<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 SEPTEMBER 30, 1996
COMISSION 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
-------------------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
(619) 550-3900
-------------------------
(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 November 13, 1996, there were 8,132,279 shares of the registrant's
Common Stock, $.02 par value outstanding.
<PAGE>
XYTRONYX, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
INCORPORATED SEPTEMBER 23, 1983
INDEX
Cautionary Statement Under the Private Securities
Litigation Reform Act of 1995 . . . . . . . . . . . . . . . . . . . . . . . . 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months and Six Months Ended
September 30, 1996 and 1995 and from
September 23, 1983 (Inception) to
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets -
September 30, 1996 and March 31, 1996 . . . . . . . . . . . . 3
Consolidated Statements of Stockholders' Equity (Deficit) -
Six Months Ended September 30, 1996 and 1995 . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Six Months Ended September 30, 1996 and 1995
and from September 23, 1983 (Inception) to
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 12
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Statements in this Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in the "Notes to Consolidated Financial Statements", as well
as oral statements that may be made by the Company or by officers, directors
or employees of the Company acting on the Company's behalf, that are not
historical fact constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, including, but not limited to,
the risk that the Company may not be able to obtain additional financing; the
risk that the Company may not be able to maintain its listing on the American
Stock Exchange; and the risk that the Company may not be able to continue the
necessary development of its operations on a profitable basis. In addition,
the Company's business, operations and financial condition are subject to
reports and statements filed from time to time with the Securities and
Exchange Commission, including the Company's annual report on Form 10-K, for
the fiscal year ended March 31, 1996 and this Report
1
<PAGE>
XYTRONYX, INC. AND SUBSIDIARIES (A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30 September 23, 1983
-------------------------- ---------------------- (inception) to
1996 1995 1996 1995 September 30, 1996
- ---------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Product sales $ 7,672 $ 11,030 $ 12,697 $ 11,030 $1,862,443
License fees and royalties - - - - 480,000
Contract research 17,700 5,000 21,672 45,000 250,563
Marketing rights - 30,000 - 30,000 1,306,500
Interest and other 5,726 4,170 21,561 54,878 1,532,358
- ---------------------------------------------------------------- -------------------------- -----------------
Total revenues 31,098 50,200 55,930 140,908 5,431,864
- ---------------------------------------------------------------- -------------------------- -----------------
COSTS AND EXPENSES
Cost of product sales 11,398 29,397 21,168 60,414 2,923,903
Product development 567,933 444,053 1,289,421 701,723 13,688,285
General and administrative 261,561 276,156 554,050 692,011 15,164,033
Business development
and marketing 71,791 166,889 129,883 261,305 3,397,566
Interest and other 14,383 11,433 16,771 11,135 507,002
- ---------------------------------------------------------------- -------------------------- -----------------
Total costs and expenses 927,066 927,928 2,011,293 1,726,588 35,680,789
- ---------------------------------------------------------------- -------------------------- -----------------
Net loss ($895,968) ($877,728) ($1,955,363) ($1,585,680) ($30,248,925)
- ---------------------------------------------------------------- -------------------------- -----------------
Net loss per share
of common stock ($0.11) ($0.17) ($0.24) ($0.30)
- ---------------------------------------------------------------- --------------------------
Weighted average
shares outstanding 8,108,027 5,263,029 8,095,769 5,263,029
- ---------------------------------------------------------------- --------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
XYTRONYX, INC. AND SUBSIDIARIES (A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $194,182 $409,651
Short-term investments - 1,288,106
Accounts receivable, net of allowance 2,695 2,668
Inventory 35,320 40,907
Prepaid expenses 241,853 95,945
- ---------------------------------------------------------------------------------------------
Total current assets 474,050 1,837,277
Property and equipment, net of accumulated depreciation 115,221 135,234
Patent costs, net of accumulated amortization 166,282 190,159
Other assets 11,798 11,798
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $767,351 $2,174,468
- ---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $580,674 $214,310
Accrued expenses 336,565 378,927
Note payable 147,876 -
Current portion of capitalized leases 4,527 12,512
- ---------------------------------------------------------------------------------------------
Total current liabilities 1,069,642 605,749
Other liabilities 15,398 20,670
Stockholders' Equity (Deficit):
Preferred stock, $25 par value, 300,000 shares authorized - -
Common stock, $.02 par value, 30,000,000 shares authorized;
8,119,779 and 8,051,029 shares issued and outstanding at
September 30 and March 31, 1996, respectively 162,396 161,021
Capital in excess of par value 29,768,840 29,680,590
Deficit accumulated during the development stage (30,248,925) (28,293,562)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (317,689) 1,548,049
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $767,351 $2,174,468
- ---------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
