SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: January 31, 2005
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|_| 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 333-103083
XENOMICS, INC.
(Name of small business issuer in its charter)
Florida 04-3721895
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
420 Lexington Avenue, Suite 1701, New York, New York 10170
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(Address of Principal Executive Offices) (Zip Code)
(212) 297-0808
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the
Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 past 90 days.
|X| Yes |_| No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
The issuer's revenues for the year ended January 31, 2005 were $-0- .
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on May 16, 2005, based on the closing bid price
on such date, was $44,873,043.
As of May 16, 2005 the issuer had a total of 18,949,300 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (Check one): |_| Yes |X| No
XENOMICS, INC.
FORM 10-KSB
INDEX
PART I PAGE
Item 1. Description of Business 1
Item 2. Description of Property 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 12
Item 6. Management's Discussion and Analysis and Plan of Operation 14
Item 7. Financial Statements 18
Item 8A. Controls and Procedures 18
PART III
Item 9. Directors and Executive Officers of the Registrant 19
Item 10. Executive Compensation 22
Item 11. Security Ownership of Certain Beneficial Owners and Management 24
Item 12. Certain Relationships and Related Transactions 25
Item 13. Exhibits 26
Item 14. Principal Accountant Fees and Services 28
Signatures 29
PART I
This Form 10-KSB contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements are characterized by future or
conditional verbs and include, but are not limited to, statements regarding the
results of product development efforts, clinical trials and the scope and
success of future operations. Such statements are only predictions and our
actual results may differ materially from those anticipated in these
forward-looking statements. Factors that may cause such differences include, but
are not limited to, those discussed under "Risk Factors" and elsewhere in this
Form 10-KSB for the year ended January 31, 2005, as filed with the Securities
and Exchange Commission, including the uncertainties associated with product
development, the risk that products that appeared promising in early clinical
trials do not demonstrate efficacy in larger-scale clinical studies, the risk
that we will not obtain approval to market our products, the risks associated
with dependence upon key personnel and the need for additional financing. We do
not assume any obligation to update forward-looking statements as circumstances
change.
ITEM 1. DESCRIPTION OF BUSINESS.
We are a development stage molecular diagnostic company that focuses on the
development of DNA-based tests using trans-renal DNA or Tr-DNA. Tr-DNA's are
fragments of DNA derived from dying cells inside the body compartment. The
intact DNA is fragmented in these dying cells, appears in the blood stream and
these fragments have been shown to cross the kidney barrier and can be detected
in urine. Our patented technology uses safe and simple urine collection and can
be applied to a broad range of testing including: prenatal genetic testing,
tumor detection and monitoring, tissue transplantation, infectious disease,
forensic identification, drug development and bio-terrorism. In March 2004, we
organized a joint venture with the Spallanzani National Institute for Infectious
Diseases (Instituto Nazionale per le Malattie Infettive) in Rome, Italy, in the
form of a new R&D company called SpaXen Italia, S.R.L, or SpaXen, which will
conduct research and development on non-invasive diagnostic tests for infectious
disease using Tr-DNA methodology.
THE TECHNOLOGY
Our scientists were the first to report the discovery that a portion of
cell-free DNA found in the bloodstream can cross the kidney barrier and be
detected in the urine. This is trans-renal DNA or Tr-DNA. Urine analysis of
Tr-DNA provides a simple, non-invasive method and a platform technology for a
broad range of diagnostic genetic tests. In comparison with conventional tests,
this methodology has significant advantages with respect to patient compliance,
ease of testing, speed and cost. We own proprietary technology protected by
broad patents covering the fields of prenatal genetic diagnosis, cancer
detection and transplantation. We expect pending patent applications to further
extend coverage to all diagnostic applications of Tr-DNA.
Our Tr-DNA technology has been evaluated for applications in cancer in
various clinical studies and the we have executed research contracts, subject to
Institutional Review Board, or IRB, approval, with North Shore - Long Island
Jewish (LIJ) Health System and Eastern Virginia Medical School to begin human
clinical studies for applications in prenatal genetic diagnosis. As a result,
our initial operations will focus on early product opportunities in prenatal
genetic diagnosis for disorders such as Down syndrome, Fragile X Syndrome, Rh
incompatibility and gender determination. We plan to expand the prenatal testing
capabilities to include a comprehensive set of markers, and plan to develop our
technology for diagnostic applications in cancer, infectious diseases and
transplantation.
We plan to develop commercial diagnostic tests for which we will seek FDA
approval. Prior to FDA approval we expect these tests will be sold under the
Analyte Specific Reagent (ASR) rules for home-brew testing to laboratories
licensed under the Clinical Laboratory Improvement Act (CLIA) for performance of
high-complexity testing. FDA approval will allow us to sell to all hospital and
independent testing laboratories. Of prime importance to our positioning in the
market will be the need for adoption by key diagnostics laboratories and certain
diagnostic companies that will need access to our patents in order to enter the
market for urine DNA testing.
