<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarter Ended June 30, 1995
Commission file number 1-9613
------
Xytronyx, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3258753
------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
6555 Nancy Ridge Drive, Suite 200, San Diego, CA 92121
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(Address of principal executive offices) (Zip Code)
(619) 546-1114
----------------------------------------------------
(Registrant's Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 ___
---
As of August 10, 1995, there were 5,263,029 shares of the registrant's Common
Stock, $.02 par value outstanding.
<PAGE>
XYTRONYX, INC.
(A DEVELOPMENT STAGE COMPANY)
INCORPORATED SEPTEMBER 23, 1983
INDEX
Part I - Financial Information
------------------------------
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months Ended June 30, 1995 and 1994
and from Inception to June 30, 1995................. 1
Consolidated Balance Sheets -
June 30, 1995 and March 31, 1995.................... 2
Consolidated Statements of Cash Flow -
Three Months Ended June 30, 1995 and 1994
and from Inception to June 30, 1995................. 3
Consolidated Statements of Stockholders' Equity
Three Months Ended June 30, 1995 and 1994........... 4
Notes to Consolidated Financial Statements.......... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 7
Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K.................... 9
SIGNATURE..................................................... 9
</TABLE>
<PAGE>
XYTRONYX, INC. AND SUBSIDIARY (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30 September 23, 1983
---------------------------- (inception) to
1995 1994 June 30, 1995
-------------------------------------------------------------------------- ------------------
<S> <C> <C> <C>
REVENUES
Product sales $ - $ 599,729 $1,836,089
License fees and royalties - 220,000 330,000
Contract research 40,000 99,151 223,891
Option agreements - - 1,246,500
Interest and other 54,901 36,319 1,451,346
-------------------------------------------------------------------------- ------------------
Total revenues 94,901 955,199 5,087,826
-------------------------------------------------------------------------- ------------------
COSTS AND EXPENSES
Cost of product sales 31,017 299,253 2,809,222
Product development 257,670 655,463 10,802,635
General and administrative 415,855 441,131 13,768,116
Business development
and marketing 94,416 229,986 2,989,783
Interest and other 3,895 17,907 463,681
-------------------------------------------------------------------------- ------------------
Total costs and expenses 802,853 1,643,740 30,833,437
-------------------------------------------------------------------------- ------------------
Net loss ($707,952) ($688,541) ($25,745,611)
-------------------------------------------------------------------------- ------------------
Net loss per share
of common stock ($0.13) ($0.14)
--------------------------------------------------------------------------
Weighted average
shares outstanding 5,263,029 4,906,436
--------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
XYTRONYX, INC. AND SUBSIDIARY (A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1995
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $992,647 $827,752
Short-term investments - 992,326
Accounts receivable 46,586 9,073
Inventory 60,143 47,967
Prepaid expenses 435,580 99,306
---------------------------------------------------------------------------------------------------------------
Total current assets 1,534,956 1,976,424
Property and equipment, net of accumulated depreciation 105,003 120,154
Patent application costs, net of accumulated amortization 193,583 196,573
Other assets 11,786 11,786
---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,845,328 $2,304,937
---------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $73,722 $216,815
Accrued expenses 223,111 115,441
Customer advances - 30,888
Notes payable 325,426 -
Current portion of capitalized leases 35,317 33,631
---------------------------------------------------------------------------------------------------------------
Total current liabilities 657,576 396,775
Other liabilities 11,895 24,353
STOCKHOLDERS' EQUITY:
Preferred stock, $25.00 par value, 100,000 shares authorized - -
Common stock, $.02 par value, 15,000,000 shares authorized;
5,263,029 shares issued and outstanding at June 30 and
March 31, 1995. 105,261 105,261
Capital in excess of par value 26,816,207 26,816,207
Deficit accumulated during the development stage (25,745,611) (25,037,659)
---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,175,857 1,883,809
---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,845,328 $2,304,937
---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
XYTRONYX, INC. AND SUBSIDIARY (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30, September 23, 1983
