principal balance of $2,000,000 due on the Alembic Promissory Note, together with unpaid interest, is due and payable December 31, 2006.
Xechem did not pay the amounts due Alembic on December 31, 2006. Xechem and Alembic have extended the Maturity Date, pursuant to a Letter Agreement, dated January 4, 2007 to January 31, 2007. Pursuant to a second Letter Agreement, dated January 31, 2007, the parties agreed to extend the Maturity Date to February 24, 2007. As consideration for this extension, Xechem agreed to pay to Alembic, in reduction of the indebtedness due under the Note, the sum of $100,000. Pursuant to a third Letter Agreement, dated as of February 24, 2007 (executed March 1, 2007), the parties agreed to extend the Maturity Date to March 31, 2007. As consideration for the third extension, Xechem paid Alembic, in reduction of the indebtedness due under the Note, the sum of $100,000 on March 1, 2007, which payment was a condition to the extension. As of March 31, 2006, we have a balance of $2,000,000 in principal and $89,300 in accrued interest.
Furthermore, the parties agreed that if Xechem made a principal payment to Alembic in reduction of the Note of not less than $1,000,000, together with accrued interest, on or before March 31, 2007, then the Maturity Date will be extended for an additional six months. Due to finalization of new funding ( See Note 7(B) ), Alembic agreed to extend the payment date five days and payment was made on April 5, 2007.
(2) On May 31, 2006, Nigeria Export-Import Bank (NEXIM) funded a direct loan to our wholly-owned subsidiary, Xechem Pharmaceuticals Nigeria, Ltd. (Xechem Nigeria).
The loan is in the principal amount of 150,000,000 Naira or approximately One Million One Hundred Eighty One Thousand Dollars (US) ($1 ,181,000 ). The loan proceeds are being used primarily to facilitate the full-scale commercial production of NICOSAN™ through the expansion and integration of existing production facilities at Sheda Science and Technology Complex, Gwagwalada-Abuja. The loan facility will extend for a period of up to three years, with no principal payments due during the first year. The loan facility bears interest at the rate of 15% per year, payable during the first year in installments in November 2006 and May 2007. Thereafter, the loan facility is to be repaid through four consecutive semi-annual installments of principal and interest with the first repayment (of approximately $400,000 US) occurring on November 29, 2007. The loan facility is secured by: (a) an all assets debenture on the assets of the company which has been incorporated into a trust for all lenders to be managed by Diamond Trustees Company; (b) personal guaranty issued by the CEO, Dr. Ramesh Pandey, backed by a notarized statement of net worth; and (c) promissory notes.
Xechem Nigeria is obligated to pay the following fees: (a) a facility fee of 1% flat on the facility amount or 1,500,000 Naira (approximately $12,500 US); (b) a management fee of 0.5% flat on the principal amount outstanding from time to time, payable annually on the anniversary of the facility; and (c) a monitoring fee of 100,000 Naira (approximately $800 US), payable annually on the anniversary of the facility. Nexim reserves the right to vary the rates as dictated by market realities. Nexim is also entitled to name a director to the Xechem Nigeria board of directors pending the repayment of the facility.
(3) We have been in extended negotiations with UPS Capital Business Credit (“UPS Capital”) to obtain financing to cover the cost of acquiring the plant equipment and machinery needed to establish a commercial scale production facility in Nigeria under the U.S. Ex-Im (“Ex-Im”) Bank Loan Guarantee Program. Based on the estimated cost of the project, as well as the criteria utilized under Ex-Im’s guidelines, the Ex-Im statutory fees, etc., the total amount sought by our subsidiary, Xechem Pharmaceuticals Nigeria, Ltd. (“XPNL”) from UPS Capital is $9.38 million. In March 2006, we paid a $50,000 non-refundable good faith deposit to UPS Capital.
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On October 17, 2006, we received notification from UPS Capital that Ex-Im has approved a comprehensive credit guarantee to support UPS Capital’s $9.38 million loan to XPNL, and that UPS has approved XPNL for a $9.38 million credit facility on the following principal terms:
(vi) Proceeds to be used to fund up to 85% of XPNL’s cost (i.e, $8,538,542) of the US manufactured equipment and machinery needed for the establishment of a commercial scale pharmaceutical plant in Nigeria, plus certain local costs, fees, etc., for a total credit facility of $9,388,981;
(vii) Principal plus interest at a rate of LIBOR + 2.75% repayable semi-annually in arrears over five years;
(viii) Loan to be supported by a 100% Ex-Im guarantee, which has been approved, together with local bank guarantees from two Nigerian banks, Access Bank, Plc, and Diamond Bank, Plc. (Subsequently, B ank PHB Plc replaced Access Bank).