THE MARKET
We believe that the market for Tr-DNA based diagnostic products is large
and growing. Based on various industry reports and the annual reports for
several large diagnostic companies, the market for DNA testing is over $2
billion in the United States alone. As this represents the initial stage of
growth in the use of genetic testing it is anticipated that there will be
significant market expansion as new markers are discovered and validated for the
diagnosis of specific indications. The ease, non-invasive nature, and low cost
of urine analysis of nucleic acids suggest that our technology may ultimately
become the method of choice for the majority of genetic tests.
PRENATAL TESTING According to government statistics for 2004 there were 6.2
million pregnancies in the United States alone. Those reports also show a
current trend in the United States that women are delaying having children until
a later age. However, the risk of many genetic disorders increases with maternal
age. An example is Down syndrome where the risk is 1 in 1,400 for women 25 years
of age and 1 in 380 for women 35 years of age. Today, the only prenatal test
that can provide a definitive diagnosis of Down syndrome is amniocentesis.
Because amniocentesis has well known risks associated with the procedure,
including an approximate 1%
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risk of spontaneous miscarriage, only about 10-15% of patients who should have
prenatal genetic tests according to physicians and genetic counselors actually
agree to undergo the amniocentesis procedure. The risk of spontaneous
miscarriage limits the recommended use of amniocentesis to women older than 35
years of age. Currently there are no tests available that provides a definitive
result for women who decline amniocentesis, or are younger than 35 years of age.
Tests such as the "triple" screen, or "quad" screen are available, but these
tests provide an assessment of risk, not a definitive result. In addition, the
best sensitivity reported in the scientific literature for these is a 75%
detection rate. If we succeed in developing a prenatal screening test for Down
syndrome with improved sensitivity compared to "triple" and "quad" screen, we
expect that patient compliance for recommended prenatal genetic testing will
increase significantly considering that donation of a urine specimen is simple,
risk-free to both the mother and the baby, and may be able to be performed in
the first trimester of pregnancy.
Initial product focus in prenatal testing will be on diagnostic tests for
Down syndrome, Fragile X Syndrome, Rett syndrome, Rh incompatibility and gender
determination. The future pipeline in prenatal genetic testing may include tests
for trisomy 18 and 13, Tay Sachs and Askenazi Jewish syndrome, Huntington's
disease, sickle cell anemia and other genetic disorders.
CANCER TESTING It is anticipated that Tr-DNA analysis will become a
platform technology for development of tests for the monitoring of tumor and
pre-cancerous progression and post-treatment screening for tumor re-growth
conditions. The initial opportunities for diagnostic test development are
gastrointestinal tumors, including colorectal cancer, liver cancer and
pancreatic cancer. Our technology was evaluated in a clinical study at Thomas
Jefferson University and showed the ability to detect pre-cancerous colon cancer
in patients undergoing colonoscopy. About 160,000 new cases of colon cancer and
25,000 new cases of pancreatic cancer occur in the United States each year.
Routine testing is recommended for the 60-70 million of people over 50 at risk
for colorectal polyps . Additional products in the oncology diagnostics pipeline
are tests for the early detection of prostate cancer and other tumors as well as
high-risk pre-cancerous conditions.
Tr-DNA products in the cancer diagnostic market can be expected to be
highly competitive based on cost, simplicity, and patient compliance. For
example, it is likely that a urine test for patients at high-risk for
pre-cancerous polyps will have better acceptance than the more invasive
colonoscopy. Additionally, preliminary results with Tr-DNA associated with the
Thomas Jefferson University study suggest that Tr-DNA may have significantly
greater sensitivity than many existing tests such as Fecal Occult Blood Testing
(FOBT).
TRANSPLANTATION According to government statistics, there are approximately
50,000 organ transplants performed in the U.S. annually. Post-transplant
monitoring for organ rejection requires a highly invasive tissue biopsy.
Approximately 10 biopsies are taken over a period of one-year which results in
approximately 500,000 tests/year market in the U.S. alone. Because organ
rejection is marked by early death of the cells, we believe that an early
indication of rejection can be identified by measuring a unique series of
genetic markers characteristic of the organ donor that can be easily detected in
random urine specimens from the transplant recipient. Providing early evidence
of tissue rejection is key to administration and monitoring of immunosuppressive
therapies. Opportunities for partnering with companies developing drugs for
controlling tissue rejection, companies developing cell transplantation, or
companies developing novel transplantation technologies illustrates the breadth
of commercial potential of the Tr-DNA platform technology.