XYTRONYX, INC. AND SUBSIDIARIES (A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (unaudited)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------ Capital During the
in Excess Development
Shares Par Value of Par Value Stage Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 5,263,029 $105,261 $26,816,207 ($25,037,659) $1,883,809
Net loss (1,585,680) (1,585,880)
- -------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 5,263,029 $105,261 $26,816,207 ($26,623,339) $298,129
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 8,051,029 $161,021 $29,680,590 ($28,293,562) $1,548,049
Exercise of warrants 68,750 1,376 63,250 64,625
Issuance of warrant 25,000 25,000
Net loss (1,955,363) (1,955,363)
- ------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 8,119,779 $162,396 $29,768,840 ($30,248,925) ($317,689)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
XYTRONYX, INC. AND SUBSIDIARIES (A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30, September 23, 1983
-------------------------- (inception) to
1996 1995 September 30, 1996
- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ($1,955,363) ($1,585,680) ($30,248,925)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 55,620 60,998 1,529,633
Non-cash expense upon issuance of common stock
options, common stock and warrants 25,000 - 500,296
Net book value of disposals - 5,507 148,252
Option income from retirement of stock
or amounts previously advanced by customer - - (400,000)
Changes in assets and liabilities:
Accounts receivable (27) 4,411 (2,696)
Inventory 5,587 621 (35,323)
Prepaid expenses and other assets (145,908) (262,079) (252,828)
Accounts payable 366,364 27,948 580,673
Accrued expenses (42,362) 116,489 192,542
Customer advances - (30,888) 140,863
Other liabilities (2,976) (5,948) -
- ------------------------------------------------------------------------------ ---------------------
Net cash used by operating activities (1,694,065) (1,668,621) (27,847,513)
INVESTING ACTIVITIES
Purchases of short-term investments - - (5,480,432)
Maturities of short-term investments 1,288,106 992,326 5,480,432
Capital expenditures (3,865) (35,062) (825,528)
Patent costs (7,865) (20,104) (888,493)
Other - - (996)
- ------------------------------------------------------------------------------ ---------------------
Net cash provided (used) by investing activities 1,276,376 937,160 (1,715,017)
FINANCING ACTIVITIES
Issuance of notes payable 218,966 349,606 1,878,367
Repayment of notes payable (71,090) (106,481) (1,511,747)
Repayment of capitalized lease obligations (10,281) (19,926) (185,263)
Long-term customer advances - - 100,000
Issuance of common and preferred stock 64,625 - 29,412,855
Issuance of stock warrants - - 62,500
- ------------------------------------------------------------------------------ ---------------------
Net cash provided by financing activities 202,220 223,199 29,756,712
- ------------------------------------------------------------------------------ ---------------------
Net increase (decrease) in cash
and cash equivalents (215,469) (508,262) 194,182
Cash and cash equivalents at beginning of period 409,651 827,752 -
- ------------------------------------------------------------------------------ ---------------------
Cash and cash equivalents at end of period $194,182 $319,490 $194,182
- ------------------------------------------------------------------------------ ---------------------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
XYTRONYX, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
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 subsidiaries, Perio Test, Inc. and XYX Acquisition Corp.
(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 ("FAS 7"). Among the disclosures
required by FAS 7 are that the Company's financial statements be identified
as those of a development stage enterprise, and that certain consolidated
financial statements disclose activity since the date of the Company's
inception.
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 without significant revenues its currently available
resources will allow planned operations to continue through December 1996,
and possibly beyond that date. Unanticipated expenses, however, could shorten
that period. Accordingly, the Company will 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual
results may differ from those estimates.
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 September 30, 1996 and March 31, 1996, and the
results of operations for the three months and six months ended September 30,
1996 and 1995 and from September 23, 1983 (inception) to September 30, 1996.
The results of operations for the three months and six months ended September
30, 1996 are not necessarily indicative of the results to be expected in
subsequent periods or for the year as a whole. For further information,
refer to the consolidated financial statements and footnotes thereto as set
forth in the Company's annual report on Form 10-K for the year ended March
31, 1996.
6
<PAGE>
2. OPTION TO ACQUIRE BINARY THERAPEUTICS, INC.
On June 4, 1996 the Company entered into an agreement with Binary
Therapeutics, Inc. ("BTI") under which the Company was granted an option to
acquire BTI, a development stage company with certain technologies in the
area of Photodynamic Therapy ("PDT") for cancer. The agreement gives the
Company the right to acquire BTI at anytime prior to April 30, 1997 by a
merger of BTI into a wholly owned subsidiary of the Company. If the Company
elects to exercise its option, the agreement calls for the Company to issue
common stock to the BTI stockholders with an aggregate acquisition value of
$6,000,000. The number of shares of the Company's common stock to be issued
will be determined based upon the market value of the Company's common stock
prior to the date of exercise, although the value of the common stock cannot
be less than $2.00 or more than $6.00 per share.