(ix) Part of UPS Capital loan will be used to cover 100% of the cost of Ex-Im Statutory Exposure Fee of $850,439.
(x) Total up-front fees payable to UPS Capital are $190,795 (net of the $50,000 good faith deposit).
Upon payment by XPNL of the UPS Capital Fees and the receipt by UPS Capital of the final commitments from Access Bank (subsequently replaced by Bank PHB) and Diamond Bank, the loan documents will be finalized and upon payment of the 15% equity contribution required of XPNL, the proceeds will be released in accordance with the terms of the loan. Both local Nigerian banks have their guarantees (in turn backed by the personal guarantee of Ramesh Pandey with respect to the Bank PHB guarantee and by Dr. Soji Adelaja and Mr. Isaac Inyang with respect to the Diamond Bank guarantee. XPLN is as of the date of this report considering its strategic alternatives as to whether it will seek the funding of the UPS Capital loan. If for any reason such loan is not funded, we will consider identifying a suitable alternative financing or continue forward initially on a smaller scale than with a full scale production facility, but at a level that we expect (but cannot guarantee) would generate sufficient cash flow to meet our needs in the foreseeable future. We will also in such event consider other alternative sources of debt and/or equity financing as necessary for completion of a full scale facility. As of this date we have not identified alternative sources to fully fund the Nigerian Pharmaceutical Project or our ongoing operations.
If and when the UPS loan (or alternate financing for the full scale production facility) closes, there will be additional expenses associated with the completion of the Nigerian facility and start-up of production. We are hopeful that these additional monies will be obtained from potential local financing in Nigeria (debt, equity and/or possible prepayment for product or other product sales) and/or from potential domestic funding sources, although no commitments have been obtained for such funding. In the event all of such financing can be obtained, we have the further risk that cost overruns and/or delays in bringing the product to market could adversely impact execution of our business plan.
(4) In the three months ended March 31, 2007, holders of Xechem debt converted Xechem debt (in the form of principal and interest) in the aggregate amount of $162,600 ($116,900 of which is principal and $45,700 of which is interest) into 32,515,556 shares of Xechem’s common stock (exercised at a conversion rates of $0.005 per share) representing approximately 2% of Xechem’s then issued and outstanding stock.
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(5) In the three months ended March 31, 2007, Xechem received loans totaling $100,000 from Ms. Chassman and $569,600 from eight unrelated parties. Notes are to be issued with terms of six months and a per annum interest rate of 8%. ( See Note 7(F))
(6) Sales of our product NICOSAN™, a sickle cell drug, commenced in Nigeria in the second quarter 2006 and for the three months ended March 31, 2007 totaled $130,000. While revenues are not significant, they should help in covering the costs of the operation until the full scale production facility is completed.
(7) On April 4, 2007 , the Company entered into and closed its initial funding of a securities purchase agreement (“Purchase Agreement”) with a number of investors (“Purchasers”).
The Company, on April 4, 2007, issued $4,960,000 of Units in the Initial Closing.
On April 18, 2007, the Company completed a private placement of $2,089.375 of Units pursuant to a Purchase Agreement with a number of investors. This brought the total Units proceeds issued by the Company to $7,049,375, representing the final closing (“Second Closing”) of the Purchase Agreement offering (“Offering”).
The Units from the new issuance are comprised of (i) 8% convertible debentures (“Debentures”) in an aggregate principal amount of $7,049,375, convertible into Common Stock of the Company at $0.0175 per share (representing 402,819,288 shares of Common Stock on an as converted basis, subject to possible adjustment as discussed below); and (ii) two warrants per Debenture, each providing a right to purchase 37.5% of the number of shares of Common Stock purchasable with the original principal amount of the Debentures (i.e. up to 75% of the Common Stock in the aggregate or 302,114,473 additional Warrants), at a price of $0.0225 per share (subject to possible adjustment as discussed below); the first warrant has a term ending on the second anniversary of the applicable closing (April 4 or April 18, 2009 ) and is not callable (the “Two Year Warrant”), and the second warrant has a term ending on the second anniversary of the applicable closing (April 4 or April 18, 2010 ) and is callable by the Company at a purchase price of $0.06 per share provided the volume weighted average price (“VWAP”) of the Company’s Common Stock exceeds $0.06 for 30 consecutive trading days (the “Three Year Warrant” - together with the Two Y ear Warrant, collectively, the “Warrants”). The Company has entered into a “Registration Rights Agreement,” pursuant to which it is obligated to file a registration statement to register the Common Stock of the Company underlying the Debentures and Warrants, which contains certain penalties if not timely filed. In connection with the transaction the principal officers and directors of the Company were required to lock up their shares of the Company for a period ending 6 months after the registration of the common stock underlying the Debentures and Warrants and in addition, the Company’s CEO pledged certain personal assets (his 25% beneficial ownership in the entity that owns the New Brunswick, NJ facility leased to the Company) to secure the Debentures. The Company has agreed to grant to the advisor on the transaction an option to purchase 12% of the shares of Common Stock of the Company issuable upon the immediate conversion of the Debentures (i.e. 48,338,315 shares) at a price of $0.001 per share, expiring April 18, 2009 for advising it in connection with the transaction. In addition, in the event of the exercise of any of the warrants issued as part of the offering, it is entitled to a 5% fee for the amount of the warrant exercise. The Company has also paid the advisor and his designees the sum of $141,000 and reimbursed it $15,000 of his legal fees in connection with the transaction.
