-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WqE5GfcUWnbjW8WSlsLFKlSzXXJJ7SELcFo+tKb91HrRSsnPbmC/WobH2Sweynkp gS/P2k5jSLUZQ3sbrYEX9w== 0000950134-99-004368.txt : 19990518 0000950134-99-004368.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950134-99-004368 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XENOMETRIX INC \DE\ CENTRAL INDEX KEY: 0001000370 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 043166089 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-14004 FILM NUMBER: 99626284 BUSINESS ADDRESS: STREET 1: 2425 NORTH 55TH ST STREET 2: STE 111 CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3034471773 MAIL ADDRESS: STREET 1: 2425 N 55TH ST STREET 2: STE 111 CITY: BOULDER STATE: CO ZIP: 80301 10QSB 1 FORM 10QSB FOR QUARTER ENDING MARCH 31, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from ________ to _________ COMMISSION FILE NUMBER 1-14004 XENOMETRIX, INC. (Exact name of small business issuer as specified in its charter) DELAWARE 04-3166089 (State or other jurisdiction of (IRS employer incorporation or organization) identification number) 2425 NORTH 55TH STREET BOULDER, CO 80301 (Address of principal executive offices) (303) 447-1773 (Issuers telephone number) Check whether issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. COMMON STOCK, $0.001 PAR VALUE 2,948,135 COMMON SHARES (Class) OUTSTANDING AT MARCH 31, 1999 Transitional Small Business Disclosure Format Yes No X ----- ----- 1 2 XENOMETRIX, INC FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 1999 INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheet - March 31, 1999...................................................................Page 3 Statement of Operations - Quarters ended March 31, 1999 and 1998.................................Page 4 Statement of Cash Flows - Quarters ended March 31, 1999 and 1998.................................Page 5 Notes to Financial Statements....................................................................Page 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................................................Page 8 PART II - OTHER INFORMATION Item 6. Exhibits.........................................................................................Page 12 Signatures................................................................................................Page 13
2 3 Part One--Financial Information XENOMETRIX, INC. Balance Sheet March 31, 1999 (Unaudited) Assets Current Assets: Cash $ 85,000 Accounts receivable, net 82,000 Inventory 13,000 Prepaid insurance 38,000 Deposits and prepaid expense 88,000 ----------- Total current assets 306,000 Property and equipment, net 501,000 Patents, net 401,000 Total assets $ 1,208,000 =========== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 374,000 Accrued royalties 202,000 Accrued salaries and wages 166,000 Other accrued liabilities 83,000 Senior promissory notes 284,000 ----------- Total current liabilities 1,109,000 ----------- Stockholders' Equity: Preferred stock--$.001 par value; 5,000,000 shares authorized; no shares issued and outstanding - Common stock--$.001 par value; 20,000,000 shares authorized; 2,948,000 shares issued and outstanding 3,000 Additional paid-in capital 16,093,000 Accumulated deficit (15,997,000) Total stockholders' equity 99,000 ----------- Total liabilities and stockholders' equity $ 1,208,000 ===========
The accompanying notes are an integral part of these financial statements. 3 4 XENOMETRIX, INC. Statement of Operations March 31, 1999 (Unaudited)
Quarter Ended Nine Months Ended March 31, March 31, --------- --------- 1999 1998 1999 1998 ---- ---- ---- ---- Revenue: Products and services $ 93,000 $ 103,000 $ 323,000 $ 497,000 Licensing revenue 1,926,000 - 2,552,000 - ---------- ---------- ---------- ----------- Total revenue 2,019,000 103,000 2,875,000 497,000 Cost of revenue: Cost of products and services 103,000 114,000 384,000 418,000 Cost of licensing revenue 237,000 - 368,000 - ---------- ---------- ---------- ----------- Total cost of revenue 340,000 114,000 752,000 418,000 ---------- ---------- ---------- ----------- Gross profit 1,679,000 (11,000) 2,123,000 79,000 ---------- ---------- ---------- ----------- Research and development 54,000 234,000 279,000 946,000 Selling, general and administrative 187,000 484,000 910,000 1,468,000 ---------- ---------- ---------- ----------- Total operating expense 241,000 718,000 1,189,000 2,414,000 ---------- ---------- ---------- ----------- Operating income (loss) 1,438,000 (729,000) 934,000 (2,335,000) Interest expense, net (35,000) (290,000) (233,000) (567,000) ---------- ---------- ---------- ----------- Net income (loss) $1,403,000 $(1,019,000) $ 701,000 $(2,902,000) ========== =========== ========== =========== Income (loss) per common share-basic $ 0.48 $ (0.35) $ 0.24 $ (0.98) ========== =========== ========== =========== Income (loss) per common share-diluted $ 0.44 $ (0.35) $ 0.24 $ (0.98) ========== =========== ========== =========== Weighted average shares outstanding 2,948,000 2,948,000 2,948,000 2,948,000 ========== =========== ========== =========== Weighted & dilutive potential average shares 3,190,000 - 2,954,000 - ========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements. 4 5 Statement of Cash Flows (Unaudited)