Under the agreement, the Company will assist BTI during the option period in
preparing one or more PDT products for advancement into human clinical
trials. In order to exercise its rights to consummate the merger the Company
will have to satisfy certain conditions, including funding up to $1,250,000
in expenses budgeted to be incurred by BTI during the option period. These
expenses represent the majority of BTI's budgeted expenditures for the period
and are expected to be comprised primarily of product development costs. The
Company is also required to advance to BTI funds to repay $285,000 in
indebtedness in the event that the Company completes an equity financing with
net proceeds of $2,500,000 or more, and to advance to BTI funds to repay an
additional $243,000 in indebtedness in the event the Company completes an
equity financing with net proceeds of $5,000,000 or more. Certain holders of
such indebtedness are shareholders of the Company. In exchange for such
funding BTI will issue convertible notes to the Company which may be
converted into BTI equity at the Company's option. The Company has elected
to record all advances to BTI as product development expense in the period
incurred due to uncertainties regarding the ultimate value to be realized
from the convertible notes. During the quarter ended September 30, 1996 and
for the six month period then ended, the Company advanced $228,000 and
$429,000 respectively, to BTI and such advances are included in product
development expense. In the event that the Company terminates the agreement,
the Company would remain obligated to continue funding of such product
development expenses incurred during the period ending 90 days from such
termination.
The agreement has been approved by a majority of the stockholders of BTI.
The Company's Common Stock is listed for quotation on AMEX, which requires
shareholder approval of the issuance of additional shares of Common Stock or
securities convertible into Common Stock if the issuance of such securities
(i) is in connection with the acquisition of a company and the shares of
Common Stock or securities convertible into Common Stock could result in an
increase in the number of outstanding shares of Common Stock of 20% or more,
(ii) is in connection with the acquisition of a company where a director,
officer or substantial shareholder of the Company has a 5% or greater
interest in such company and the issuance of the securities could result in
an increase in outstanding Common Stock of 5% or more. Even if the Company
is not required to obtain such approval, the Company may elect to obtain the
approval of its stockholders prior to effecting the merger with BTI.
7
<PAGE>
3. LICENSE AGREEMENT WITH WOUND HEALING OF OKLAHOMA
On May 8, 1996 the Company entered into an agreement with Wound Healing of
Oklahoma ("WHO"), a privately held corporation, under which the Company
acquired an exclusive world-wide license to a certain technology,
Photodynamic Immunotherapy-TM- ("PDIT-TM-") treatment for cancer. Under the
agreement the Company granted WHO a ten-year warrant to purchase 100,000
shares of the Company's common stock at an exercise price of $2.25 per share
and must pay a minimum royalty of $50,000 per year. Based upon the
negotiated terms of the agreement, the warrants were valued at $50,000.
During the six months ended September 30, 1996 the Company recorded $50,000
in product development expense related to the agreement which included a
$25,000 royalty payment and $25,000 related to the issuance of the warrant.
4. NOTE PAYABLE
The note payable is an insurance premium finance agreement with principal and
interest, at an annual rate of 10.50%, payable in monthly installments of
$25,406, due in full on March 15, 1997.
5. LINE OF CREDIT
On September 30, 1996 the Company entered into a line of credit agreement
with two shareholders under which the Company may borrow up to $500,000. The
agreement calls for interest at the rate of 12% per annum. Principal and
accrued interest are due and payable upon the earlier of (a) the initial
closing of a financing arrangement, or; (b) December 31, 1996. On October 7,
1996, the Company drew down $200,000 on the available line.
In connection with the line of credit agreement discussed above, the Company
granted the two shareholders five-year warrants to purchase 150,000 shares of
the Company's common stock at an exercise price to be determined in
connection with the closing of the private placement discussed in Note 6.
6. SUBSEQUENT EVENT-STOCKHOLDERS' EQUITY
In October 1996, the Company initiated a private placement pursuant to
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"), of the Company's equity securities to certain Accredited Investors as
defined by the Securities Act. In connection with the private placement, the
Company has engaged a placement agent, to whom it will pay customary fees and
expenses in connection with the placement. The fully subscribed placement,
including the over-allotment, could result in aggregate net proceeds of up to
approximately $5,175,000 to the Company, after total expenses of
approximately $825,000. The securities to be offered will not have been
registered under the Securities Act at the time of the private placement and
may not be offered or sold in the United States without registration or an
applicable exemption from registration requirements. In accordance with the
terms of the placement, the Company has agreed to file a registration
statement with respect to the resale of certain of the securities to be
offered.
8
<PAGE>
XYTRONYX, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
INCORPORATED SEPTEMBER 23, 1983
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues aggregated $31,000 for the quarter ended September 30, 1996, a
$19,000, or 38%, decrease from revenues of $50,000 recorded during the same
period of the prior year. Current quarter revenues relate to product sales
and contract research for the use of the Company's Kephra-TM- reversible
color change technology in various applications. Cost of product sales
decreased $18,000, or 61%, from the prior year. This decrease is consistent
with the decrease in product sales.
