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 December 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 2,958,765 Common Shares
(Class) Outstanding at February 11, 2000
Transitional Small Business Disclosure Format Yes No X
----- -----
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XENOMETRIX, INC
FORM 10-QSB
FOR THE PERIOD ENDED DECEMBER, 1999
INDEX
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Balance Sheet - December 31, 1999...............................Page 3
Statement of Operations -
Quarters ended December 31, 1999 and 1998....................Page 4
Statement of Cash Flows -
Quarters ended December 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
- ---------------------------
Signature................................................................Page 12
2
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Part One--Financial Information
Xenometrix, Inc.
Balance Sheet
December 31, 1999
(Unaudited)
Assets
Current Assets:
Cash $ 74,000
Accounts receivable, net 21,000
Inventory 30,000
Prepaid insurance 39,000
Deposits and prepaid expense 53,000
------------
Total current assets 217,000
Property and equipment, net 368,000
Patents, net 367,000
------------
Total assets $ 952,000
============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 322,000
Accrued salaries and wages 134,000
Other accrued liabilities 388,000
------------
Total current liabilities 844,000
------------
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;
2,950,000 shares issued and outstanding 3,000
Additional paid-in capital 16,093,000
Accumulated deficit (15,988,000)
------------
Total stockholders' equity 108,000
------------
Total liabilities and stockholders' equity $ 952,000
============
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
Xenometrix, Inc.
Statement of Operations
December 31, 1999
(Unaudited)
Quarter Ended Six Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Products and services $ 50,000 $ 197,000 $ 117,000 $ 230,000
Licensing revenue 145,000 326,000 720,000 626,000
----------- ----------- ----------- -----------
Total revenue 195,000 523,000 837,000 856,000
Cost of revenue:
Cost of products and services 43,000 243,000 128,000 281,000
Cost of licensing revenue 81,000 63,000 213,000 131,000
----------- ----------- ----------- -----------
Total cost of revenue 124,000 306,000 341,000 412,000
----------- ----------- ----------- -----------
Gross profit 71,000 217,000 496,000 444,000
----------- ----------- ----------- -----------
Research and development 17,000 108,000 36,000 225,000
Selling, general and administrative 139,000 328,000 301,000 723,000
----------- ----------- ----------- -----------
Total operating expense 156,000 436,000 337,000 948,000
----------- ----------- ----------- -----------
Operating income (loss) (85,000) (219,000) 159,000 (504,000)
Interest income (expense), net (2,000) (67,000) (6,000) (198,000)
Gain on sale of assets 8,000 -- 8,000 --
----------- ----------- ----------- -----------
Net income (loss) $ (79,000) $ (286,000) $ 161,000 $ (702,000)
=========== =========== =========== ===========
Income (loss) per common share-
basic $ (0.03) $ (0.10) $ 0.05 $ (0.24)
=========== =========== =========== ===========
Income (loss) per common share-
diluted $ (0.03) $ (0.10) $ 0.05 $ (0.24)
=========== =========== =========== ===========
Weighted average shares outstanding-
basic 2,950,000 2,948,000 2,950,000 2,948,000
=========== =========== =========== ===========
Weighted average shares outstanding-
diluted 2,950,000 2,948,000 3,268,000 2,948,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
</TABLE>
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<TABLE>
<CAPTION>
Statement of Cash Flows
(Unaudited)
Quarter Ended
December 31
-----------------
1999 1998
---- ----
Cash Flows from Operating Activities:
<S> <C> <C>
Net income (loss) $ 161,000 $(702,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 161,000 184,000
Amortization of discount on senior promissory notes -- 105,000
Changes in assets and liabilities:
Accounts receivable 59,000 95,000
Inventory 16,000 35,000
Prepaid insurance 43,000 115,000
Deposits and prepaid expense (2,000) 23,000
Accounts payable and accrued liabilities (189,000) 66,000
--------- ---------
Net cash provided by (used in) operating activities 249,000 (79,000)
--------- ---------
Cash Flows from Investing Activities:
Patent acquisition cost (70,000) (179,000)
--------- ---------
Net cash used in investing activities (70,000) (179,000)
--------- ---------
Cash Flows from Financing Activities:
Repayment of senior promissory notes (242,000) --
--------- ---------
Net cash provided by financing activities (242,000) --
--------- ---------
Net increase (decrease) in cash (63,000) (258,000)
Cash and cash equivalents at beginning of period 137,000 341,000
--------- ---------
Cash and cash equivalents at end of period $ 74,000 $ 83,000
========= =========
The accompanying notes are an integral part of these financial statements.