INFECTIOUS DISEASES Agents such as viruses, bacteria and parasites that
have precise genetic signatures cause many infectious diseases. We recently
reported clinical data that demonstrated the ability to detect HIV-DNA in the
urine of AIDS patients and the DNA of common and multi-drug resistant strains of
Mycobacterium tuberculosis ("TB" and "MTB" respectively) in the urine of
infected patients. In the case of the HIV virus, the sensitivity of the test
under development allowed 90% detection of patients with residual disease; a
stage at which the viral load of a patient is either barely detectable, or not
detectable at all by conventional methods. If developed, it can be expected that
this test may provide physicians with new information and assist in the
treatment of AIDS. According to the World Health Organization (WHO) the
resurgence of tuberculosis (TB), especially its multi-drug resistant strain
(MTB), represents a critical worldwide problem. The ability to simultaneously
detect both TB and MTB from a simple urine sample suggests that tests based on
Tr-DNA may be easier to collect and perform in non-industrialized countries than
with current culture-based methods. An additional benefit of Tr-DNA testing is
that urine does not contain HIV and many other infectious agents, and thus is
much less dangerous to healthcare workers, whereas blood is highly infectious.
Tr-DNA products in infectious disease can be expected to be highly
competitive based on cost, simplicity and patient compliance, especially in
non-industrialized nations. The future pipeline for infectious disease products
may include extension of the technology to the detection of parasites, and/or
applications for combating bio-terrorism.
DRUG DEVELOPMENT AND MONITORING OF THERAPEUTIC OUTCOMES The Tr-DNA
technology has significant potential as a means of monitoring clinical responses
to new drugs in development and evaluating patient-specific responses to already
approved therapies. Specific target applications include the monitoring of
transplantation patients on immunosuppressive drugs, detection of metastasis
following tumor surgery, monitoring of tumor progression during chemotherapy,
and the development of optimal hormonal and chemotherapeutic treatment
protocols.
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One of the largest costs associated with development of new drugs is the
size of the human clinical trial required to identify the cohort of responders
to the drug. By measuring specific genetic markers it may be possible to
pre-identify the responding population. This would significantly reduce the cost
to develop a drug. Alternately, in cancer treatment today, there is not a
reliable way to determine if a particular patient is responding to chemotherapy.
Generally patients are reexamined after a 60-day interval to determine if the
tumor has grown in size, reduced in size or remained the same. If the tumor has
grown in size, or remained the same, the chemotherapy is adjusted. By measuring
specific genetic markers in the patient's urine pre and post chemotherapy, it
may be possible to determine whether a patient is responding to chemotherapy
within 48 hours after administration instead of the current 60-day cycle. These
applications of Tr-DNA technology may permit therapeutic decisions on a
patient-specific basis. About 1.25 million new cancer cases are diagnosed
annually and there are several hundred companies developing chemotherapeutic
agents in the United States alone. This defines the size of the potential market
for applications of Tr-DNA technology in drug development and monitoring
therapeutic outcomes.
BUSINESS STRATEGY
We plan to use our Tr-DNA technology to develop FDA approved commercial
diagnostic products in each of our initial focus markets of prenatal genetic
screening, infectious disease and cancer monitoring, progression and re-growth.
We expect to sell our products to private independent medical laboratories,
federal and state medical laboratories and private and governmental hospitals.
At the late stages of development of each product while collecting clinical data
for an FDA submission, we intend to market the products as ASR's to certain
laboratories approved under CLIA. There are approximately 3,000 CLIA licensed
laboratories in the United States, but two laboratories, Quest Diagnostic and
LabCorp represent approximately 60% of the total market. CLIA laboratories may
offer the tests and receive reimbursement under the "home brew" rules and we
hope to establish an initial market presence and generate revenues prior to FDA
approval.
If we receive FDA approval for our products, we intend to market the tests
to medical testing laboratories. Approval by the FDA would enable us to file for
approval to market the tests in Europe. We have completed proof-of-principle
studies and developed the core capabilities for test development internally and
manufacturing through contract suppliers. We intend to add dedicated product
development and regulatory personnel in order to speed up the development of
initial products and future diagnostic pipelines.
In comparison with many other genetic tests, it is anticipated that the
Tr-DNA test may significantly reduce costs as no surgical procedures
(amniocentesis/tissue biopsy) are involved and specimen preparation in the
laboratory is simple and can easily be automated. Currently, a large portion of
the cost of performing prenatal genetic testing is associated with the surgical
procedure to collect the sample from either amniotic fluid, chorionic villus
sampling, or tissue biopsy. For example, government statistics for Medicare and
Medicaid reimbursement show the typical cost for an amniocentesis is
approximately $1,200, but the laboratory charge for this procedure is around
$400. Therefore, major advantages of our Tr-DNA test, when commercially
available, will be the ease of sample collection and the corresponding reduced
overall cost of each test.