Total revenues for the six month period ending September 30, 1996, totaled
$56,000, a decrease of $85,000, or 60%, from the same period of the prior
year. Prior year revenues for this six month period included approximately
$30,000 in income related to the termination of a marketing agreement. No
such revenues were earned in the current quarter. Cost of product sales for
the six month period ending September 30, 1996 decreased $39,000, or 65%, for
the prior year, consistent with the decrease in product sales.
Product development costs totaled $568,000 for the quarter, an increase of
$124,000 or 30% over the prior year costs of $444,000. The majority of the
increase resulted from the initiation of work on two projects in the cancer
therapy area, including: (i) $228,000 in funding of product development
expenses in accordance with the Agreement and Plan of Merger with Binary
Therapeutics, Inc. ("BTI"), the holder of certain technologies in the area of
Photodynamic Therapy ("PDT") for the treatment of cancer, and (ii) $94,000 in
expenses related to the acquisition of the Photodynamic
Immunotherapy-TM-("PDIT-TM-") technology for the treatment of cancer,
expenses incurred in association with a related research agreement and
expenses incurred related to in-house product development of the PDIT-TM-
technology. No such costs were incurred in the prior year.
For the six months ended September 30, 1996, product development costs
increased $588,000, or 84%, over the same period of the prior year to
$1,289,000. The initiation of work on the two projects discussed above
generated expenses of $774,000 for the six month period. No such costs were
incurred in the same period of the prior year. This increase was offset by a
$175,000 reduction in expenditures for the six month period related to the
completion of the U.S. FDA clinical trials for the Periodontal Tissue Monitor
("PTM").
Business development costs for the current quarter totaled $72,000, a decrease
of $95,000, or 57%, from the same quarter of the prior year. General and
administrative expenses for the three month period ended September 30, 1996
decreased 5% to $262,000 from the same period of the prior year. The decreases
are a result of managment concentrating its efforts in the product development
area related to PDT and PDIT discussed above which resulted in a greater
proportion of expenses charged to product development.
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Business development costs for the six month period ended September 30, 1996
decreased $131,000, or 50%, from the same period of the prior year to
130,000. General and administrative expenses for the six month period ended
September 30, 1996 decreased $138,000, or 20%, from the same period of the
prior year to $554,000. As discussed above, this decrease is due to
managment concentrating its efforts in the product development area related
to the two new technologies, resulting in a greater proportion of expenses
charged to product development.
Net loss for the quarter ended September 30, 1996 totaled $896,000, a 2%
increase over the prior year's second quarter loss of $878,000. This
increase is a result of the increase in product development efforts discussed
above offset by reductions in cost of product sales, business development and
general and administrative expenses. Net loss per share of common stock for
the quarter ended September 30, 1996 was $.11, a 35% decrease from the prior
year's second quarter loss of $.17 per share due to a 2,845,000 increase in
the weighted average number of shares outstanding.
Net loss for the six months ended September 30, 1996 totaled $1,955,000, an
increase of $370,000, or 23%, over the same period of the prior year. This
increase is a result of the increase in product development efforts offset by
a reduction in certain expenditures. Net loss per share of common stock for
the six months ended September 30, 1996 was $.24, a 20% decrease from the
loss of $.30 per share for the same period of the prior year. The decrease
is a result of a 2,833,000 increase in the weighted average number of shares
outstanding for the six month period.
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents and short-term investments at September 30, 1996
totaled $194,000, a $1,504,000, or 89%, decrease from the March 31, 1996
balance. Working capital at September 30, 1996 decreased by 148% from March
31, 1996 to a negative balance of $596,000. These decreases were primarily
due to the net loss for the six month period ending September 30, 1996 and
other less significant changes in certain balance sheet accounts since March
31, 1996. Prepaid expenses increased by $146,000 as a result of the
prepayment of annual insurance premiums. Notes payable increased by
approximately $148,000 as a result of financing these insurance premiums.
Accounts payable and accrued expenses increased a net $324,000 for the
six-month period. Stockholders equity decreased by $1,866,000 primarily as a
result of the net loss for the period.
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. On September 30,
1996 the Company entered into a line of credit agreement with two
shareholders under which the Company may borrow up to $500,000 and in
October, it commenced the private placement described in Note 6 of the Notes
to Consolidated Financial Statements. The Company expects this credit
agreement will meet cash requirements until the initial closing of the
private placement. Without significant future revenues, but including the
borrowing under the line of credit, the Company's financial resources are
anticipated to be adequate through December 1996, based on a continuation of
the pattern of expenses which have prevailed during Fiscal 1997.