5
</TABLE>
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XENOMETRIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING DECEMBER 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, 1999.
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, 1999.
2. Senior Promissory Notes
Between June 20, 1997 and January 12, 1998, the Company entered into a Senior
Line of Credit Agreement (the "Agreement") with the Aries Domestic Fund LP (the
"Fund") and the Aries Fund, a Cayman Islands Trust (the "Trust"). Dr. Lindsay
Rosenwald, a former director of the Company, is the Chairman of Paramount
Capital Asset Management, LLC, the investment advisor to the Fund and the
General Partner of the Trust. The Agreement provided for a line of credit for up
to $1,500,000 and Xenometrix issued senior promissory notes (the "Notes") in the
total amount of $1,500,000 to serve as bridge financing. The Company repaid the
Notes in full in this quarter, thereby removing any security interests against
the assets of the Company. In connection with the issuance of these Notes,
Xenometrix granted warrants to purchase 499,995 shares of common stock. The Note
holders agreed, that in the event that the Company or substantially all of its
assets is acquired by a third party at a price per share that is greater than
the exercise price of the warrants ($0.125), to surrender the warrants at the
closing of such a transaction in exchange for either cash or freely tradable
common stock of the third party in an aggregate amount equal to the difference
between the acquisition price per share and the exercise price per share of the
warrants, multiplied by the total number of warrants held by the Note holders.
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).
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. Subsequent Events.
Xenometrix shares ownership of some of the patents in the Company's intellectual
property estate with Harvard University ("Harvard"), and has an exclusive
worldwide license to Harvard's interests in the intellectual property. The
Company is in disagreement with Harvard on a section of the Company's license
agreement from Harvard and filed a Demand for Arbitration with American
Arbitration Association in December 1998. Arbitration proceedings were suspended
in April 1999 by mutual agreement between the Company and Harvard University in
favor of settling the differences directly. The parties continue to negotiate in
good faith and expect to come to an agreement by the end of the third quarter,
although either party has the right to resume binding arbitration at any time.
6
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Dr. Pauline Gee, the company's highest ranking officer was promoted to President
and Chief Executive Officer and appointed to the Board of Directors on January
19, 2000.
7
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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
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, 1999.
Overview
The Company continues to focus its efforts on exploring strategic alliances
and offering non-exclusive licensing of its intellectual property. In November
1997, the Company was granted a European patent claiming methods and kits for
generating gene profiles resulting from exposure of eukaryotic cells, (including
human, animal and yeast cells) to compounds. In September 1998, the Company was
issued a patent covering similar subject matter in the U.S. In January 1998, the
Company was granted a European patent claiming methods and kits for generating
gene profiles resulting from the exposure of prokaryotic cells to compounds. In
addition to the gene profiling patents, Xenometrix has an exclusive worldwide
license to the bacterial strains used in the family of Ames II* Assays from the
University of California, Berkeley and an exclusive license for yeast strains
used in Yeast DEL*. The U.S. patent for the Ames II bacterial strains was issued
October 1997 and its European equivalent was issued July 1998.
The Company sells its products and services to pharmaceutical, chemical and
biotechnology 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
strategic alliances, 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 December 31, 1999, the Company had cash of approximately $74,000. 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 the end of June, 2000. Xenometrix is currently in discussions with
several companies regarding strategic alliances, licensing of the Company's
intellectual property, and provides services and kits. The Company is hopeful
- --------
* Ames II(TM) and Yeast Del(TM) are trademarks of Xenometrix, Inc
8
<PAGE>
that additional revenue will be obtained from such agreements and sales of
products and services. The Company continues to sublease a portion of its
facilities to a third party, which enabled the Company to retain its modern,
state-of-the-art facility while reducing its monthly expenditures.
