<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________________________ to _________________
Commission file number 1-12968
LXR BIOTECHNOLOGY INC.
(Exact name of small business issuer as specified in its charter)
Delaware 68-0282856
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
1401 Marina Way South, Richmond, California 94804
(Address of principal executive offices)
(510) 412-9100
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days:
Yes X No
---- ---
At April 30, 1996 the number of outstanding shares of the Registrant's Common
Stock, par value $0.0001, was 15,699,374.
Transitional Small Business Disclosure Format (check one): Yes No X .
--- ---
<PAGE> 2
LXR BIOTECHNOLOGY INC.
(A DEVELOPMENT STAGE ENTERPRISE)
QUARTERLY REPORT ON FORM 10-QSB
FOR THE THREE MONTHS ENDED MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995 and for the period from April
20, 1992 (date of incorporation) to March 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 and for the period from April
20, 1992 (date of incorporation) to March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Plan of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
LXR BIOTECHNOLOGY INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,139,068 $ 68,245
Prepaid expenses 245,238 183,691
Other receivables 55,050 33,355
------------ ------------
Total current assets 6,439,356 285,291
Equipment and leasehold improvements, net 825,260 890,468
Deposits 217,138 217,138
Organization costs, net 12,750 15,000
------------ ------------
Total assets $ 7,494,504 $ 1,407,897
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 347,913 $ 422,255
Accrued expenses 204,124 403,157
Deferred rent obligation 163,126 160,076
Short-term borrowings from related parties -- 600,000
Short-term portion of obligations under capital leases 227,032 223,420
------------ ------------
Total current liabilities 942,195 1,808,908
Obligations under capital leases, excluding short-term
portion 127,939 183,540
------------ ------------
Total liabilities 1,070,134 1,992,448
------------ ------------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued or outstanding -- --
Common stock, $0.0001 par value; 30,000,000
shares authorized; 15,828,352 and 7,725,403
shares issued and outstanding at March 31,
1996 and December 31, 1995, respectively 1,583 773
Additional paid-in capital 24,060,137 15,396,249
Notes receivable from stockholders (79,000) (79,000)
Deficit accumulated during the development stage (17,548,497) (15,892,720)
Treasury stock, at cost; 128,978 shares at March 31,
1996 and December 31, 1995 (9,853) (9,853)
------------ ------------
Total stockholders' equity (deficit) 6,424,370 (584,551)
------------ ------------
Commitments and contingencies (notes 2 and 4)
Total liabilities and stockholders' equity (deficit) $ 7,494,504 $ 1,407,897
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
LXR BIOTECHNOLOGY INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 20, 1992
THREE MONTHS (DATE OF
ENDED INCORPORATION)
--------------------------- TO
MARCH 31, MARCH 31, MARCH 31,
1996 1996 1996
----------- ------------ ---------------
<S> <C> <C> <C>
Revenues:
Grant revenue $ 10,544 $ -- $ 10,544
Expenses incurred in the development stage:
Research and development 1,210,241 1,005,983 12,599,631
General and administrative 512,707 509,305 5,077,761
----------- ----------- ------------
Total expenses incurred in the developmental
stage 1,722,948 1,515,288 17,677,392
----------- ----------- ------------
Loss from operations (1,712,404) (1,515,288) (17,666,848)
Other income (expense):
Interest income 81,184 34,089 442,166
Interest expense (20,257) (22,339) (316,310)
----------- ----------- ------------
Total other income (expense) 60,927 11,750 125,856
----------- ----------- ------------
Loss before income taxes (1,651,477) (1,503,538) (17,540,992)
Income taxes 4,300 200 7,500
----------- ----------- ------------
Net loss $(1,655,777) $(1,503,738) $(17,548,492)
=========== =========== ============
Net loss per share $ (0.11) $ (0.20)
=========== ===========
Weighted average shares used to compute