---------------------------- (inception) to
1995 1994 June 30, 1995
----------------------------------------------------------------------------------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ($707,952) ($688,541) ($25,745,611)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 30,437 33,432 1,381,023
Non-cash compensation expense upon issuance
of common stock options and common stock - - 475,296
Net book value of disposals 2,249 - 144,995
Option income from retirement of stock
or amounts previously advanced by customer - - (400,000)
Changes in assets and liabilities:
Accounts receivable (37,513) (75,887) (46,587)
Inventory (12,176) 315 (60,146)
Prepaid expenses and other assets (336,274) (386,143) (446,543)
Accounts payable (143,093) (70,066) 73,721
Accrued expenses 107,670 (26,209) 79,088
Customer advances (30,888) (6,512) 140,863
Deferred rent (2,974) (2,974) 11,897
----------------------------------------------------------------------------------------- ------------------
Net cash used by operating activities (1,130,514) (1,222,585) (24,392,004)
INVESTING ACTIVITIES
Purchases of short-term investments - (480,505) (4,192,326)
Maturities of short-term investments 992,326 1,900,000 4,192,326
Capital expenditures (1,744) (6,033) (771,811)
Patent application costs (12,800) (37,204) (831,605)
Other - - (996)
----------------------------------------------------------------------------------------- ------------------
Net cash provided by (used in) investing activities 977,782 1,376,258 (1,604,412)
FINANCING ACTIVITIES
Issuance of notes payable 325,426 318,172 1,659,401
Repayment of notes payable - (1,115,231)
Repayment of capitalized lease obligations (7,799) (6,411) (145,694)
Long-term customer advances - (500,000) 100,000
Issuance of common and preferred stock - 380,000 26,428,087
Issuance of stock warrants - - 62,500
----------------------------------------------------------------------------------------- ------------------
Net cash provided by financing activities 317,627 191,761 26,989,063
----------------------------------------------------------------------------------------- ------------------
Net increase (decrease) in cash
and cash equivalents 164,895 345,434 992,647
Cash and cash equivalents at beginning of period 827,752 1,304,010 -
----------------------------------------------------------------------------------------- ------------------
Cash and cash equivalents at end of period $992,647 $1,649,444 $992,647
========================================================================================= ==================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
XYTRONYX, INC. AND SUBSIDIARY (A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Capital During the
-------------------------- in Excess Development
Shares Par Value of Par Value Stage
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at March 31, 1994 4,813,029 $96,261 $25,128,204 ($21,282,691)
Private placement of common stock
April 1994 100,000 2,000 378,000
Net loss (688,541)
-------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 4,913,029 $98,261 $25,506,204 ($21,971,232)
=======================================================================================================
Balance at March 31, 1995 5,263,029 $105,261 $26,816,207 ($25,037,659)
Net loss (707,952)
-------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 5,263,029 $105,261 $26,816,207 ($25,745,611)
=======================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
XYTRONYX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
1. PRINCIPLES OF INTERIM PERIOD REPORTING
The consolidated financial statements include the accounts of Xytronyx, Inc. and
its wholly owned subsidiary, Perio Test, Inc. (collectively the "Company").
All significant intercompany balances and transactions have been eliminated.
The Company has not earned significant revenues from planned principal
operations. Accordingly, the Company's activities have been accounted for as
those of a "Development Stage Enterprise" as set forth in Financial Accounting
Standards Board Statement No. 7. The accompanying financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to comply with the terms and covenants of its
financing agreements and business contracts, to obtain additional financing or
refinancing as may be required, and ultimately to attain successful operations.
Management anticipates that its current resources will allow planned operations
to continue through October 1995, and possibly beyond that date. Unanticipated
expenses, however, could shorten that period. Accordingly, the Company will
most probably require additional financing from time-to-time until it begins to
generate positive cash flow from operations. There can be no assurance that the
Company will be successful in obtaining financing, or that it will attain
positive cash flow from operations.
