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 September 30, 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 04-3166089
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(State or other jurisdiction (IRS employer identification number)
of incorporation or organization)
2425 North 55th Street
Boulder, CO 80301
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(Address of principal executive offices)
(303) 447-1773
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(Issuers telephone number)
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes X No
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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
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(Class) Outstanding at September 30, 2000
Traditional Small Business disclosure format: Yes No X
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XENOMETRIX, INC
FORM 10-QSB
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
INDEX
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
Balance Sheets - September 30, 2000.......................... Page 3
Statements of Operations - Quarters ended
September 30, 2000 and 1999................................ Page 4
Statements of Cash Flows - Quarters ended
September 30, 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 7
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K............................. Page 10
Signatures............................................................ Page 11
2
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Part One--Financial Information
Xenometrix, Inc.
Balance Sheets
September 30, 2000
(Unaudited)
Assets
Cash $ 241,000
Accounts receivable, net 21,000
Inventory 27,000
Prepaid insurance 46,000
Other current assets 25,000
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Total current assets 360,000
Property and equipment, net 244,000
Patents, net 368,000
Other assets 28,000
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Total assets $ 1,000,000
============
Liabilities and Stockholders' Equity
Accounts payable $ 306,000
Accrued salaries and wages 135,000
Other accrued liabilities 210,000
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Total current liabilities 651,000
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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 16,108,000
Accumulated deficit (15,762,000)
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Total stockholders' equity 349,000
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Total liabilities and stockholders' equity $ 1,000,000
============
The accompanying notes are an integral part of these financial statements.
3
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Xenometrix, Inc.
Statements of Operations
(Unaudited)
Quarter Ended
September 30,
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2000 1999
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Revenue:
Products and services $ 33,000 $ 67,000
Licensing revenue 33,000 575,000
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Total revenue 66,000 642,000
Cost of revenue:
Cost of products and services 80,000 85,000
Cost of licensing revenue 24,000 132,000
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Total cost of revenue 104,000 217,000
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Gross profit (38,000) 425,000
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Research and development 17,000 19,000
Selling, general and administrative 179,000 162,000
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Total operating expense 196,000 181,000
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Operating income (loss) (234,000) 244,000
Interest expense, net (1,000) (4,000)
Other income 86,000 --
Gain on sale of assets 9,000 --
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Net income (loss) $ (140,000) $ 240,000
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Income (loss) per common share-basic $ (0.04) $ 0.08
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Income (loss) per common share-diluted $ (0.04) $ 0.07
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Weighted average shares outstanding 3,355,000 2,950,000
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Weighted & dilutive potential average shares 3,355,000 3,238,000
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The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
Xenometrix, Inc.
Statements of Cash Flows
(Unaudited)
Quarter Ended
September 30
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2000 1999
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(140,000) $ 240,000
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 79,000 81,000
Changes in assets and liabilities:
Accounts receivable (6,000) 56,000
Inventory (1,000) 11,000
Prepaid insurance 27,000 28,000
Other current assets 9,000 11,000
Accounts payable and accrued liabilities (277,000) (194,000)
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Net cash provided (used) by operating activities (309,000) 233,000
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Cash Flows from Investing Activities:
Patent acquisition cost (3,000) (14,000)
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Net cash (used) by investing activities (3,000) (14,000)
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Cash Flows from Financing Activities:
Repayment of senior promissory notes -- (242,000)
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Net cash (used) by financing activities -- (242,000)
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Net (decrease) in cash (312,000) (23,000)
Cash and cash equivalents at beginning of period 553,000 137,000
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Cash and cash equivalents at end of period $ 241,000 $ 114,000
========= =========
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 SEPTEMBER 30, 2000
(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, 2000.
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, 2000.
2. 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. Because the inclusion of these common
stock equivalents and convertible securities would be anti-dilutive for the
three months ended September 30, 2000, they are excluded from the Company's
calculation of diluted loss per share for that period.
3. Harvard Agreement
The Company continues to offer non-exclusive licenses of its intellectual
property and to explore opportunities for strategic alliances or other
transactions. 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 had been in disagreement with Harvard on a section of the
Company's license agreement from Harvard since December 1998. Generally accepted
accounting principles required that any contingent liability relating to the
disputed terms be accrued in an amount significantly in excess of the Company's
expectations of the ultimate actual liability. As a result, upon final
settlement of the dispute on September 5, 2000, the Company realized a reduction
in the accrued liability. This reduction is included in other income in the
accompanying Statement of Operations for the three months ended September 30,
2000.
6
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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, 2000.
Overview
Xenometrix, Inc. (the "Company" or "Xenometrix") is a biotechnology company
with a proprietary gene profiling system that characterizes a cell's response
when tested with compounds and other agents by the pattern of genes turned on
and off in the cell. 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. The Company shares ownership of some of these
patents with Harvard University and has an exclusive worldwide license to
Harvard's interests in the intellectual property. 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 from GeneBioMed, Inc. The U.S. patent for the Ames II bacterial strains was
issued October 1997 and its European equivalent was issued July 1998.