net loss per share 14,559,002 7,494,950
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
LXR BIOTECHNOLOGY INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 20, 1992
(DATE OF
THREE MONTHS ENDED INCORPORATION)
------------------ THROUGH
MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities $(1,877,232) $ (1,502,927) $(16,036,212)
----------- ------------ ------------
Cash flows from investing activities:
Purchase of investments - - (3,910,150)
Purchase of equipment and leasehold improvements (64,654) (13,383) (1,332,894)
Proceeds from maturity of investments - 1,000,000 4,000,000
------------ ------------ -------------
Net cash provided by (used in) investing
activities (64,654) 986,617 (1,243,044)
------------ ------------ -------------
Cash flows from financing activities:
Net proceeds from sale of common stock 8,664,060 - 20,348,648
Proceeds from notes payable to related parties - - 4,694,500
Proceeds from line of credit - - 375,000
Repayment of notes payable and line of credit (600,000) - (1,581,111)
Principal payments for obligations under
capital lease (51,989) (44,661) (421,542)
Payments received for notes receivable from
stockholders - - 2,147
Net proceeds from exercise of stock options 638 - 682
------------ ------------ -------------
Net cash provided by (used in) financing
activities 8,012,709 (44,661) 23,418,324
----------- ------------ -------------
Net increase (decrease) in cash and cash equivalents 6,070,823 (560,971) 6,139,068
Cash and cash equivalents at beginning of period 68,245 2,071,664 -
------------ ------------ -------------
Cash and cash equivalents at end of period $ 6,139,068 $ 1,510,693 $ 6,139,068
============ ============ =============
Supplemental cash flow information:
Cash paid for income taxes $ 1,600 $ - 4,200
============ ============ =============
Cash paid for interest $ 30,695 $ 22,339 $ 316,944
============ ============ =============
Noncash financing activities:
Common stock issued in exchange for notes
receivable from stockholders $ - $ - $ 107,385
============ ============ =============
Equipment purchased under capital
lease obligation $ - $ - $ 855,022
============ ============ =============
Stock dividend $ - $ - $ 5
============ =========== =============
Common stock issued in exchange for note
payable to David Blech and others $ - $ - $ 3,594,500
============ ============ =============
Repurchase of common stock in exchange for notes
receivable from stockholders $ - $ - $ 9,853
============ ============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
LXR BIOTECHNOLOGY INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the Company's financial
position as of March 31, 1996 and December 31, 1995, and results of operations
for the three months ended March 31, 1996 and 1995 and for the period from April
20, 1992 (date of incorporation) to March 31, 1996, and changes in cash flows
for the three months ended March 31, 1996 and 1995, and for the period from
April 20, 1992 (date of incorporation) to March 31, 1996.
These condensed consolidated statements should be read in conjunction
with the Company's audited consolidated financial statements for the years ended
December 31, 1995 and 1994, which are included as part of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995.
The Company's condensed consolidated financial statements include the
accounts and results of operations of Optical Analytic, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain items have been reclassified to conform with current financial
statement presentation.
(2) ACQUISITION OF TECHNOLOGY
In April 1996, the Company agreed to acquire the rights to certain
patented technology for use in heart transplantation in exchange for cash and
restricted stock. The solution, to be called Cardiomyolex, is expected to extend
the viability of the organ tissue by inhibiting cell death. In accordance with
the agreement, one of the inventors of the solution will join LXR's Scientific
Advisory Board and the other inventor will be hired by the Company to coordinate
the development project.