During the last decade, medical laboratory operating margins have declined
in the face of Medicare fee schedule reductions, managed care contracts,
competitive bidding and other cost containment measures. If our technology was
commercially available today, reimbursement would be available under the current
procedural terminology, or CPT, codes for molecular-based testing. We expect to
initially market our tests to medical laboratories at price points that we
believe will translate into substantially higher operating margins than has been
traditional in the laboratory industry; yet the overall cost to the healthcare
system will be reduced by elimination of the surgical component. We believe that
will create a strong incentive for laboratories to adopt our Tr-DNA test.
SPAXEN JOINT VENTURE
In March, 2004, we organized a joint venture with the Spallanzani National
Institute for Infectious Diseases (Instituto Nazionale per le Malattie
Infettive, "INMI") in Rome, Italy, in the form of a new R&D company called
SpaXen Italia, S.R.L ("SpaXen"). In laboratories provided to SpaXen within INMI,
scientists work to apply the Tr-DNA technology to the development of new, truly
non-invasive test platforms for a broad variety of infectious diseases. Shares
of SpaXen are held 50% by INMI and 50% by us. SpaXen's deed of incorporation
(Costituzione Di Societa) dated March 11, 2004 provides, among other terms, the
following:
o Corporate capital: 200,000 Euros, of which INMI contributed 100,000
Euros in cash and we contributed 100,000 Euros in the form of
intellectual property, as further described below;
o Corporate Term: Until December 31, 2009, unless extended or wound up
prior to that date;
o Shareholder Vote: All shareholder resolutions require a 2/3
super-majority except for certain resolutions regarding amendments to
the deed of incorporation, change of corporate purpose, and
significant changes in shareholder rights, among others, which require
unanimous vote by the shareholders;
o Directors and Officers: SpaXen will be managed by a sole managing
director or by a board of directors; currently, SpaXen is being
managed by a board of directors consisting of three directors, the
chairman of which is David L. Tomei, who is also our chairman of the
board; in addition, SpaXen has appointed a supervisory board (also
referred to as "Board of Auditors" in SpaXen's deed of incorporation)
consisting of three auditors and two deputies;
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o Dissolution: The shareholders of SpaXen may unanimously vote to
dissolve SpaXen prior to the end of the Corporate Term.
In conjunction with the formation of SpaXen, we and INMI have entered into
a certain Shareholder Agreement, which provides, among other terms, the
following
o As its contribution to SpaXen, we agreed to assign to SpaXen all
rights and patent applications to that portion of the Tr-DNA
technology that applies Tr-DNA technology to the field of infectious
diseases (the "Contributed IP");
o All profits of SpaXen will be reinvested into research and development
of intellectual property applying Tr-DNA technology to pathologies
caused by or associated with infectious agents (the "Newly Developed
IP");
o INMI will be the sole owner of all Newly Developed IP;
o SpaXen will be the sole owner of all intellectual property derived
from SpaXen's research that may be applied in fields other than
pathologies caused by or associated with infectious agents (the
"Derivative IP");
o We will have royalty-free, perpetual, exclusive, worldwide
commercialization rights for Derivative IP;
o We will have exclusive worldwide commercialization rights for Newly
Developed IP in consideration for a license fee payment of not more
than 10% of net proceeds of all products utilizing Newly Developed IP;
o The initial term of commercialization rights for Newly Developed IP is
5 years (commencing April 7, 2004), with the possibility of a 5 year
extension;
o In the event that a patent issues based on Newly Developed IP during
the term of commercialization rights for Newly Developed IP, the
commercialization rights for Newly Developed IP will be extended for
the duration of such patent; and
o Upon dissolution of SpaXen, our commercialization rights for Newly
Developed IP will terminate, the Contributed IP will revert back to us
and all capital surplus will be paid to INMI;
The Shareholder Agreement stipulates SpaXen and we will enter into a
Collaborative Research and License Agreement, which will further define our
respective obligations and rights with respect to the above matters. We plan to
begin negotiations shortly.