Unanticipated expenses or working capital requirements could, however,
shorten that period.
10
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
In March 1996 the Company completed a 12-month U.S. clinical trial of PTM at
three universities. The Company has compiled and analyzed the data generated
from the clinical studies. In September 1996 the Company submitted a
Premarket Approval application ("PMA") to the Food and Drug Administration
("FDA") and is currently awaiting a response from the FDA. The completion of
the clinical studies have resulted in the reduction or elimination of certain
product development expenses.
In May 1996 the Company entered into an agreement with Hawe-Neos Dental to
distribute the PTM in Europe. In September 1996, the Company received the
initial purchase order for $75,000 associated with the European launch of the
PTM from Hawe Neos. The order is expected to be delivered in the third
quarter of Fiscal 1997. In January 1995 the Company entered into an
agreement with Shofu Dental Company for distribution of the PTM in Japan.
Shofu is currently conducting Japanese clinical trials of the PTM. The
Company is in the process of identifying marketing partners for the PTM for
the U.S. and other markets. 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.
In May 1996 the Company entered into an agreement with Wound Healing of
Oklahoma ("WHO"), a privately held corporation, under which it acquired an
exclusive license to certain proprietary technology in the PDIT treatment of
cancer. The Company expects to fund certain product development efforts
associated with the commercialization of the licensed technology, including
the commencement of human clinical trials, which will increase the Company's
net utilization of cash. However, there can be no assurance that FDA and
other regulatory approval required to commence such trials will be
forthcoming.
In June 1996 the Company entered into an agreement which granted the Company
the option to acquire Binary Therapeutics, Inc. ("BTI"). BTI is a privately
held, development stage enterprise holding certain technologies for the PDT
treatment of cancer. Under the agreement the Company expects to fund certain
product development expenses incurred by BTI, which will increase the
Company's net utilization of cash.
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.
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PART II-OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders on August 9, 1996, the following
matters were voted on and approved:
1. Eight Directors were elected to the Board of Directors to hold office for a
one-year term or until their successors are elected and qualified. The
following persons were elected: Mr. Larry O. Bymaster, Mr. H. Lawrence
Garrett, III, Mr. Jack H. Halperin, Mr. William L. Jorgenson, Mr. John M.
Kolbas, Mr. Elliott H. Vernon, Mr. Morris S. Weeden and Mr. Michael S.
Weiss. 5,746,750 shares of Common Stock, or 96.7% of the shares voting,
voted in favor of all the nominees for Director listed in the Proxy
Statement. There were no votes against any Director and 198,945, or 3.3%
of the shares voting, abstained.
2. The Boards selection of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ended March 31, 1997 was
ratified. 5,787,740 shares of Common Stock, or 97.3% of the shares voting,
voted in favor of the proposal. 82,738 shares, or 1.4% of the voting
shares, voted against the proposal, and 75,217 shares, or 1.3% of the
voting shares, abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit Number Description of Exhibit
- -------------- ----------------------
4.5 Warrant Agreement for "Class B Warrants"
b) REPORTS ON FORM 8-K
Date of Report Item Reported Financial Statements Filed
- -------------- ------------- --------------------------
None None No
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: November 13, 1996 /s/ Corrine D. Gulutz
----------------------
Corrine D. Gulutz
Chief Accounting Officer
(Principal Accounting Officer and Officer
duly authorized to sign this report on
behalf of the registrant)
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INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
- -------------- ----------------------
4.5 Warrant Agreement for "Class B Warrants"
<PAGE>
WARRANT AGREEMENT
FOR "CLASS B WARRANTS"
AGREEMENT (this "Agreement") dated as of August 9, 1996, by and
between XYTRONYX, INC., a Delaware corporation (the "Company") and AMERICAN
STOCK TRANSFER & TRUST COMPANY, as warrant agent (the "Warrant Agent").
W I T N E S S E T H
WHEREAS, in connection with the settlement of a class action
lawsuit (the "Settlement") the Company will issue 309,734 Class B Warrants
("Warrants"), each Warrant exercisable to purchase one share of common stock,
par value $.02 per share of the Company ("Common Stock"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing to so act, in connection with
the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the
exercise of the Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms
and provisions of the Warrants and the certificates representing the Warrants
and the respective rights and obligations thereunder of the Company, the
holders of certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms
shall have the following meanings:
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in
the distributions of earnings and assets of the Company without limit as to
amount or percentage, which at the date hereof consists of 30,000,000
authorized shares of Common Stock.
(b) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 40 Wall
Street, New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by
the Registered Holder thereof or his attorney duly authorized in writing, and
(b) payment in cash, or by official bank or certified check made payable to
the Company, of an amount in lawful money of the United States of America
equal to the applicable Purchase Price.