Results of Operations
Comparison of quarters ended December 31, 1999 and 1998
- -------------------------------------------------------
Revenue. For the quarter ended December 31, 1999, revenue decreased 63% to
approximately $195,000 from $523,000 reported in the comparable quarter of the
prior year. The decrease was attributable to decreases in both up-front
licensing fees and sales of products and services. Also, sales of products and
service revenue from the Company's Client Research Laboratory were decreased by
75% to $50,000 from $197,000, while licensing revenues decreased by 56% to
$145,000 from $326,000 reported in the prior year. These decreases were
primarily due to the focus of the Company's activities on exploring long term
strategic alliances.
Gross Profit. For the quarter ended December 31, 1999, gross profit
decreased by 67% to $71,000 from $217,000 reported in the prior year. The
decrease in gross profit was primarily due to a decrease in licensing activities
compared to the same quarter of the prior year. The cost of revenue of
approximately $124,000 represents, in part, the amortization of the costs
associated with the patents and legal expenses in prosecuting the patents and
royalties paid to the Universities of Harvard and California, Berkeley under the
Company's existing licensing agreements. Gross profit margins on revenue from
sales of products and services were approximately 14% an increase from -23% for
the quarter of the prior year.
Research and Development Expenses (R&D). R&D expenses for the quarter ended
December 31, 1999, decreased 84% to $17,000 from $108,000 reported in the same
quarter of the prior year. This decrease was primarily attributable to reduced
personnel and activity in the R&D department. Consequently, laboratory supplies
and most other expenses in the R&D department were also decreased in the current
quarter, as compared to the comparable quarter of the prior year.
Selling, General and Administrative Expenses (SG&A). For the quarter ended
December 31, 1999, SG&A expenses were $139,000, down 58% from $328,000 in the
prior year. This decrease was primarily attributable to lower executive,
administrative, finance, legal and business development costs resulting from
personnel reductions in February 1999.
Interest Expense, Net. During the quarter ended December 31, 1999, the
Company incurred net interest expense of $2,000 compared to $67,000 in the
comparable quarter of the prior fiscal year. The net interest expense decreased
approximately 97% from the comparable quarter in the prior year because the
Company did not incur interest charges from the senior promissory Notes that
were completely repaid on September 15, 1999.
9
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Net Income (Loss). For the quarter ended December 31, 1999, there was a net
loss of $79,000 or $0.03 per share compared to a loss of $286,000 or $0.10 per
share, reported for the comparable quarter of fiscal year 1998. The loss would
have been $0.03 per diluted share.
Liquidity and Capital Resources
At December 31, 1999, the Company had cash and cash equivalents of $74,000.
During the six month period ended December 31, 1999, $249,000 was provided by
the Company's activities and $70,000 was invested in patents. There were no cash
resources generated from financing activities, and $242,000 was used to repay
completely $1,500,000 in senior promissory Notes.
At February 11, 2000, the Company had cash and cash equivalents of $244,000
compared to $114,000 at the end of September 30, 1999. The Company is currently
in discussions with several companies regarding strategic alliances and
licensing of the Company's intellectual property and is hopeful that additional
revenue will be obtained from such agreements.
10
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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
----------------
11
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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/ Pauline Gee
---------------
February 14, 2000 Pauline Gee
President, Chief Executive Officer
12
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Summary Financial Information Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 74
<SECURITIES> 0
<RECEIVABLES> 26
<ALLOWANCES> 5
<INVENTORY> 30
<CURRENT-ASSETS> 217
<PP&E> 1,245
<DEPRECIATION> 877
<TOTAL-ASSETS> 952
<CURRENT-LIABILITIES> 844
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 105
<TOTAL-LIABILITY-AND-EQUITY> 952
<SALES> 50
<TOTAL-REVENUES> 195
<CGS> 43
<TOTAL-COSTS> 124
<OTHER-EXPENSES> 156
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (79)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (79)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