Nine Months Ended March 31 ------------------------------------- 1999 1998 ------------------ ----------------- Cash Flows from Operating Activities: Net income (loss) $ 701,000 $ (2,902,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 271,000 264,000 Amortization of discount on senior promissory notes 105,000 412,000 Changes in assets and liabilities: Accounts receivable 33,000 187,000 Receivable from termination of operating lease - 115,000 Inventory 42,000 20,000 Prepaid insurance 143,000 82,000 Deposits and prepaid expense (36,000) 31,000 Accounts payable and accrued liabilities (120,000) 172,000 Deferred revenue - 251,000 -------------- ------------ Net cash provided by (used in) operating activities 1,139,000 (1,368,000) -------------- ------------ Cash Flows from Investing Activities: Capital expenditures - (17,000) Patent acquisition cost (179,000) (79,000) -------------- ------------ Net cash used in investing activities (179,000) (96,000) -------------- ------------ Cash Flows from Financing Activities: Repayment of senior promissory notes (1,216,000) - Proceeds from issuance senior promissory notes and warrants - 1,000,000 -------------- ------------ Net cash provided by financing activities (1,216,000) 1,000,000 -------------- ------------ Net increase (decrease) in cash (256,000) (464,000) Cash and cash equivalents at beginning of period 341,000 603,000 -------------- ------------ Cash and cash equivalents at end of period $ 85,000 $ 139,000 ============== ============
The accompanying notes are an integral part of these financial statements. 5 6 XENOMETRIX, INC. NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDING MARCH 31, 1999 (Unaudited) 1. Basis of Presentation The accompanying financial statements are unaudited. However, in the opinion of management, the accompanying financial statements reflect all adjustments, consisting of only normal recurring adjustments, necessary for fair presentation. Interim results of operations are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the Xenometrix Annual Report on Form 10-KSB for the year ended June 30, 1998. Except for the historical information contained in this Form 10-QSB, this Form contains forward-looking statements that involve risks and uncertainties. Xenometrix's actual results could differ materially from those discussed in this Report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Report and any documents incorporated herein by reference, as well as in the Xenometrix Annual Report on Form 10-KSB for the year ended June 30, 1998. 2. Senior Promissory Notes Between June 20, 1997 and January 12, 1998, Xenometrix issued Senior promissory notes, (the "Notes") in the total amount of $1,500,000 to serve as bridge financing. The Notes are collateralized by a security interest in all of the assets of the Company. The Notes were originally due March 25, 1998. The maturity date on the Notes has been extended several times, most recently until June 15, 1999. The Notes bear interest at 12% per annum. In the event of a sale of the Company prior to the maturity date, the Notes are due at the closing of such sale. In connection with the issuance of these Notes, Xenometrix issued warrants to purchase 499,995 shares of common stock. In consideration for the extension of the due date on the Notes to February 25, 1999, the exercise price of the warrants was reduced to $0.125 per share and the Company agreed to continue to pay 38.5% of all gross licensing revenues received during the extension period to the Note holders, as payment against the accrued interest and principal due on the Notes. In the event of default by the Company on the Notes, the interest rate will increase to 18% per annum, the Note holders will have the right to appoint a majority of the Board of Directors of the Company and the Company's assets will be subject to foreclosure. 3. Earnings (Loss) Per Common Share Net income (loss) per common share is computed using the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (EPS). 6 7 Basic income or loss per common share is computed by dividing the net income or loss by the weighted-average number of common shares outstanding during the period. Diluted income or loss per share is computed using the treasury stock method, based upon the weighted-average number of common shares, dilutive common stock equivalent shares and the assumed conversion of any dilutive convertible securities outstanding during the period. 4. Recently Issued Accounting Standards In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131, which is effective for fiscal years beginning after March 15, 1997, establishes new disclosure requirements for operating segments, including products, services, geographic areas, and major customers. The Company has adopted SFAS No. 131 for the 1999 fiscal year, but does not expect the new accounting standard to have a material effect on the Company's reported financial results. 5. Subsequent Events Xenometrix completed a restructuring February 1, 1999, resulting in a reduction of the Company's work force to four full time employees. Stephen J. Sullivan, President and Chief Executive Officer resigned and will remain on the Board of Directors as non-executive Chairman. Pauline Gee has been elected President and Chief Scientific Officer. A substantial portion of the Company's occupied premises was subleased to a biotechnology company effective November 1, 1998. Management believes these changes will reduce future overhead significantly while still allowing for the full production of its line of gene profiling and mutagenicity kits, services of its Client Research Laboratory and future sublicensing arrangements. The Company has resumed shipping of mammalian gene profiling kits. Subsequent to this restructuring, the Company has granted two non-exclusive licenses for its gene expression profiling patents, bringing the total to fifteen licenses in this field. In addition, the Company granted its first non-exclusive license for the Company's proprietary automated Ames technology in this quarter. These licenses incorporate up-front fees and potential future revenues as well as potential future business and research collaborations. 