(3) 1993 STOCK OPTION PLAN
During 1996, the Company had the following activity under the 1993 Stock
Option Plan:
<TABLE>
<CAPTION>
Stock Options Outstanding
------------------------------------
Number of Price per
shares share
--------------- ---------------
<S> <C> <C>
Balance as of December 31, 1995 479,385 $ 0.03 - 5.250
Options granted 131,000 2.00 - 5.625
Options cancelled or expired (26,350) 1.875
Options exercised (6,949) 0.03 - 1.375
---------------
Balance as of March 31, 1996 577,086 0.03 - 5.625
===============
</TABLE>
6
<PAGE> 7
LXR BIOTECHNOLOGY INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(4) LITIGATION
The Company and/or certain of its past and present directors and officers
are named as defendants in three lawsuits, Katz vs. Blech, 95 Civ. 7215
(S.D.N.Y.) ("Katz"), In re Blech Securities Litigation, 94 Civ. 7696 (S.D.N.Y.)
("Blech"), and Degulis vs. LXR Biotechnology Inc., et al., 95 Civ. 4204
(S.D.N.Y) ("Degulis"), all pending in the Southern District of New York. All
three cases are brought on behalf of classes of persons purchasing common shares
of the Company prior to September 21, 1994, and assert claims arising out of the
Company's IPO and subsequent trading of those shares.
The suits allege violations of Sections 11 and 12 of the Securities Act
of 1933 and Sections 10(b) and 20 of the Exchange Act of 1934, including
misrepresentations and omissions in connection with the IPO and manipulation of
share prices. The suits also allege common law claims for fraud and deceit and
seek punitive damages. The complaints allege that defendants, including the
Company and the defendant directors and officers, failed to disclose in
securities filings connected with the IPO the leveraged financial condition of
the Company's underwriter, D. Blech & Co., and its principal, David Blech. The
suits further allege that defendants failed to disclose that D. Blech & Co.
would act as principal market maker for the Company's shares following the IPO,
and that D. Blech & Co.'s extended financial commitments would effect its
ability to maintain a market for the Company's shares. The suits also allege
that defendants assisted or acquiesced in a post-offering scheme to manipulate
the market for the Company's shares and artificially inflate share prices.
Under the Company's bylaws, individual agreements, and state law, the
Company's current and former directors and officers may have certain rights to
indemnification and defense costs in the event they are named in litigation.
Four individual defendants in Katz and/or Degulis have submitted claims for
indemnity and advancement of defense costs, and the Company has agreed to
advance defense costs and indemnify those individuals to the extent permitted by
law. A demand by Mark Germain, the former chairman of the Company and a Managing
Director of D. Blech & Co., remains under consideration by the Company. A demand
by the independent underwriter for contractual indemnity has been denied; such
denial is subject to contest by the underwriter. The Company and the underwriter
entered into a tolling agreement whereby the Company agreed that the running of
any statute of limitations applicable to claims of the underwriter against the
Company would be tolled until the earlier of June 30, 1997 and the termination
of the tolling agreement.
The Company's primary level directors and officers liability insurance
carrier has tentatively agreed to provide coverage for reasonable attorneys fees
in the defense of the four current and former directors and/or officers
referenced above, but the carrier has refused to provide indemnity or defense
costs for the Company. The Company and the carrier have entered into an
allocation agreement whereby 83% of the defense costs related to the Katz and
Degulis actions will be borne by the carrier, with the remaining 17% to be borne
by the Company. The Company and the carrier have not entered into any agreement
related to the Blech action, in which none of the Company's officers or
directors is listed as a defendant. The carrier is not obligated to make any
payments until a $250,000 deductible (applicable to all covered claims, in the
aggregate) under the policy is exhausted. The extent to which costs of defending
the litigation will ultimately be covered by insurance is not yet known. The
extent to which insurance would cover any settlement or judgment has not been
determined and may not be determined until the litigation is completed.
Motions to dismiss all three suits have been filed and heard on behalf of
the Company and the director and officer defendants. The Company cannot predict
whether these motions will be granted or, if granted, whether the court will
grant plaintiffs leave to amend and refile their complaints.