(d) "Purchase Price" shall mean the purchase price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price
shall be $22.00 per share subject to adjustment from time to time pursuant to
the provisions of Section 8 hereof, and subject to the Company's right to
reduce the Purchase Price upon notice to all warrantholders.
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(e) "Registered Holder" shall mean the person in whose name any
certificate representing Warrants shall be registered on the books maintained
by the Warrant Agent pursuant to Section 6.
(f) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as
such.
(g) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time)
on August 11, 2001; provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized to close, then 5:00 P.M.
(New York time) on the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close. Upon notice
to all warrantholders the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Common
Stock upon the exercise thereof, in accordance with the terms hereof, subject
to modification and adjustment as provided in Section 8.
(b) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall execute and deliver stock certificates in required whole
number denominations representing up to an aggregate of 309,734 shares of
Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(c) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall execute and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued upon the exercise of fewer than all Warrants
represented by any Warrant Certificate, to evidence any unexercised Warrants
held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6; (iv) those issued in replacement
of lost, stolen, destroyed or mutilated Warrant Certificates pursuant to
Section 7; and (v) at the option of the Company, in such form as may be
approved by the its Board of Directors, to reflect (a) any adjustment or
change in the Purchase Price or the number of shares of Common Stock
purchasable upon exercise of the Warrants, made pursuant to Section 8 hereof
and (b) other modifications approved by Warrantholders in accordance with
Section 16 hereof.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES. (a)
The Warrant Certificates shall be substantially in the form annexed hereto as
Exhibit A (the provisions of which are hereby incorporated herein) and may
have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed, engraved
or typed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which the Warrants may
be listed, or to conform to usage. The Warrant Certificates shall be
2
<PAGE>
dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered
serially with the letters "WB."
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of
the Company's seal. In case any officer of the Company who shall have signed
any of the Warrant Certificates shall cease to be such officer of the Company
before the date of issuance of the Warrant Certificates and issue and
delivery thereof, such Warrant Certificates may nevertheless be issued and
delivered with the same force and effect as though the person who signed such
Warrant Certificates had not ceased to be such officer of the Company. After
execution by the Company, Warrant Certificates shall be delivered by the
Warrant Agent to the Registered Holder.
SECTION 4. EXERCISE. Each Warrant may be exercised by the
Registered Holder thereof at any time prior to the Warrant Expiration Date
upon the terms and subject to the conditions, including without limitation,
compliance with applicable securities laws, set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the Exercise Date and
the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder upon exercise thereof as of
the close of business on the Exercise Date. As soon as practicable on or
after the Exercise Date, the Warrant Agent shall deposit the proceeds
received from the exercise of a Warrant, and promptly after clearance of
checks received in payment of the Purchase Price pursuant to such Warrants,
cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise, (plus a certificate for any
remaining unexercised Warrants of the Registered Holder). Notwithstanding
the foregoing, in the case of payment made in the form of a check drawn on an
account of such investment banks and brokerage houses as the Company shall
approve, certificates shall immediately be issued without any delay. Upon
the exercise of any Warrant and clearance of the funds received, the Warrant
Agent shall promptly remit the payment received for the Warrant to the
Company or as the Company may direct in writing.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon
exercise of the Warrants and payment of the Purchase Price shall, at the time
of delivery, be duly and validly issued, fully paid, nonassessable and free
from all taxes, liens and charges with respect to the issue thereof (other
than those that arise as a result of the action or inaction of the Registered
Holder).
(b) The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws with
respect to the exercise of the Warrants; provided, however, that the Company
shall not be obligated to file any general consent to service of process or
qualify as a foreign corporation in any jurisdiction. With respect to any
3
<PAGE>
such securities laws, however, Warrants may not be exercised by, or shares of
Common Stock issued to, any Registered Holder in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon
exercise of the Warrants; provided, however, that if the shares of Common
Stock are to be delivered in a name other than the name of the Registered
Holder of the Warrant Certificate representing any Warrant being exercised,
then no such delivery shall be made unless the person requesting the same has
paid to the Warrant Agent the amount of transfer taxes or charges incident
thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock required upon exercise of the Warrants,
and the Company will authorize the Transfer Agent to comply with all such
proper requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
Subject to the restrictions on transfer contained in the Warrant
Certificates and the Subscription Agreements between the Company and the
purchasers of Units:
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part; provided that no transfers,
sales or other dispositions of the Warrants may be made except after the time
periods and in the percentages set forth in Section 1.9 of the Subscription
Agreements. Warrant Certificates to be exchanged shall be surrendered to the
Warrant Agent at its Corporate Office, and upon satisfaction of the terms and
provisions hereof, the Company shall execute, and the Warrant Agent shall
countersign, issue and deliver in exchange therefor the Warrant Certificate
or Certificates which the Registered Holder making the exchange shall be
entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at its office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of
Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription form
on the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory
to the Company, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) The Company may require payment by such holder of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
4
<PAGE>
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation of the Warrant Agent, or, with
the prior written consent of Paramount, disposed of or destroyed, at the
direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice
to the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and
loss, theft, destruction or mutilation of any Warrant Certificate and (in
case of loss, theft or destruction) of indemnity satisfactory to them, and
(in the case of mutilation) upon surrender and cancellation thereof, the
Company shall execute and the Warrant Agent shall (in the absence of notice
to the Company and/or Warrant Agent that the Warrant Certificate has been
acquired by a bonafide purchaser) countersign and deliver to the Registered
Holder in lieu thereof a new Warrant Certificate of like tenor representing
an equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe.