In the opinion of the Company, the unaudited consolidated financial statements
contain all of the adjustments, consisting only of normal recurring adjustments
and accruals, necessary to present fairly the financial position of the Company
as of June 30, 1995 and March 31, 1995, and the results of operations for the
three months ended June 30, 1995 and 1994 and from inception to June 30, 1995.
The results of operations for the three months ended June 30, 1995 are not
necessarily indicative of the results to be expected in subsequent periods or
for the year as a whole.
2. TERMINATION OF AGREEMENT WITH COLGATE-PALMOLIVE COMPANY
On November 23, 1987 the Company and Colgate-Palmolive Company entered into a
Manufacture, Sales and Distribution Agreement under which Colgate acquired the
world-wide distribution rights to the Periodontal Tissue Monitor kit (the
"PTM"). This agreement delineated ordering, manufacturing, quality control,
shipping and payment responsibilities among the parties, described the formula
for pricing and set the sales and marketing responsibilities among the parties.
On May 11, 1995, Colgate and the Company entered into an agreement to terminate
the Manufacture, Sales and Distribution Agreement dated November 23, 1987.
Under the termination agreement, all marketing rights held by Colgate are
returned to the Company. No financial consideration was exchanged under the
termination agreement.
5
<PAGE>
3. SEPARATION AGREEMENT
Effective April 14, 1995, the Company terminated the employment of the President
and Chief Operating Officer of the Company. Under an employment agreement dated
August 18, 1994 the Company is required to continue paying 75% of the former
employee's salary and all benefits until new employment is attained for a period
of up to one year. At June 30, 1995 the Company has accrued approximately
$88,000, the remaining maximum potential expense to the Company under this
agreement.
6
<PAGE>
XYTRONYX, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INCORPORATED SEPTEMBER 23, 1983
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues aggregated $95,000 for the quarter ended June 30, 1995, a
$860,000, or 90%, decrease from revenues of $955,000 recorded during the same
period of the prior year. The majority of the prior year earnings related to
revenues from a March 1994 agreement with Coors Brewing Company for use of
Xytronyx's Kephra reversible color change technology in a summer 1994 promotion.
No such revenues were earned in the current year. Cost of product sales
decreased $268,000, or 90%, from the prior year. This decrease is consistent
with the decrease in revenues noted above.
Product development costs totaled $257,000 for the quarter, a decrease of
$398,000, or 61%, from the same period of the prior year. The majority of the
current year decrease relates to $311,000 in costs incurred in the first quarter
of the prior year associated with initiation of the U.S. clinical trials of the
Periodontal Tissue Monitor kit.
Business development costs for the current quarter totaled $94,000, a decrease
of $136,000, or 59%, from the same quarter of the prior year. Prior year
amounts include costs incurred related to the agreement with Coors Brewing
Company as discussed above and the sale of certain assets relating to its Sun
Alert(TM) product line. No such costs were incurred in the current quarter.
Net loss for the quarter ended June 30, 1995 totaled $708,000, a 3% increase
over the prior year's first quarter loss of $689,000. This increase resulted
from the decrease in revenues associated with the Coors agreement, partially
offset by the decrease in cost of product sales, product development costs, and
business development costs. Net loss per share of common stock for the quarter
ended June 30, 1995 was $.13, a 7% decrease from the prior year's first quarter
loss of $.14 per share. The decrease was a result of the increase in net loss
for the current quarter offset by an increase in the weighted average number of
shares outstanding.
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents and short-term investments at June 30, 1995 totaled
$993,000, a $827,000 or 45% decrease from the March 31, 1995 balance. Working
capital at June 30, 1995 decreased by 44% from March 31, 1995 to $877,000.
These decreases were primarily due to the $708,000 net loss for the three month
period ending June 30, 1995 and other less significant changes in certain
balance sheet accounts since March 31, 1995. Prepaid expenses increased by
$336,000 as a result of the prepayment of annual insurance premiums. Notes
payable increased by approximately $325,000 as a result of financing the above
mentioned insurance premiums. Stockholders equity decreased by $708,000 as a
result of the net loss for the quarter.
