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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, 1997
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.
-----------------------------------------------------------
(Name of small business issuer as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
# 04-3166089
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(IRS Employer Identification Number)
2425 NORTH 55TH STREET, BOULDER, CO 80301
-----------------------------------------------------------
(Address of principal executive offices)(zip code)
ISSUER'S TELEPHONE NUMBER (303) 447-1773
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.
Outstanding at
Class May 8, 1997
- ------------------------------ ----------------
Common Stock, $0.001 par value 2,944,953 shares
Transitional Small Business Disclosure Format Yes No X
--- ---
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XENOMETRIX, INC
FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1997
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Balance Sheet - March 31, 1997 ......................................................... Page 3
Statement of Operations - Periods ended March 31, 1997 and 1996 ........................ Page 4
Statement of Cash Flows - Periods ended March 31, 1997 and 1996 ........................ Page 5
Notes to Financial Statements .......................................................... Page 6
Management's Discussion and Analysis of Financial Condition and Results of Operations .. Page 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................................. Page 12
Signatures ............................................................................. Page 13
</TABLE>
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PART ONE--FINANCIAL INFORMATION
XENOMETRIX, INC.
Balance Sheet
March 31, 1997
(Unaudited)
Assets
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $ 1,021,000
Accounts receivable, net 197,000
Receivable from termination of operating lease 170,000
Inventory 152,000
Deposits and prepaid expense 244,000
------------
Total current assets 1,784,000
Property and equipment, net 909,000
Patents, net 353,000
------------
Total assets $ 3,046,000
============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 458,000
Accrued liabilities 199,000
------------
Total current liabilities 657,000
------------
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;
2,944,267 shares issued and outstanding 3,000
Additional paid-in capital 15,567,000
Accumulated deficit (13,181,000)
------------
Total stockholders' equity 2,389,000
------------
Total liabilities and stockholders' equity $ 3,046,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
XENOMETRIX, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales and services $ 152,000 $ 146,000 $ 532,000 $ 484,000
Cost of sales and services 157,000 123,000 505,000 373,000
------------ ------------ ------------ ------------
Gross profit (5,000) 23,000 27,000 111,000
------------ ------------ ------------ ------------
Research and development 282,000 325,000 871,000 782,000
Selling, general and administrative 826,000 734,000 2,037,000 1,873,000
------------ ------------ ------------ ------------
Total operating expense 1,108,000 1,059,000 2,908,000 2,655,000
------------ ------------ ------------ ------------
Operating loss (1,113,000) (1,036,000) (2,881,000) (2,544,000)
Other income:
Grant income 5,000 -- 64,000 --
Interest income, net 28,000 53,000 99,000 83,000
Gain on early termination of lease -- -- 1,028,000 --
------------ ------------ ------------ ------------
Loss before extraordinary item (1,080,000) (983,000) (1,690,000) (2,461,000)
Extraordinary item: Early extinguishment
of debt issuance cost -- -- -- (115,000)
------------ ------------ ------------ ------------
Net loss $ (1,080,000) $ (983,000) $ (1,690,000) $ (2,576,000)
============ ============ ============ ============
Loss per common share:
Loss before extraordinary item $ (0.37) $ (0.34) $ (0.58) $ (1.28)
Extraordinary item -- -- -- (0.06)
------------ ------------ ------------ ------------
Net loss $ (0.37) $ (0.34) $ (0.58) $ (1.34)
============ ============ ============ ============
Wgtd. avg. common shares outstanding 2,939,000 2,906,000 2,928,000 1,919,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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XENOMETRIX, INC.