7 8 ITEM 2. XENOMETRIX, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Report. Except for the historical information contained herein, this Report contains forward-looking statements that involve risks and uncertainties. Xenometrix's actual results could differ materially from those discussed in this Report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Report and any documents incorporated herein by reference, as well as in the Xenometrix Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998. OVERVIEW The Company continues to offer non-exclusive licenses of its intellectual property. On January 22, 1998, the Company was granted a broad basic patent by the European Patent Office covering most gene expression profiles resulting from the exposure of eukaryotic cells (including human, animal and yeast cells) to pharmaceutical compounds and other chemical entities. On September 22, 1998, the United States Patent and Trademark Office issued a patent to the Company covering similar claims in the United States. The Company's strategy to offer non-exclusive licenses has resulted in sixteen agreements to date. The Company continues to pursue broad business collaborations with parties whose current or future business activities may be complementary to those of the Company. The Company serves the drug safety and chemical markets, and has been focusing a significant portion of its effort and resources developing and marketing its products and services to pharmaceutical companies for testing, evaluation and optimization of their lead compounds. The timing and amount of revenues from sales of products and services to the drug discovery and development market and chemical markets cannot be predicted with certainty. Similarly, the Company's ability to enter into license agreements and meaningful collaborative arrangements with customers or other potential collaborators and licensees cannot be predicted with a high degree of accuracy. Accordingly, results of operations for any period may be unrelated to results of operations for any other period and are likely to fluctuate sharply. In addition, historical results should not be viewed as indicative of future operating results. As of May 14, 1999 the Company has cash of approximately $197,000. The Company estimates that its current resources together with projected collections on accounts receivable from customers will be sufficient to meet its operating needs through approximately August, 1999. Xenometrix is currently in discussions with several companies regarding licensing of the Company's U. S. and European gene profiling patents, and is hopeful that additional revenue from these licenses will be sufficient to fund the Company's operating needs for the next several months. The Company subleased a portion of its facilities to another company, which 8 9 enabled the Company to retain its modern, state-of-the-art facility while reducing its monthly expenditures. The Company also has approximately $284,000 debt remaining from $1,500,000 of the Notes that are due June 15, 1999, subject to further extension. The Company believes that it can obtain a further extension of the due date of the Notes because a substantial portion of the licensing revenue generated will go towards paying down the principal. However, the continued presence of the debt and the periodic need to obtain additional extensions on the maturity date of the bridge note has fueled uncertainty over the Company's prospects for survival. This uncertainty has been a potential obstacle to continued licensing as well as to developing strategic partners. The actions taken in recent months are designed to strengthen the Company's prospects for successful operation and has reduced concerns over the Company's survival. RESULTS OF OPERATIONS COMPARISON OF QUARTERS ENDED MARCH, 1999 AND 1998 Revenue. For the quarter ended March 31, 1999, revenue increased to approximately $2,019,000 from $103,000 reported in the comparable quarter of the prior year. The increase was attributable to revenue from up-front licensing fees relating to the Company's issued patents in the United States and Europe. Sales of products and service revenue from the Company's Client Research Laboratory decreased slightly to $97,000 from $103,000 reported in the prior year. Gross Profit. For the quarter ended March 31, 1999, gross profit increased to $1,679,000 from a loss of $11,000 reported in the prior year. The increase in gross profit was due to licensing fees where there was no licensing activities in the comparable quarter of the prior year. The cost of licensing revenue of approximately $237,000 represents royalties paid to the Universities of Harvard and California, Berkeley under the Company's existing licensing agreements and a portion of the amortization of the costs associated with the patents and legal expenses in prosecuting the patents. Gross profit margins on revenue from sales of products and services were approximately -9%. This negative gross profit margin is connected with the restructuring initiated February, 1999. Research and Development Expenses (R&D). R&D expenses for the quarter ended March 31, 1999, decreased 77% to $54,000 from $234,000 reported in the same quarter of the prior year. This decrease was primarily attributable to reduced headcount in the R&D department and personnel costs in the R&D department being allocated to the cost of products and services sold. Laboratory supplies and most other expenses in the R&D department were also down in the current quarter, compared to the comparable quarter of the prior year. Selling, General and Administrative Expenses (SG&A). For the quarter ended March 31, 1999, SG&A expenses were $187,000, down 60% from $484,000 in the prior year. This decrease was primarily attributable to lower business development, legal, finance, accounting 9 10 and administrative costs resulting from personnel reductions in February 1999 and lower Board of Directors costs associated with reducing the size of the Board and replacing cash compensation to Board members with increased stock option grants. Interest Expense, Net. During the quarter ended March 31, 1999, the Company incurred net interest expense of $35,000 compared to $290,000 in the comparable quarter of the prior fiscal year. The net interest expense incurred included interest accrued on the Notes at the stated interest rate and the amortization of the values attributable to the warrants issued in conjunction with the Notes. The interest rate on the Notes remains at 12% per annum and Xenometrix will continue to pay 38.5% of gross licensing revenues received during the extension period to the Note holders as payment against the outstanding interest and principal due on the Notes. The net interest expense decreased approximately 90% from the comparable quarter in the prior year because the Notes have been substantially repaid. In the event of a sale of the Company prior to June 15, 1999, the Notes will be due at the closing of such sale. Net Income (Loss). For the quarter ended March 31, 1999, there was a net income of $1,403,000 or $0.48 per share compared to a loss of $1,019,000 or $0.35 per share, reported for the third quarter of fiscal year, 1998. The earnings would have been $0.44 per diluted share. IMPACT OF YEAR 2000 ISSUES The Year 2000 issue is related to computer software utilizing two digits rather than four to define the appropriate year. As a result, any of the Company's computer programs or any of the Company's suppliers or vendors that have date sensitive software may incur system failures or generate incorrect data if "00" is recognized as 1900 rather than 2000. The Company has evaluated the proprietary software used to facilitate performing, analyzing and interpreting the results of its assays, and the proprietary software used in conjunction with its bioinformatics data base, and found them to appropriately address the date issues associated with the year 2000. The Company believes that all dates in its proprietary software are stored with either a minimum of four digits for the year or as a text string, thereby preventing inappropriate sequencing of date sensitive information. While the Company believes that its proprietary software will not produce any material problems, erroneous calculations or degradation of performance as a result of Year 2000 issues, users are advised that the Company's software must be run on Year 2000 compliant platforms. The Company plans to verify whether its major suppliers, service providers and financial institutions are Year 2000 compliant, however there can be no assurance that the systems and networks of its key suppliers and customers will not be affected by Year 2000 issues, which could have an adverse effect on the Company's business, operating results and financial condition. The Company believes, based upon the evaluations performed upon its proprietary software and the claims of Year 2000 compliance made by the providers of non-proprietary software used by the Company, that the impact of Year 2000 will not be material. However, 10 11 to the extent the Company or third parties upon which it relies do not timely achieve Year 2000 readiness, the Company's results of operations may be adversely affected. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, the Company had cash of $85,000. During the three month period ended March 31, 1999, $1,139,000 was provided by the Company's activities and $179,000 was invested in patents. There were no cash resources generated from financing activities, and $1,216,000 was used in repayment of a substantial portion of senior promissory Notes. As of May 14, 1999, the Company had cash of approximately $197,000 compared to $85,000 at the end of March 31, 1999. The Company has signed an additional licensing agreement since the end of the last quarter in addition to the nine non-exclusive agreements executed in the March 31, 1999 quarter. The Company is currently in discussions with several companies regarding licensing of the Company's intellectual property, and is hopeful that additional revenue from these licenses will be sufficient to fund the Company's operating needs for the next several months. The Company believes that it is unlikely that it can generate sufficient licensing revenue and revenue from products and services to fund the Company's operations and pay off the remaining balance of the Notes on the maturity date. The Company believes that it can obtain a further extension of the due date of the Notes because a substantial portion of the licensing revenue generated will go towards paying down the remaining principal. However, it is exploring strategic partnerships, including but not limited to, the sale of the Company. 11 12 PART II--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 27.1 Summary Financial Information Schedule ---------------- 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf. XENOMETRIX, INC. /s/ Pauline Gee May 14, 1999 Pauline Gee President, Chief Scientific Officer 13 14 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 27.1 Summary Financial Information Schedule - -------------------------------------------------------------------------------- 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 85 0 87 5 13 306 1,287 786 1,208 1,109 0 0 0 3 96 1,208 323 2,875 384 752 1,189 0 233 701 0 0 0 0 0 701 .24 .24
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