7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Since inception, the Company has experienced negative cash flow from operations,
and the Company considers it prudent to anticipate that negative cash flow from
operations will continue for the foreseeable future, and that outside sources of
funding will continue to be required. The Company's financial resources are
anticipated to be adequate through October 1995, based on a continuation of the
pattern of revenues and expenses which have prevailed during Fiscal 1996.
Unanticipated expenses or working capital requirements could, however, shorten
that period.
A Premarket Approval application ("PMA") for marketing approval of the PTM kit
was submitted to the FDA in August 1989, and in May 1990, an FDA Panel
unanimously recommended approval of the PTM with conditions as to the text of
the labeling. Since then, the Company has received 4 letters from the FDA
requesting further information and data from the Company. The FDA's most recent
letter, received by the Company in May 1993, indicated that additional clinical
trials and other data will be required before the PMA application can be
considered for approval. Xytronyx agreed to complete a 12-month clinical study
to be conducted in parallel at three separate universities. In November 1993
the FDA approved the protocol to be used in the study, and the study is now
underway.
On May 11, 1995, the Company terminated an agreement with Colgate-Palmolive
Company under which Colgate had the exclusive right to distribute the PTM
product in most areas of the world with the exception of China, Japan, and
certain other Asian markets. The Company is now in the process of identifying
other potential marketing partners for the PTM product and is holding
discussions with such companies. In the event the Company begins selling
material quantities of the PTM, the Company may need additional working capital,
and additional personnel and space, both of which may cause an increase in the
net utilization of cash. However, there can be no assurance that FDA PMA
approval or any other required regulatory approvals will be forthcoming, that
the Company will complete any new marketing agreements, or that any of its
existing or future marketing partners will order the PTM products in increased
quantities.
The Company continues to be engaged in efforts to obtain additional financing
and to seek strategic partners to aid in the development and marketing of its
products. The continued existence of the Company is dependent upon receiving
additional financing from time-to-time until it begins to generate positive cash
flow from operations. If and as orders for the Company's products are placed in
increasing quantities, the Company expects to seek equity and/or debt financing
as a function of availability and cost. No assurance can be given that the
Company will be successful in obtaining additional equity and/or debt financing
or locating new strategic partners, or that it will be able to generate positive
cash flow from operations.
8
<PAGE>
PART II-OTHER INFORMATION
-------------------------
Item 6. Exhibits and Reports on Form 8-K
Date of Report Item Reported Financial Statements Filed
--------------- --------------- --------------------------
July 7, 1995 Item 5 - Other Events No
(news release announcing
Xytronyx, Inc. enters into
standstill agreement regarding
the Company's Periodontal
Tissue Monitor.)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Xytronyx, Inc.
Date: August 10, 1994 /s/ Dale A. Sander
--------------------
Dale A. Sander
Chief Financial Officer
(Principal Accounting Officer and Officer
duly authorized to sign this report on
behalf of the registrant)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1995 INTERIM FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 992,647
<SECURITIES> 0
<RECEIVABLES> 46,586
<ALLOWANCES> 0
<INVENTORY> 60,143
<CURRENT-ASSETS> 1,534,956
<PP&E> 752,171
<DEPRECIATION> 647,168
<TOTAL-ASSETS> 1,845,328
<CURRENT-LIABILITIES> 657,576
<BONDS> 11,895
<COMMON> 105,261
0
0
<OTHER-SE> 1,070,596
<TOTAL-LIABILITY-AND-EQUITY> 1,845,328
<SALES> 0
<TOTAL-REVENUES> 94,901
<CGS> 31,017
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 257,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,008
<INCOME-PRETAX> (707,952)
<INCOME-TAX> 0
<INCOME-CONTINUING> (707,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (707,952)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