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,690,000) $ (2,576,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 244,000 154,000
Net book value of retired assets 14,000 --
Early extinguishment of debt issuance cost -- 115,000
Changes in assets and liabilities:
Accounts receivable (60,000) (8,000)
Receivable from termination of operating lease (170,000) --
Inventory (6,000) (20,000)
Deposits and prepaid expense (72,000) (6,000)
Accounts payable and accrued liabilities 168,000 (100,000)
------------ ------------
Net cash used in operating activities (1,572,000) (2,441,000)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (742,000) (219,000)
Patent acquisition cost (66,000) (106,000)
------------ ------------
Net cash used in investing activities (808,000) (325,000)
------------ ------------
Cash Flows from Financing Activities:
Net proceeds from issuance of senior subordinated note 875,000
Repayment of senior subordinated note (1,000,000)
Proceeds from issuance of common stock 111,000 6,764,000
------------ ------------
Net cash provided by financing activities 111,000 6,639,000
------------ ------------
Net change in cash (2,269,000) 3,873,000
Cash and cash equivalents at beginning of period 3,290,000 489,000
------------ ------------
Cash and cash equivalents at end of period $ 1,021,000 $ 4,362,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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XENOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING MARCH 31, 1997
(Unaudited)
NOTE 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 fiscal
year ended June 30, 1996.
NOTE 2. TERMINATION OF OPERATING LEASE
In July 1996, Xenometrix entered into an agreement to lease approximately
22,700 square feet in an existing building located at 2425 North 55th Street in
Boulder, Colorado. The lease is for a six-year period, with two optional
renewal periods of three years each. Xenometrix has moved its entire
operations to this new facility. On December 31, 1996, the new landlord paid
$204,000 of tenant finish costs incurred by Xenometrix in outfitting the
facility to meet its needs.
Also, in July 1996, Xenometrix entered into an agreement with another company
whereby such company is paying Xenometrix certain consideration for
relinquishing its former operating lease enabling such company to enter into a
new lease on this space. By the terms of the agreement such company paid
Xenometrix $700,000 upon Xenometrix' termination of its former lease, paid
$18,000 of Xenometrix' actual moving expenses and began paying $360,000 in six
quarterly installments of $60,000 beginning in October 1996 and continuing
through December 1997. This agreement resulted in a gain on lease termination
of $1,028,000.
NOTE 3. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which is
effective for periods ending after December 15, 1997 and requires changes in
the computation, presentation and disclosure of earnings per share. Earnings
per share for all prior periods must be restated to conform with computation
provisions of SFAS No. 128. The Company will adopt SFAS No. 128 for the fiscal
year ended June 30, 1998, but does not expect the new accounting standard to
have a material impact on the Company's reported financial results.
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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.
See Item 1.
Except for the historical information contained in this Form 10-QSB, this
report contains forward-looking statements that involve risks and
uncertainties. Xenometrix' 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, 1996, and the
Company's Prospectus dated October 17, 1995.
OVERVIEW
Since inception, the Company's efforts have been focused upon commercializing
its technology in the field of molecular toxicology. Accordingly, the Company's
resources were directed primarily at the drug safety and toxicology markets.
Recently, the Company has put considerable effort into evaluating the changes
that are occurring in pharmaceutical research and development. The Company has
concluded that its proprietary gene activation profiles provide valuable
information which may be used to help pharmaceutical researchers optimize drug
leads. The Company believes its technology can help pharmaceutical companies
evaluate and optimize the growing number of drug leads emerging from genetic
sequencing, combinatorial chemistry and high throughput screening. While the
Company will continue to serve the drug safety and toxicology market, it plans
to focus a significant portion of its efforts and resources developing and
marketing its products and services to pharmaceutical companies for testing,
evaluation and optimization of their lead compounds.
The Company believes that its focus on this additional market will enable it to
expand its business through collaborative arrangements with potential customers
and business partners. In this regard, in April 1997, the Company centralized
its sales and support operations in Boulder, eliminated field sales positions
and created an expanded business development function. This restructuring of
these functions is expected to free up resources, which will be redeployed to
adapt and develop the Company's products and services to better serve the drug
discovery and development market. Accordingly, such resources will primarily be
used to strengthen its research and product development efforts, such as
continued discovery and/or licensing of new genes and building the Company's
growing bioinformatics database.
The timing and amount of revenues from sales of products and services to the
drug discovery and development market (on which the Company has only recently
begun to focus) as well as to the toxicology and product safety market cannot
be predicted with certainty. Similarly, the Company's ability to enter into
meaningful collaborative agreements with customers or other collaborators and
licensees cannot be predicted with a high degree of accuracy. Accordingly,
7
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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.