7
<PAGE> 8
LXR BIOTECHNOLOGY INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
The Company denies any wrongdoing and is defending the above cases
vigorously. While it is possible that the litigation may have a material adverse
effect on the Company, the early stage of the litigation, uncertainty as to
whether any material judgment or settlement will result, and the possibility
that some portion of any settlement or judgment may be covered by insurance,
make it impossible to predict at this time whether the litigation will have a
material adverse financial impact on the Company. An adverse judgment or
settlement could have a material adverse effect on the Company.
8
<PAGE> 9
ITEM 2.
PLAN OF OPERATIONS
PLAN OF OPERATIONS
The following Plan of Operations contains forward looking statements
regarding, among other things, product development, corporate partnering,
capital and other expenditures, FDA approval, and sufficiency of cash resources.
These forward looking statements concern matters that involve risks and
uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements. For a discussion of certain of
these risks and uncertainties, please see "Factors Affecting Future Results"
below, the Company's Annual Report on Form 10-KSB for the year ended December
31, 1995 and the "Risk Factors" section in the Registration Statement on Form
S-3 filed by the Company with the Securities and Exchange Commission on March 1,
1996.
In January 1996, the Company raised approximately $8.6 million (net of
offering expenses) through a private placement offering and sale of 7,360,000
shares of the Company's common stock at a price of $1.25 per share (the "Private
Placement"). The Company also issued 736,000 shares of common stock to the
placement agent as a selling commission for the Private Placement and a warrant
to purchase an additional 736,000 shares of the Company's common stock at an
exercise price of $1.375 per share. A portion of the proceeds from the Private
Placement were used to repay $600,000 in short-term borrowings and accrued
interest from related parties, to pay approximately $660,000 in accounts payable
and other accrued liabilities, and to fund the Company's first quarter's
operations. As of March 31, 1996, the remaining proceeds from the Private
Placement were invested in short-term interest bearing investments and amounted
to approximately $6.1 million.
The Company has also recently received its first purchase order for its
Scanning Laser Digital Imaging product.
In April 1996, the Company agreed to purchase the rights to a patented
preservation solution for use during heart transplantation, to be called
Cardiomyolex. This solution is expected to extend the viability of the organ
tissue by inhibiting cell death.
It is expected that the Company's overall level of research and
development expenditures will increase over the next 12 months in order to
expand research and development relating to LXR015 (Elirex and Lexirin), Maspin,
Bak, Fas(Greek DELTA Symbol)TM, the Scanning Laser Digital Imagers, and
Cardiomyolex. The Company is focusing its research and development activities
related to suppressing apoptosis in the heart and other organs on Elirex. The
Company is also developing a related product, designated Lexirin, for
gastrointestinal disorders. It is expected that Elirex will be used in
intravenous injection form, whereas Lexirin will be used in an
oral-administered form.
The Company recently filed an IND with the FDA to commence human
clinical trials of Lexirin for the suppression of severe diarrhea associated
with the pathogenesis of AIDS, as well as with the use of chemotherapeutic
agents and radiation in the treatment of cancer. The Company received questions
from the FDA during the review process and believes it has adequately addressed
them in its recent response to the FDA. In addition, before the Company can
proceed with its clinical trials, the Company must also select a location for
the clinical trials and receive institutional review board approval of the
clinical protocol and the informed consent document. The Company also hopes to
file IND's with the FDA during the next 10 months to commence Phase I/II trials
of Elirex and Maspin.
There can be no assurance that the pre-clinical trial results of
Elirex, Maspin, or any other product will support the filing of an IND, that the
FDA will permit the Company to undertake clinical trials for Lexerin or any
other product, that the Company will have sufficient funding to conduct clinical
trials, that clinical trial results will be favorable, that the Company will be
able to submit to the FDA an application to market any product, or that any such
application will be approved by the FDA.
As of March 31, 1996, the Company employed 45 full-time employees.
During 1996, the Company expects to increase its number of employees to
approximately 50 in order to support the Company's increased research and
development activities. Further increases in employees may occur as the Company
increases its spending in efforts to undertake clinical studies.