SpaXen's primary research and development targets will be tests for
diagnosis of AIDS, hepatitis B, tuberculosis, malaria, and leishmaniasis,
diseases with the highest levels of morbidity and mortality. There can be no
assurance that the Shareholder Agreement will continue and if the Shareholder
Agreement is terminated, we will have to find alternate sources for human
clinical samples and will have to hire and train adequate scientific personnel
which will significantly increase expenses. We may not be able to find alternate
sources for human clinical samples and may not be able to afford the personnel
necessary to continue development of infectious disease products
INTELLECTUAL PROPERTY
We consider the protection of our proprietary technologies and products to
be a critical element in the success of our business. As of May 16, 2005, we had
3 issued U.S. patents and no foreign patents expiring at varying dates and a
number of pending patent applications filed in the U.S. and abroad. In addition
to pursuing patents and patent applications relating to our platform technology,
we have and may enter into other license arrangements to obtain rights to
third-party intellectual property where appropriate.
Wherever possible we seek to protect our inventions through filing U.S.
patents and foreign counterpart applications in selected other countries.
Because patent applications in the U.S. are maintained in secrecy for at least
eighteen months after the applications are filed and since publication of
discoveries in the scientific or patent literature often lags behind actual
discoveries, we cannot be certain that we were the first to make the inventions
covered by each of our issued or pending patent applications or that we were the
first to file for protection of inventions set forth in such patent
applications. Our planned or potential products may be covered by third-party
patents or other intellectual property rights, in which case continued
development and marketing of the products would require a license. Required
licenses may not be available to us on commercially acceptable terms, if at all.
If we do not obtain these licenses, we could encounter delays in product
introductions while we attempt to design around the patents, or could find that
the development, manufacture or sale of products requiring these licenses is
foreclosed.
We may rely on trade secrets to protect our technology. Trade secrets are
difficult to protect. We seek to protect our proprietary technology and
processes by confidentiality agreements with our employees and certain
consultants and contractors. These agreements may be breached, we may not have
adequate remedies for any breach and our trade secrets may otherwise become
known or be independently discovered by competitors. To the extent that our
employees or our consultants or contractors use intellectual property owned by
others in their work for us, disputes may also arise as to the rights in related
or resulting know-how and inventions.
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MANUFACTURING
We expect it will take 2 to 3 years for our first product to be
commercialized. During the second half of 2006, with the addition of appropriate
regulatory personnel, we intend to create a good manufacturing practice, or GMP,
compliant manufacturing facility. At the same time, we must adopt the FDA
Quality System Regulations (QSR) system of documentation. In most cases, we
expect to purchase bulk quantities of specified raw materials and reagents from
qualified vendors. In some cases, we may synthesize certain materials and
reagents. We expect our manufacturing facility to use bulk materials to assemble
reagent sets, perform quality control testing and package the reagent sets for
shipping and distribution. Because we do not have manufacturing experience, we
may not be able to establish a GMP compliant facility or develop reproducible
and effective manufacturing processes at a reasonable cost. In such event, we
will have to rely on third party manufacturers whose availability and cost is
presently unclear.
REIMBURSEMENT
Medicare and other third-party payors will independently evaluate our
technologies by, among other things, reviewing the published literature with
respect to the results obtained from our clinical studies. Currently, CPT codes
are available which we believe will allow our technologies to be billed
following completion of a test prescribed (ordered) by a physician for a
patient. We believe that the existence of current CPT codes with applicability
to our screening test will help facilitate Medicare's reimbursement process.
During the development phase, there can be no assurance that the rules connected
with reimbursement will remain constant. If the rules change significantly it
may make our Tr-DNA test non-reimbursable and would significantly reduce our
ability to generate revenue.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
products that may be developed by us. The nature and the extent to which such
regulation may apply will vary depending on the nature of any such products.
Virtually all of our potential products will require regulatory approval by
governmental agencies prior to commercialization. It is our intention to submit
and obtain FDA approval for all of our diagnostic products.
Generally, diagnostic products based upon our Tr-DNA technology, will
require FDA approval or clearance before they can be marketed for commercial
distribution. Because we intend to apply for FDA approval for each of our
developed products, at the earliest stage of development we will have to adopt
and adhere to design control and documentation standards contained in the FDA
Quality System Regulation. This will require significant training efforts and an
increase in regulatory personnel.
FDA approval may be obtained through submission of a 510-K statement of
equivalency, or through a Pre-Market Approval (PMA) application. A 510-K
submission requires that we show equivalency of results in a clinical study with
parallel comparison against an existing and FDA-recognized reference method. We
believe our initial test for Down syndrome can receive approval under a 510-K
process because amniocentesis represents an adequate FDA-recognized reference
test. However, we have not had any meetings with the FDA to verify this finding
and there can be no assurance that we will succeed in obtaining FDA approval
through the 510-K application. If the FDA rejects our application for 510-K
approval, we will be required to undertake a significantly longer and more
extensive clinical study to produce sufficient and compelling data for approval
under a PMA application. PMA applications evaluate the test on merits of the
data alone. There can be no assurance that we will ever receive FDA approval for
any of our diagnostic products.