The Company has entered into a “Registration Rights Agreement,” pursuant to which it is obligated to file a registration statement to register the Common Stock of the Company underlying the Debentures and Warrants, which contains certain penalties if not timely filed. In connection with the transaction the principal officers and directors of the Company were required to lock up their shares of the Company for a period ending 6 months after the registration of the common stock underlying the Debentures and Warrants and in addition, the Company’s CEO pledged certain personal assets (his 25% beneficial ownership in the entity that owns the New Brunswick, NJ facility leased to the Company) to secure the Debentures. In addition, in the event of the exercise of any of the warrants issued as part of the offering, the advisor is entitled to a 5% fee for the amount of the warrant exercise. The Company has also agreed to reimburse the Purchasers for interest at the rate of 8% per annum for the monies deposited by them in escrow pending the initial closing of the Purchase Agreement and its legal fees in connection with the transaction.
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(8) On April 3, 2007 Xechem Nigeria closed on its 500,000,000 Naira loan with the Nigerian Export Import Bank (“Nexim”), which represented a consolidation of the existing 150,000,000 Naira loan of Xechem Nigeria with an increase in the loan by an additional 350,000,000 Naira (approximately $2,600,000 US dollars of additional funding). The loan is for a five year duration, inclusive of one year’s moratorium of debt service, but subject to biannual payments of interest during the moratorium period. Interest accrues on the loan at the rate of 16% per annum.
(9) In the period April 1, 2007 through May 2, 2007, holders of Xechem debt converted Xechem debt (in the form of Principal and interest) in the aggregate amount of $444,600 ($407,000 of which is principal and $37,600 of which is interest) into 88,928,888 shares of Xechem’s common stock (exercised at the conversion rate of $0.005 per share) representing approximately 5.4% of Xechem’s then issued and outstanding stock.
We expect to continue our development efforts with respect to antifungal, anticancer, antiviral (including anti-AIDS) and anti-inflammatory compounds, as well as anti-aging and memory enhancing compounds. Although we do not expect product revenues from these sources in 2006, we anticipate that these development activities may allow us to enter into more favorable licensing and/or investment arrangements.
We plan to secure financing through various loans and bridge financings, which we feel will meet our current needs, provided the funding of such loans is fully adhered to. We will need to generate funds from operations and/or debt and equity funding sources to enable us to repay such loans and our other outstanding debt.
We are attempting to raise outside financing through the issuance of debt or equity securities or other instruments, although no agreements are currently in place.
In addition, we have issued, and plan to continue issuing equity securities, where possible, to obtain services, without expending cash.
In prior years, we received cash from the sale of our New Jersey net operating losses (“NOLs”), which ranged from $300,000 to $500,000 annually. Under new guidelines adopted by the State of New Jersey, Xechem fails to qualify in 2006 for the sale of NOL’s due to fewer than 75% of our employees, including subsidiaries, are based in New Jersey
Our 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 we receive regulatory approval for any of our products in the United States or elsewhere, we will incur substantial expenditures to develop manufacturing, sales and marketing capabilities and/or subcontract or joint venture these activities with others. There can be no assurance that we will ever recognize revenue or profit from any such products. In addition, we may encounter unanticipated problems, including developmental, regulatory, manufacturing or marketing difficulties, some of which may be beyond our ability to resolve. We may lack the capacity to produce our products in-house and there can be no assurances that we will be able to locate suitable contract manufacturers or be able to have them produce products at satisfactory prices.
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The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that we cannot continue in existence.