9
<PAGE> 10
PLAN OF OPERATIONS
(CONTINUED)
The Company's capital expenditures for the first quarter of 1996 were
approximately $65,000. The Company expects that capital expenditures for 1996
will continue to increase in order to support the Company's expanding research
activities. Total capital expenditures for facility enhancements and related
equipment are expected to be approximately $400,000 during 1996.
As of March 31, 1995, there was $354,971 outstanding under the
Company's equipment lease line. The lease line bears interest at the rate of
15.3% per annum and is secured by a deposit of $194,128. There are no further
borrowings available under the equipment lease line.
The Company plans to continue to seek corporate partners for its
research and development activities. The Company is also seeking one or more
corporate partners to assist in the marketing of its Scanning Laser Digital
Imager. There can be no assurance that the Company will be able to secure any
corporate partner relationships. The Company expects to continue to fund
research at the Dana Farber Cancer Institute and the University of Kentucky
relating to Maspin and Elirex, respectively, during 1996, and may enter into
research relationships with other universities and research institutions. The
Company also regularly evaluates the possibility of licensing or otherwise
acquiring technologies from third parties.
FACTORS AFFECTING FUTURE RESULTS
The Company's plan for operations depends on numerous factors,
including the progress of its research and development programs, the progress of
preclinical and clinical testing, the time and costs involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, the cost of obtaining
certain technological rights, competing technological and market developments,
changes in the Company's existing research relationships, the ability of the
Company to establish collaborative arrangements, the development of
commercialization activities and arrangements, the purchase of additional
capital equipment, and legal expenses incurred in connection with defending the
securities lawsuits brought against the Company. Accordingly, the Company's
plans are subject to change.
The Company currently has no source of revenues or capital other than
the remaining proceeds of the private placement, interest earned from investment
of the proceeds, expected grant revenue of $90,000 and proceeds from the sale of
the Scanning Laser Digital Imaging product. Accordingly, the Company will need
to raise substantial additional capital to fund its operations, including the
development of its lead compounds. The Company intends to seek such funding
through public or private financing and corporate collaborations. Although the
Company believes its current resources will be adequate to fund the Company's
operations through 1996, there can be no assurance that unanticipated events
affecting the Company's operating expenses will not result in the Company
depleting its funds before that time. There is also no assurance that additional
funding will be available on favorable terms, if at all.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On May 8, 1996 the Securities and Exchange Commission ("SEC") declared
effective the Company's Registration Statement on Form S-3 registering the
shares previously issued by the Company in its January 1996 Private Placement.
For more information on the Private Placement see the Company's Report on Form
8-K filed with the SEC on January 24, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibit is attached hereto:
Exhibit
Number Title
------ -----
27.01 Financial Data Schedule.
- - ----------
(b) Reports on Form 8-K.
On January 23, 1996, the Company filed a current report on Form 8-K
related to the Private Placement.
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
LXR BIOTECHNOLOGY INC.
Date: By: /s/ Mark J. Tomei
------------- ----------------------------------------
Mark J. Tomei
Chief Financial Officer, Chief Operating
Officer, and Secretary
12
<PAGE> 13
EXHIBIT INDEX
Exhibit
Number Title
------ -----
27.01 Financial Data Schedule.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,139,068
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,439,356
<PP&E> 2,104,475
<DEPRECIATION> 1,279,215
<TOTAL-ASSETS> 7,494,504
<CURRENT-LIABILITIES> 942,195
<BONDS> 0
<COMMON> 1,583
0
0
<OTHER-SE> 6,422,787
<TOTAL-LIABILITY-AND-EQUITY> 7,494,504
<SALES> 0
<TOTAL-REVENUES> 10,544
<CGS> 0
<TOTAL-COSTS> 1,722,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,257
<INCOME-PRETAX> (1,651,477)
<INCOME-TAX> 4,300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,655,777)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