The FDA also regulates the sale of certain reagents, including our
potential reagents, used by laboratories under the "home brew" rules to perform
tests. The FDA refers to these reagents as Analyte Specific Reagents (ASR's).
ASR's generally do not require FDA pre-market approval or clearance if they are
(i) sold to clinical laboratories certified under the Clinical Laboratory
Improvement Act to perform high complexity testing and (ii) are labeled in
accordance with FDA requirements, including a statement that their analytical
and performance characteristics have not been established. The FDA also
regulates all promotional materials and specifically prohibits medical claims
and efficacy claims. However, prior to, or in lieu of FDA approval, we can sell
our reagents to laboratories that meet the established criteria. Failure to
receive FDA approval would severely limit our customer base and significantly
impact the generation of revenues.
Even if we receive FDA approval for our products, a number of other FDA
requirements apply to our manufacturing and distribution efforts. Medical device
manufacturers must be registered and their products listed with the FDA, and
certain adverse events, such as reagent failures, significant changes in quality
control and other events requiring correction and/or replacement/removal of
reagents must be documented and reported to the FDA. The FDA also regulates the
product labeling, promotion, and in some cases, advertising, of medical devices.
As discussed above, we must comply with the FDA's Quality System Regulation
which establishes extensive requirements for design control, quality control,
validation and manufacturing. Thus, even with FDA approval, we must continue to
spend time, money and effort to maintain compliance, and failure to comply can
lead to enforcement action. The FDA periodically inspects facilities to
determine compliance with these and other requirements.
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COMPETITION
The medical diagnostic industry is characterized by rapidly evolving
technology and intense competition. Our competitors include medical diagnostic
companies, most of which have financial, technical and marketing resources
significantly greater than our resources. In addition, there are a significant
number of biotechnology companies working on evolving technologies that may
supplant or make our technology obsolete. Academic institutions, governmental
agencies and other public and private research organizations are also conducting
research activities and seeking patent protection and may commercialize products
on their own or through joint venture. We are aware of certain development
projects for products to prevent or treat certain diseases targeted by us. The
existence of these potential products or other products or treatments of which
we are not aware, or products or treatments that may be developed in the future,
may adversely affect the marketability of products developed.
Currently, the only definitive method for detecting prenatal Down syndrome
is amniocentesis. It is a highly invasive procedure that involves inserting a
long needle into the amniotic sac and removing a portion of amniotic fluid.
Approximately 1% of the time, the procedure results in a spontaneous
miscarriage. For this reason, the procedure is only recommended for women older
than 35 years, where the risk of spontaneous miscarriage is similar to the risk
of Down syndrome. Unfortunately, the largest number of Down syndrome births
occurs in the 17-35 year old group because this group represents the majority of
the 6.2 million pregnancies.
Amniotic fluid samples are sent to specialized "cytogenetic" laboratories
where the fetal cells in the fluid are cultured for several days, then the
chromatin material is harvested and the individual chromosomes are examined
under a microscope. This is a very slow, labor-intensive and highly skilled
process, but it is considered the standard of care and because it involves
direct examination of the fetal chromosomes is by definition 100% accurate.
Government statistics indicate that approximately 200,000 amniocentesis are
performed annually in the United States. If our test is developed and found to
be reliable, these cytogenetic laboratories will be our direct competitors.
For women who refuse amniocentesis, or are younger than 35 years,
physicians opt for tests called the "Triple Screen", or "Quadruple Screen."
These tests do not provide a definitive diagnosis, only an estimate of the risk.
The Triple and Quadruple Screens measure three or four respectively, components
of the mothers blood and then apply a mathematical formula to calculate the
risk. Virtually all laboratories perform the Triple and Quad screens. When the
risk calculated indicates that the patient may be carrying a Down affected fetus
(generally 1:270), the patient is referred for amniocentesis to confirm the
result. However, the best sensitivity for the Triple and Quadruple Screen
reported in the scientific literature is only 75% with a 5% false positive rate
and they can only be performed in the second trimester (15-22 weeks) of
pregnancy.
We intend to initially market our test as a replacement for the Triple and
Quad screens. Unlike the Triple/Quad screen, we expect our test to provide a
definitive result. In addition, we expect our test will be a first trimester
test with results significantly earlier than the 15-22 weeks required for
triple/quad screen or amniocentesis. Because the amniocentesis test is regarded
as 100% accurate and is therefore the standard of care, we expect to initially
offer the Tr-DNA test as a pre-screen for amniocentesis replacing the
triple/quad screen. We expect that a negative result will be a reliable negative
and that a positive result will be confirmed by amniocentesis.