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED MARCH 31, 1997 AND 1996
NET SALES AND SERVICES. Net sales and services include revenues recognized from
the sale of the Company's commercial products and contract laboratory services.
For the quarter ended March 31, 1997, net sales and services increased 4% to
$152,000 from $146,000 reported in the comparable quarter of 1996. The increase
was primarily attributable to higher sales of contract laboratory services and
assay kits, partially offset by lower product development revenue.
GROSS PROFIT. For the quarter ended March 31, 1997, gross profit was $(5,000)
compared to $27,000 reported in the comparable quarter in 1996. The decrease in
gross profit was primarily attributable to higher manufacturing costs,
including higher costs associated with the Company's new facility. In July
1996, Xenometrix entered into an agreement whereby it received certain
consideration for relinquishing its former operating lease. (See Note 2 to
Financial Statements). Included as part of this consideration are six quarterly
installments of $60,000 each which began in October 1996 and will continue
through December 1997. While accounting conventions required that the Company
recognize the net present value of these payments as a gain in the quarter
ended September 30, 1996, the cash flow from these payments was intended to
cover the higher costs associated with the Company's new facility.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
1997 quarter decreased 13% to $282,000 from $325,000 reported in the comparable
1996 quarter. This decline was primarily attributable to temporary vacancies in
the department during the 1997 quarter. The 1996 quarter also included higher
costs associated with a study to establish further scientific validation for
one of the Xenometrix assays.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). For the quarter ended March
31, 1997, SG&A expenses increased 13% to $826,000 from $734,000 reported for the
comparable 1996 quarter. The increase was primarily attributable to higher
executive, legal and administrative costs, partially offset by lower sales and
marketing expenses. The restructuring of the Company's sales force, discussed
above, is expected to reduce SG&A expenses by approximately $400,000 annually.
The Company expects that these cost savings will be redeployed, primarily to the
research and product development areas, in order to adapt and expand the
Company's products and services to address the needs of the drug discovery and
development market.
OTHER INCOME AND EXPENSES. Xenometrix earned $5,000 of grant income in the 1997
quarter from a National Institutes of Health grant, down from the $64,000 of
grant income reported in
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the 1996 quarter. In the 1997 quarter, interest income decreased to $28,000
from $53,000 reported for the comparable quarter in 1996, primarily due to
lower cash balances.
NET LOSS. For the quarter ended March 31, 1997, the Company's net loss
increased to $1,080,000 or $0.37 per share from $983,000 or $0.34 per share for
the comparable 1996 quarter.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
NET SALES AND SERVICES. For the nine months ended March 31, 1997, net sales and
services increased 10% to $532,000 from $484,000 reported in the comparable
period in 1996. The increase was attributable to increased sales of assay kits
and contract laboratory services utilizing the Ames II product line recently
introduced by the Company.
GROSS PROFIT. For the nine months ended March 31, 1997, gross profit declined
to $27,000 from $111,000 reported in the comparable period in 1996. The
decrease in gross profit was primarily attributable to higher manufacturing
costs, including higher costs associated with the Company's new facility. In
July 1996, Xenometrix entered into an agreement whereby it received certain
consideration for relinquishing its former operating lease. (See Note 2 to
Financial Statements). Included as part of this consideration are six quarterly
installments of $60,000 each which began in October 1996 and will continue
through December 1997. While accounting conventions required that the Company
recognize the net present value of these payments as a gain in the quarter
ended September 30, 1996, the cash flow from these payments was intended to
cover the higher costs associated with the Company's new facility.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
nine months ended March 31, 1997 increased 11% to $871,000 from $782,000
reported in the comparable 1996 period. This increase was attributable to higher
costs associated with a study to establish further scientific validation for one
of the Xenometrix assays.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). For the nine month period
ended March 31, 1997, SG&A expenses were $2,037,000, up 9% from the $1,873,000
in the comparable 1996 period. This increase was primarily attributable to
increased executive, legal and administrative expenses and costs associated
with the Company's relocation to its new facility.
NET LOSS. For the nine months ended March 31, 1997, the net loss decreased to
$1,690,000 or $0.58 per share from the net loss of $2,576,000 or $1.34 per
share, reported for the same period in 1996. During the current period, the
Company recognized a one-time gain of $1,028,000 from the early termination of
an operating lease. During the prior period, the Company incurred an
extraordinary charge of $115,000 or $0.06 per share for the early
extinguishment of debt.