The Company continues to focus its efforts on exploring broad strategic
transactions and licensing of its intellectual property. 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. The
Company's ability to enter into contractual arrangements with its customers or
other potential collaborators and to enter into license agreements with
potential licensees cannot be predicted with a high degree of accuracy.
Similarly, the timing and outcome of transactions of the Company's focus on
forming broad strategic alliances cannot be predicted with certainty.
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.
The Company had been in disagreement with Harvard on a section of the
Company's license agreement from Harvard since December 1998. Generally accepted
accounting principles required that any contingent liability relating to the
disputed terms be accrued in an amount significantly in excess of the Company's
expectations of the ultimate actual liability. As a result, upon final
settlement of the dispute on September 5, 2000, the Company realized a reduction
in the accrued liability. This reduction is included in other income in the
accompanying Statement of Operations for the three months ended September 30,
2000.
7
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As of November 10, 2000 the Company had cash of approximately $460,000. The
Company estimates that its current resources together with projected collections
on accounts receivable from licensees and clients will be sufficient to meet its
operating needs through the end of June, 2001. Xenometrix is currently in
discussions for broad strategic and licensing transactions with several
companies, and is hopeful that additional revenue will be obtained from such
agreements.
Results of Operations
Comparison of quarters ended September 30, 2000 and 1999
--------------------------------------------------------
Revenue. For the quarter ended September 30, 2000, revenue decreased by 90%
to approximately $66,000 from $642,000 reported in the comparable quarter of the
prior year. This decrease was primarily due to the decline in up-front licensing
fees. Sales of products and service revenue from the Company's Client Research
Laboratory also decreased by 51% to $33,000 from $67,000 reported in the prior
year.
Gross Profit. For the quarter ended September 30, 2000, the Company
suffered a gross loss of $38,000 compared to a gross profit of $425,000 reported
in the prior year. This decrease in gross profit was primarily due to decrease
in licensing activities compared to the same quarter of the prior year. The cost
of revenue of approximately $104,000 consists primarily of fixed facilities
costs associated with production along with direct production costs and
royalties paid according to the Company's licensing agreements with the
Universities of Harvard and California, Berkeley and GeneBioMed. Gross profit
margins on revenue from sales of products and services decreased by
approximately 109%. This gross profit margin of negative 58% is due to low sales
and licensing volumes compared with fixed facilities costs.
Selling, General and Administrative Expenses (SG&A). For the quarter ended
September 30, 2000, SG&A expenses were $179,000, up 8% from $162,000 in the
prior year. This increase in cost was primarily attributable to legal expenses
associated with increased business development activities in exploring broad
strategic transactions.
Interest Expense, Net. During the quarter ended September 30, 2000, the
Company incurred net interest expense of $1,000 compared to $4,000 in the
comparable quarter of the prior fiscal year. The net interest expense decreased
approximately 75% from the comparable quarter in the prior year as the
promissory notes were fully repaid on September 15, 1999.
Other Income. During the quarter ended September 30, 2000, the Company
recorded $86,000 in other income compared to $-0- recorded in the prior year.
This amount includes the accounting adjustment relating to settlement of a
dispute with Harvard as discussed in the Overview above.
Net Income (Loss). For the quarter ended September 30, 2000, there was a
net loss of $140,000 or a loss of $0.04 per basic share compared to an income of
$240,000 or $0.08 per basic share or $0.07 per fully diluted share reported for
the comparable quarter of fiscal year 1999.
8
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Liquidity and Capital Resources
At September 30, 2000, the Company had cash and cash equivalents of
$241,000. During the three months ended September 30, 2000, operating activities
consumed $309,000 and $3,000 was invested in patents. In the quarter ended
September 30, 1999 operating activities generated $233,000 in cash. The net use
of cash by operating activities this year was primarily the result of the net
loss of $140,000 and the payment of accrued expenses and liabilities of $277,000
compared to prior year net income of $244,000 and payment of accrued expenses
and liabilities of $194,000. In addition, during the quarter ended September 30,
2000, there were no cash transactions in financing activities. This contrasts
with the corresponding quarter in 1999 when the Company repaid debt of $242,000.
As of November 10, 2000 the Company had cash of approximately $460,000
compared to $553,000 at the end of June 30, 1999. The Company estimates that its
current resources together with projected collections on accounts receivable
from licensees and clients will be sufficient to meet its operating needs
through the end of June, 2001. The Company is currently in discussions with
several companies regarding broad strategic transactions and licensing of the
Company's intellectual property, and is hopeful that additional revenue will be
obtained from such agreements.
9
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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
10
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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
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November 14, 2000 Pauline Gee, Ph.D.
President, Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
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27.1 Summary Financial Information Schedule
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