EMPLOYEES
As of May 16, 2005 we had 9 full-time and 3 part-time employees. We believe
our employee relations are satisfactory.
AVAILABLE INFORMATION
We were incorporated in the State of Florida on April 26, 2002. On July 2,
2004, we acquired Xenomics, an unaffiliated California corporation by issuing
2,258,001 shares of our common stock to Xenomics' five shareholders in exchange
for all outstanding shares of Xenomics stock.
Our principal executive office is located at 420 Lexington Avenue, Suite
1701, New York, New York 10170 and our telephone number is (212) 297-0808.
We maintain a site on the world wide web at www.xenomics.com; however,
information found on our website is not incorporated by reference into this
report. We make available free of charge through our website our Securities and
Exchange Commission, or SEC, filings, including our annual report on Form
10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.
6
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION INCLUDED HEREIN AS WELL AS THE INFORMATION INCLUDED IN OTHER REPORTS
AND FILINGS MADE WITH THE SEC BEFORE INVESTING IN OUR COMMON STOCK. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE HARMED. THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE PART OR ALL OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE ARE A DEVELOPMENT STAGE COMPANY AND MAY NEVER COMMERCIALIZE ANY OF OUR
PRODUCTS OR SERVICES OR EARN A PROFIT.
We are a development stage company and have incurred losses since we were
formed. From our date of inception, April 26, 2002, through January 31, 2005, we
have accumulated a total deficit of ($3,426,606). To date, we have experienced
negative cash flow from development of the Tr-DNA technology. We currently have
no products ready for commercialization, have not generated any revenue from
operations and expect to incur substantial net losses for the foreseeable future
to further develop and commercialize the Tr-DNA technology. We cannot predict
the extent of these future net losses, or when we may attain profitability, if
at all. If we are unable to generate significant revenue from the Tr-DNA
technology or attain profitability, we will not be able to sustain operations.
WE WILL NEED TO RAISE SUBSTANTIAL ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, AND
OUR FAILURE TO OBTAIN FUNDING WHEN NEEDED MAY FORCE US TO DELAY, REDUCE OR
ELIMINATE OUR PRODUCT DEVELOPMENT PROGRAMS OR COLLABORATION EFFORTS.
To date, our sources of cash have been primarily limited to the sale of our
equity securities. We currently have no credit facility or committed sources of
capital. If our capital resources are insufficient to meet future requirements,
we will have to raise additional funds to continue the development and
commercialization of our Tr-DNA technology.
We cannot be certain that additional funding will be available on
acceptable terms, or at all. To the extent that we raise additional funds by
issuing equity securities, our stockholders may experience significant dilution.
Any debt financing, if available, may involve restrictive covenants that impact
our ability to conduct our business. If we are unable to raise additional
capital when required or on acceptable terms, we may have to significantly
delay, scale back or discontinue the development and/or commercialization of one
or more of our product candidates, restrict our operations or obtain funds by
entering into agreements on unattractive terms.
THE COMMERCIAL SUCCESS OF OUR PRODUCT CANDIDATES WILL DEPEND UPON THE DEGREE OF
MARKET ACCEPTANCE OF THESE PRODUCTS AMONG PHYSICIANS, PATIENTS, HEALTH CARE
PAYORS AND THE MEDICAL COMMUNITY.
The use of the Tr-DNA technology has never been commercialized for any
indication. Even if approved for sale by the appropriate regulatory authorities,
physicians may not order diagnostic tests based upon the Tr-DNA technology, in
which event we may be unable to generate significant revenue or become
profitable. Acceptance of the Tr-DNA technology will depend on a number of
factors including:
o acceptance of products based upon the Tr-DNA technology by physicians
and patients as safe and effective diagnostic products,
o adequate reimbursement by third parties;
o cost effectiveness;
o potential advantages over alternative treatments; and
o relative convenience and ease of administration.
OUR FAILURE TO OBTAIN HUMAN URINE SAMPLES FROM MEDICAL INSTITUTIONS FOR OUR
CLINICAL TRIALS WILL ADVERSELY IMPACT THE DEVELOPMENT OF OUR TR-DNA TECHNOLOGY.
7
We have executed research contracts, subject to IRB approval, with North
Shore - Long Island Jewish (LIJ) Health System in Lake Success, New York and
Eastern Virginia Medical School in Norfolk, Virginia in order to obtain human
urine samples from pregnant women for our clinical trials. There can be no
assurance we will receive IRB approval from these medical institutions. If we
are not able to obtain IRB approval, we will not be able to perform the required
clinical studies to develop our Tr-DNA technology. Even if we obtain IRB
approval, we may not be able to satisfy certain performance milestones required
to continue our clinical studies. These performance milestones include:
o the presence of sufficient Tr-DNA of fetal origin during first
trimester of pregnancy to perform genetic testing;
o our ability to reliably harvest Tr-DNA of fetal origin from random
maternal urine collection;
o developing a method with sufficient sensitivity to provide a reliable
"negative" result; and
o developing a method with an acceptable false positive rate.