9
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 the Company's cash and cash equivalents were $1,021,000
compared to $3,290,000 at June 30, 1996. During the current nine month period
$1,572,000 was used to fund the Company's operations, $742,000 was invested in
capital expenditures and leasehold improvements, $66,000 was invested in
patents, and $111,000 was provided from the issuance of the Company's common
stock upon the exercise of stock options and the conversion of warrants.
In July 1996, Xenometrix entered into an agreement to lease approximately
22,700 square feet in an existing building located at 2425 No. 55th Street in
Boulder, Colorado. The lease is for a six-year period, with two optional
renewal periods of three years each. Xenometrix has moved its entire operations
to this new facility. On December 31, 1996, the new landlord paid $204,000 of
tenant finish costs incurred by Xenometrix in outfitting the facility to meet
its needs.
Also, in July 1996, Xenometrix entered into an agreement with another company
whereby such company is paying Xenometrix certain consideration for
relinquishing its former operating lease enabling such company to enter into a
new lease on this space. By the terms of the agreement such company paid
Xenometrix $700,000 upon Xenometrix' termination of its former lease, paid
$18,000 of Xenometrix' actual moving expenses and is paying $360,000 payable in
six quarterly installments beginning October 1996 and continuing through
December 1997. This agreement resulted in a gain on lease termination of
$1,028,000.
Xenometrix has used substantially all of the $700,000 lease termination
incentive and the $204,000 tenant finish allowance for leasehold improvements
and equipment purchases for its new facility. Beginning in September 1996,
Xenometrix rent expense increased by approximately $16,000 per month.
Xenometrix has incurred an accumulated deficit of $13,181,000 since inception
and expects to continue to incur losses through at least the fiscal year ending
June 1997. Xenometrix estimates that its existing capital resources will be
adequate to maintain its current and planned operations through June 1997.
However, no assurance can be given that changes will not occur that would
consume available capital resources before such time. Xenometrix' future
capital requirements may be substantial and will depend on, and could increase
as a result of, many factors, including the pace of growth, if any, in sales
and services, progress of Xenometrix' research and development programs, the
cost of continuing validation of Xenometrix' molecular information assays and
other prospective technology, the cost involved in filing, prosecuting and
enforcing patent claims, payments received under prospective collaborative
agreements, agreements for and changes in collaborative research relationships,
the cost associated with commercialization of its products, the cost and
availability of third party financing for capital expenditures, and legal and
administrative expense.
10
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At March 31, 1997, the Company had cash and cash equivalents of $1,021,000.
The Company estimates that available cash resources will be sufficient to
sustain the Company's current level of operations through June 1997. In order
to address the Company's immediate liquidity needs, the Company is pursuing a
short-term bridge financing consisting of a private placement of notes coupled
with common stock warrants. In addition, the Company has retained an
investment banking firm to assist the Company in raising additional equity
capital. In the event that such financing cannot be consummated, the Company's
operating activities will be significantly curtailed.
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PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Summary Financial Information Schedule
(b) Reports on Form 8-K
No Form 8-K reports were filed during the period covered by this
report.
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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/ Ronald L. Hendrick
May 13, 1997 Ronald L. Hendrick
Executive Vice President and Chief
Financial Officer Principal Financial
Officer
/s/ Kimberly A. Marks
May 13, 1997 Kimberly A. Marks
Controller
Principal Accounting Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,021
<SECURITIES> 0
<RECEIVABLES> 367
<ALLOWANCES> 0
<INVENTORY> 152
<CURRENT-ASSETS> 1,784
<PP&E> 1,319
<DEPRECIATION> 410
<TOTAL-ASSETS> 3,046
<CURRENT-LIABILITIES> 657
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 2,386
<TOTAL-LIABILITY-AND-EQUITY> 3,046
<SALES> 152
<TOTAL-REVENUES> 152
<CGS> 157
<TOTAL-COSTS> 157
<OTHER-EXPENSES> 1,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,080)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,080)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> 0
</TABLE>
