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, 2000
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 3,354,829 Common Shares
(Class) Outstanding at April 28, 2000
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
XENOMETRIX, INC
FORM 10-QSB
FOR THE PERIOD ENDED March 31, 2000
INDEX
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Balance Sheet - March 31, 2000............. ...................Page 3
Statement of Operations - Quarters ended
March 31, 2000 and 1999.......................................Page 4
Statement of Cash Flows - Quarters ended
March 31, 2000 and 1999.......................................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
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Signature...............................................................Page 12
2
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Part One--Financial Information
Xenometrix, Inc.
Balance Sheet
March 31, 2000
(Unaudited)
Assets
Current Assets:
Cash $ 204,000
Accounts receivable, net 38,000
Inventory 29,000
Prepaid insurance 22,000
Deposits and prepaid expense 92,000
------------
Total current assets 385,000
Property and equipment, net 326,000
Patents, net 338,000
------------
Total assets $ 1,049,000
------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 212,000
Accrued salaries and wages 138,000
Other accrued liabilities 344,000
------------
Total current liabilities 694,000
------------
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;
3,355,000 shares issued and outstanding
3,000
Additional paid-in capital 16,107,000
Accumulated deficit (15,755,000)
------------
Total stockholders' equity 355,000
------------
Total liabilities and stockholders' equity $ 1,049,000
============
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
Xenometrix, Inc.
Statement of Operations
(Unaudited)
Quarter Ended Nine Months Ended
March 31, March 31,
----------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Products and services $ 59,000 $ 93,000 $ 176,000 $ 323,000
Licensing revenue 511,000 1,926,000 1,231,000 2,552,000
----------- ----------- ----------- -----------
Total revenue 570,000 2,019,000 1,407,000 2,875,000
----------- ----------- ----------- -----------
Cost of revenue:
Cost of products and services 43,000 103,000 171,000 384,000
Cost of licensing revenue 137,000 237,000 350,000 368,000
Total cost of revenue 180,000 340,000 521,000 752,000
----------- ----------- ----------- -----------
Gross profit 390,000 1,679,000 886,000 2,123,000
----------- ----------- ----------- -----------
Research and development 18,000 54,000 54,000 279,000
Selling, general and administrative 139,000 187,000 440,000 910,000
----------- ----------- ----------- -----------
Total operating expense 157,000 241,000 494,000 1,189,000
----------- ----------- ----------- -----------
Operating income 233,000 1,438,000 392,000 934,000
Interest income (expense), net -- (35,000) (6,000) (233,000)
Gain on sale of assets -- -- 8,000 --
----------- ----------- ----------- -----------
Net income $ 233,000 $ 1,403,000 $ 394,000 $ 701,000
=========== =========== =========== ===========
Income per common share-basic $ 0.08 $ 0.48 $ 0.13 $ 0.24
=========== =========== =========== ===========
Income per common share-diluted $ 0.07 $ 0.48 $ 0.12 $ 0.24
=========== =========== =========== ===========
Weighted average shares outstanding-basic 3,054,000 2,948,000 2,985,000 2,948,000
=========== =========== =========== ===========
Weighted average shares outstanding-diluted 3,371,000 2,948,000 3,301,000 2,954,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
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Xenometrix, Inc.
Statement of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
----------------------------------
2000 1999
----------- -----------
Cash Flows from Operating Activities:
Net income $ 394,000 $ 701,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 239,000 271,000
Amortization of discount on senior promissory notes -- 105,000
Changes in assets and liabilities:
Accounts receivable 42,000 33,000
Inventory 17,000 42,000
Prepaid insurance 60,000 143,000
Deposits and prepaid expense (42,000) (36,000)
Accounts payable and accrued liabilities (339,000) (120,000)
----------- -----------
Net cash provided by operating activities 371,000 1,139,000
=========== ===========
Cash Flows from Investing Activities:
Patent acquisition cost (78,000) (179,000)
----------- -----------
Net cash used in investing activities (78,000) (179,000)
----------- -----------
Cash Flows from Financing Activities:
Repayment of senior promissory notes (242,000) (1,216,000)
Proceeds from exercise of stock options 12,000 --
Proceeds from exercise of warrants 4,000 --
----------- -----------
Net cash used in financing activities (226,000) (1,216,000)
----------- -----------
Net increase (decrease) in cash 67,000 (256,000)
Cash and cash equivalents at beginning of period 137,000 341,000
----------- -----------
Cash and cash equivalents at end of period $ 204,000 $ 85,000
=========== ===========
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 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, 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 last quarter. A statement of termination (UCC-3) has been filed,
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. Pursuant to the Warrant Agreement, the
Note holders surrendered these warrants for 366,777 shares of freely tradable
common stock, the aggregate amount equal to the difference between the closing
market price per share of $8.063 on March 9, 2000, and the exercise price per
share of $2.148, in a cashless transaction. This transaction brings Dr.