Critical Accounting Policies
Consolidation
Our Consolidated Financial Statements include the accounts of Xechem International, Inc. and all subsidiaries except where control is temporary or does not rest with us. All majority-owned entities in which our control is considered other than temporary are consolidated. For investments in companies in which we have the ability to exercise significant influence over operating and financial policies, including certain investments where there is a temporary majority interest, such entities are accounted for by the equity method. Our judgments regarding the level of influence or control of each equity method investment include considering key factors such as our ownership interest, representation on the board of directors, participation in policy making decisions and material inter-company transactions. Our investments in other companies that we do not control and for which we do not have the ability to exercise significant influence as discussed above are carried at cost or fair value, as appropriate. All significant inter-company accounts and transactions, including transactions with equity method investees, are eliminated from our financial results.
Patents, Trademarks, and other Intellectual or Intangible Assets
The costs of Patents, Trademarks, and other Intellectual or Intangible Assets are currently expensed in the period in which they are incurred. It is our opinion that while we realize there is an intrinsic value to these assets, the fair market value is not easily discernable because of the uncertainty of success and the time it takes to bring certain of these assets to market.
Beneficial Conversions
Our policy for recognizing interest expense in connection with the issuance of convertible debt is to recognize the beneficial conversion feature upon the issuance of convertible debt, which contains such conversion features.
Acquired In-Process Research and Development Charges
In-process research and development charges are recorded in connection with acquisitions and represent the value assigned to acquired assets which have not yet reached technological feasibility and for which there is no alternative use. Fair value is generally assigned to these assets based on the net present value of the projected cash flows expected to be generated by those assets. Significant assumptions underlying these cash flows include our assessment of the timing and our ability to successfully complete the in-process research and development project, projected cash flows associated with the successful completion of the project, and interest rates used to discount these cash flows to their present value.
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Item 3. Control and Procedures
Evaluation of Disclosure Controls and Procedure
We evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of management, including our chief executive officer/chief financial officer, as of March 31, 2007, and have concluded that as of March 31, 2007, these disclosure controls and procedures have been effectively designed to ensure that information required to be disclosed in reports that we file with or submit to the United States Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to management as appropriate to allow timely decisions regarding this disclosure.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting have come to management’s attention during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Review and evaluation of disclosure controls and procedures is an ongoing process that we will continue to refine as we perform quarterly evaluations.
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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 - Effective May 3, 2007 Robert Swift was added to the Board of Directors of the Company as one of the nominees from the purchasers of Units comprised of Convertible Debentures plus Warrants pursuant to the Securities Purchase Agreement of the Company dated as of April 4, 2007. Dr. Swift is presently a Healthcare Consultant. He received his Ph.D. in Biochemistry from Michigan State University and his M.B.A. in Finance from Indiana University. He has 15 years of experience in molecular biology, cancer research, biopharmaceuticals, and medical devices, and over ten years of experience with Eli Lilly and Company involved in drug research and pre-clinical development. He has worked as a biotechnology analyst and an investment banker for 5 years, and was Director of Research in Life Sciences at Unterberg, Towbin. In 2001, he joined Origin Capital Management and was co-portfolio manager until 2004.
The Company as of this date has not compensated Dr. Swift for joining the Board of Directors of the Company. Dr. Swift purchased $100,000 of Units in connection with the initial closing of the Securities Purchase Agreement. Dr. Swift’s Units are comprised of: (i) a $100,000 Convertible Debenture, bearing interest at 8% per annum, maturing March 31, 2009 and convertible into Common Stock of the Company at $0.0175 per share (subject to possible adjustment - the “Conversion Price”); and (ii) two warrants, the first of which expires April 4, 2009 and which is purchasable for 37.5% of the principal amount of the Convertible Debenture divided by the Conversion Price and exercisable at $0.0225 per share, and the second of which expires April 2, 2010 and is purchasable for a like amount of shares, exercisable at $0.06 per share. The terms of the Units are described more fully in the Form 8-K filed by the Company announcing the initial closing of the Securities Purchase Agreement, the terms of which are incorporated by reference herein. Dr. Swift also assisted Basu Capital in connection with its advisory services to the Company related to the Securities Purchase Agreement and was compensated with: (i) $56,400 in cash from the proceeds paid by the Company to Basu Capital; and (ii) an allocation of options to purchase up to 17,908,914 shares of the Company’s common stock at $0.001 per share, expiring April 4, 2009, from the options allocated to Basu Capital in connection with the performance of its advisory services.
Item 6. Exhibits
31 Certification of CEO and CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification Pursuant to 18 U.S.C., Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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