SECTION 8. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF
COMMON STOCK OR WARRANTS. The Purchase Price in effect at any time and the
number and kind of securities purchasable upon the exercise of the Warrants
shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price
determined by multiplying the Purchase Price by a fraction, the denominator
of which shall be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such action. Such
adjustment shall be successively whenever any event listed above shall occur.
(b) Whenever the Purchase Price payable upon exercise of each
Warrant is adjusted pursuant to Subsection (a) above, the number of Shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of Shares initially issuable upon exercise of this
Warrant by the Purchase Price in effect on the date hereof and dividing the
product so obtained by the Purchase Price, as adjusted.
5
<PAGE>
(c) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least five cents
(0.05) in such price; provided, however, that any adjustments which by reason
of this Subsection (c) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section 8 to the contrary notwithstanding, the Company shall
be entitled, but shall not be required, to make such changes in the Purchase
Price, in addition to those required by this Section 8 as it shall determine,
in its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock or any subdivision, reclassification
or combination of Common Stock, hereafter made by the Company shall not
result in any Federal Income tax liability to the Registered Holder of Common
Stock or securities convertible into Common Stock (including Warrants).
(d) Whenever the Purchase Price is adjusted, as herein provided,
the Company shall promptly but no later than 20 days after any request for
such an adjustment by the Registered Holder, cause a notice setting forth the
adjusted Purchase Price and adjusted number of Shares issuable upon exercise
of each Warrant, and, if requested, information describing the transactions
giving rise to such adjustments, to be mailed to the Registered Holder at his
last address appearing in the warrant register of the Warrant Agent, and
shall cause a certified copy thereof to be mailed to its Warrant Agent. The
Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants
employed by the Company) to make any computations required by this Section 8,
and a certificate signed by such firm shall be conclusive evidence of the
correctness of such adjustment.
(e) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Registered Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company, other
than Common Stock, thereafter the number of such other shares so receivable
upon exercise of this Warrant shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Subsection (a)
above.
(f) Irrespective of any adjustments in the Purchase Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
SECTION 9. RECLASSIFICATION, REORGANIZATION OR MERGER. In case
of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock
of the class issuable upon exercise of this Warrant) or in case of any sale,
lease or conveyance to another corporation of the property of the Company as
an entirety, the Company shall, as a condition precedent to such transaction,
cause effective provisions to be made so that the holder shall have the right
thereafter by exercising this Warrant at any time prior to the expiration of
the Warrant, to purchase the kind and amount
6
<PAGE>
of shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common
Stock which might have been purchased upon exercise of this Warrant
immediately prior to such reclassification, change, consolidation, merger,
sale or conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section 9 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. In the event that in
connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or
in part, for a security of the Company other that Common Stock, any such
issue shall be treated as an issue of Common Stock covered by the provisions
of Subsection (a) of Section (8) hereof.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 8 hereof, the
Company shall nevertheless not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called
for upon any exercise hereof, the Company shall pay to the Holder an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq National Market
System ("NMS"), the current market value shall be the last
reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day or no closing
sale price is quoted, the average of the closing bid and asked
prices for such day on such exchange or system; or
(2) If the Common Stock is listed in the over-the-counter market
(other than on NMS) or admitted to unlisted trading
privileges, the current market value shall be the mean of the
last reported bid and asked prices reported by the National
Quotation Bureau, Inc. on the last business day prior to the
date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so
reported, the current market value shall be prescribed by the
Board of Directors of the Company.
SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder
of Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Warrants, as such,
any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue or
7
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reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until
such Holder shall have exercised such Warrants and been issued shares of
Common Stock in accordance with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with respect
to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the
Warrant Agent or of the holder of any other Warrant, may, on his own behalf
and for his own benefit, enforce against the Company his right to exercise
his Warrants for the purchase of shares of Common Stock in the manner
provided in the Warrant Certificate and this Agreement.
SECTION 13. AGREEMENT OF WARRANT HOLDERS. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant
Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent and the Company in their sole discretion,
together with payment of any applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name the
Warrant Certificate is registered as the holder and as the absolute, true and
lawful owner of the Warrants represented thereby for all purposes, and the
Company shall not be affected by any notice or knowledge to the contrary,
except as otherwise expressly provided in Section 7 hereof.
SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
canceled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split up, combination or exchange.
SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company, and
its duties shall be determined solely by the provisions hereof. The Warrant
Agent shall not, by issuing and delivering Warrant Certificates or by any
other act hereunder be deemed to make any representations as to the validity,
value or authorization of the Warrant Certificates or the Warrants
represented thereby or of any securities or other property delivered upon
exercise of any Warrant or whether any stock issued upon exercise of any
Warrant is fully paid and nonassessable.
The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently pay the Company, as provided
in Section 4, all moneys received by the Warrant Agent upon the exercise of
such Warrants. The Warrant Agent shall, upon request of the Company from
time to time, deliver to the Company such complete reports of registered
ownership of the Warrants and such complete records of transactions with
respect
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<PAGE>
to the Warrants and the shares of Common Stock as the Company may request.
The Warrant Agent shall also make available to the Company and Paramount for
inspection by their agents or employees, from time to time as either of them
may request, such original books of accounts and record (including original
Warrant Certificates surrendered to the Warrant Agent upon exercise of
Warrants) as may be maintained by the Warrant Agent in connection with the
issuance and exercise of Warrants hereunder, such inspections to occur at the
Warrant Agent's office as specified in Section 17, during normal business
hours.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustments, or
with respect to the nature or extent of any such adjustment, when made, or
with respect to the method employed in making the same. It shall not (i) be
liable for any recital or statement of facts contained herein or for any
action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to
be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or willful
misconduct.
The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith
in accordance with the written opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board, President, any Vice President, its Secretary,
or Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to
be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except
losses, expenses and liabilities arising as a result of the Warrant Agent's
negligence or willful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been
9
<PAGE>
notified in writing of such resignation by the resigning Warrant Agent, then
the Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be
a bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be
necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning
Warrant Agent. Not later than the effective date of any such appointment the
Company shall file notice thereof with the resigning Warrant Agent and shall
forthwith cause a copy of such notice to be mailed to the Registered Holder
of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant
Agent shall be a successor warrant agent under this Agreement without any
further act, provided that such corporation is eligible for appointment as
successor to the Warrant Agent under the provisions of the preceding
paragraph. Any such successor warrant agent shall promptly cause notice of
its succession as warrant agent to be mailed to the Company and to the
Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting
in any other capacity for the Company or for any other legal entity.
SECTION 16. MODIFICATION OF AGREEMENT. The parties hereto may
by supplemental agreement make any changes or corrections in this Agreement
(i) that it shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; (ii) that it may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates;
PROVIDED, HOWEVER, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of
the Registered Holders of Warrant Certificates representing not less than 50%
of the Warrants then outstanding; and PROVIDED, FURTHER, that no change in
the number or nature of the securities purchasable upon the exercise of any
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed by this Agreement as
originally executed.
SECTION 17. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the
10
<PAGE>
Registered Holder of a Warrant Certificate, at the address of such holder as
shown on the registry books maintained by the Warrant Agent; if to the
Company, at 6555 Nancy Ridge Drive, Suite 200, San Diego, California 92121,
Attention: Dale A. Sander, and if to the Warrant Agent, at 40 Wall Street,
New York, NY 10005, Attention .
SECTION 18. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
reference to its principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the Company and the Warrant Agent (and their
respective successors and assigns) and the holders from time to time of
Warrant Certificates. Nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim, in
equity or at law, or to impose upon any other person any duty, liability or
obligation.
SECTION 20. TERMINATION. This Agreement shall terminate on the
earlier to occur of (i) the close of business on the Expiration Date of all
the Warrants; (ii) the date upon which all Warrants have been exercised.
SECTION 21. COUNTERPARTS. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
XYTRONYX, INC.
By: /s/ Dale A. Sander
----------------------------------
Dale A. Sander
Chief Financial Officer
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/ Herbert J. Lemmer
----------------------------------
Name: Herbert J. Lemmer
Title: Vice-President
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996 INTERIM FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 194,182
<SECURITIES> 0
<RECEIVABLES> 11,467
<ALLOWANCES> 8,772
<INVENTORY> 35,320
<CURRENT-ASSETS> 474,050
<PP&E> 805,291
<DEPRECIATION> 690,070
<TOTAL-ASSETS> 767,351
<CURRENT-LIABILITIES> 1,069,642
<BONDS> 15,398
0
0
<COMMON> 162,396
<OTHER-SE> (480,085)
<TOTAL-LIABILITY-AND-EQUITY> 767,351
<SALES> 12,697
<TOTAL-REVENUES> 55,930
<CGS> 21,168
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,289,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,081
<INCOME-PRETAX> (1,955,363)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,955,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,955,363)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