Rosenwald's beneficial ownership to 16.8% of the Company's shares.
3. Earnings 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
<PAGE>
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. Income Taxes.
The current provision for income taxes for nine months ended March 2000, and
1999, are as follows:
2000 1999
--------- ---------
Provision for Income Taxes $ 170,000 $ 270,000
Benefit of Net Operating Loss Carryforward (170,000) (270,000)
--------- ---------
Net Income Tax Provision $ 0 $ 0
========= =========
5. 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 although either party has the right to resume binding arbitration at
any time.
7
<PAGE>
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 March 31, 2000, the Company had cash of approximately $204,000. 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, and licensing of the Company's
intellectual property. The Company continues to provide contract research
services and kits. The Company is hopeful 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.
- ------------
+ Ames II (TM) and Yeast Del (TM0 are trademarks of Xenometrix, Inc.
8
<PAGE>
Results of Operations
Comparison of quarters ended March 31, 2000 and 1999
Revenue. For the quarter ended March 31, 2000, revenue decreased 72% to
approximately $570,000 from $2,019,000 reported in the comparable quarter of the
prior year. The decrease was attributable mainly to the lack of up-front
licensing fees. Also, sales of products and service revenue from the Company's
Client Research Laboratory were decreased by 37% to $59,000 from $93,000, while
licensing revenues decreased by 73% to $511,000 from $1,926,000 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 March 31, 2000, gross profit decreased
by 77% to $390,000 from $1,679,000 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
$180,000 represents, in part, 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 27%, a substantial increase from -11% for the
quarter of the prior year.
Research and Development Expenses (R&D). R&D expenses for the quarter ended
March 31, 2000, decreased 67% to $18,000 from $54,000 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
March 31, 2000, SG&A expenses were $139,000, down 26% from $187,000 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 March 31, 2000, the Company
incurred no net interest expense compared to $35,000 in the comparable quarter
of the prior fiscal year because the Company repaid the senior promissory Notes
completely on September 15, 1999.
Net Income. For the quarter ended March 31, 2000, there was a net income of
$233,000 or $0.08 per share compared to net income of $1,403,000 or $0.48 per
share, reported for the comparable quarter of fiscal year 1999. The earnings
were $0.07 per share on a fully-diluted basis.
9
<PAGE>
Liquidity and Capital Resources
At March 31, 2000, the Company had cash and cash equivalents of $204,000.
During the nine month period ended March 31, 2000, $371,000 was provided by the
Company's operating activities and $78,000 was invested in patents. There was
$16,000 cash resources generated from the exercise of employee and director
stock options and warrants, and $242,000 was used to repay the balance of the
$1,500,000 senior promissory Notes.
At May 5, 2000, the Company had cash and cash equivalents of $192,000. The
Company is currently in discussions with several companies regarding long term
strategic alliances and licensing of the Company's intellectual property and is
hopeful that additional revenue will be obtained from such agreements.
10
<PAGE>
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Summary Financial Information Schedule
----------------
11
<PAGE>
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 8, 2000 Pauline Gee
President, Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Summary Financial Information Schedule
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 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> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 204
<SECURITIES> 0
<RECEIVABLES> 43
<ALLOWANCES> 5
<INVENTORY> 29
<CURRENT-ASSETS> 385
<PP&E> 1,245
<DEPRECIATION> 919
<TOTAL-ASSETS> 1,049
<CURRENT-LIABILITIES> 694
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 352
<TOTAL-LIABILITY-AND-EQUITY> 1,049
<SALES> 59
<TOTAL-REVENUES> 570
<CGS> 43
<TOTAL-COSTS> 180
<OTHER-EXPENSES> 157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 233
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233
<EPS-BASIC> .08
<EPS-DILUTED> .07
</TABLE>