IF OUR CLINICAL STUDIES DO NOT PROVE THE SUPERIORITY OF OUR TECHNOLOGIES, WE MAY
NEVER SELL OUR PRODUCTS AND SERVICES.
The results of our clinical studies may not show that tests using our
Tr-DNA technology are superior to existing testing methods. In that event, we
will have to devote significant financial and other resources to further
research and development, and commercialization of tests using our technologies
will be delayed or may never occur. Our earlier clinical studies were small and
included samples from high-risk patients. The results from these earlier studies
may not be representative of the results we obtain from any future studies,
including our next two clinical studies, which will include substantially more
samples and a larger percentage of normal-risk patients.
OUR INABILITY TO ESTABLISH STRONG BUSINESS RELATIONSHIPS WITH LEADING CLINICAL
REFERENCE LABORATORIES TO PERFORM TR-DNA TESTS USING OUR TECHNOLOGIES WILL LIMIT
OUR REVENUE GROWTH.
A key step in our strategy is to sell diagnostic products that use our
proprietary technologies to leading clinical reference laboratories that will
perform Tr-DNA tests. We currently have no business relationships with these
laboratories and have limited experience in establishing these business
relationships. If we are unable to establish these business relationships, we
will have limited ability to obtain revenues beyond revenue we can generate from
our limited in-house capacity to process tests.
OUR FAILURE TO CONVINCE MEDICAL PRACTITIONERS TO ORDER TESTS USING OUR
TECHNOLOGIES WILL LIMIT OUR REVENUE AND PROFITABILITY.
If we fail to convince medical practitioners to order tests using our
technologies, we will not be able to sell our products or license our
technologies in sufficient volume for us to become profitable. We will need to
make leading physicians aware of the benefits of tests using our technologies
through published papers, presentations at scientific conferences and favorable
results from our clinical studies. Our failure to be successful in these efforts
would make it difficult for us to convince medical practitioners to order Tr-DNA
tests for their patients.
IF WE LOSE KEY EMPLOYEES AND CONSULTANTS OR ARE UNABLE TO ATTRACT OR RETAIN
QUALIFIED PERSONNEL, OUR BUSINESS COULD SUFFER
Our success is highly dependent on our ability to attract and retain
qualified scientific and management personnel. We are highly dependent on our
management and scientific staff, including Dr. V. Randy White, Dr. Samuil
Umansky and Dr. Hovsep Melkonyan. Dr. White has been critical to the development
of our business through his knowledge of the industry and his industry contacts.
Drs. Umansky and Melkonyan have been critical to the development of our Tr-DNA
technology. The loss of the services of any of Drs. White, Umansky and Melkonyan
could have a material adverse effect on our operations. Although we have entered
into employment arrangements or agreements with each of Drs. White, Umansky and
Melkonyan, any of them may terminate his employment arrangement with us at any
time on short notice. Accordingly, there can be no assurance that these
employees will remain associated with us. The efforts of these persons will be
critical to us as we continue to develop our business and technology and as we
attempt to transition from a development stage company to a company with
commercialized products and services. If we were to lose one or more of these
key employees, we may experience difficulties in competing effectively,
developing our technology and implementing our business strategies.
Our planned activities may require additional expertise in areas such as
pre clinical testing, clinical trial management, regulatory affairs,
manufacturing and marketing. Such activities may require the addition of new
personnel and the development of additional expertise by existing management
personnel. We face intense competition for such personnel from other companies,
academic institutions, government entities and other organizations, and there
can be no assurance that we will be successful in hiring or retaining qualified
personnel. Our inability to develop additional expertise or to hire and retain
such qualified personnel could have a material adverse effect on our operations.
8
IF WE ARE UNABLE TO MANAGE OUR ANTICIPATED GROWTH, WE MAY NOT BE ABLE TO DEVELOP
OUR BUSINESS.
Our ability to develop our business requires an effective planning and
management process. We have 9 full-time and 3 part-time employees, as of May 16,
2005, and will need to hire additional employees in the near term. If we fail to
identify, attract, retain and motivate highly skilled personnel, we may be
unable to continue our development and commercialization activities.
We expect that our anticipated future growth will place a significant
strain on our management, systems and resources. To manage the anticipated
growth of our operations, we will need to increase management resources and
implement new financial and management controls, reporting systems and
procedures. If we are unable to manage our growth, we maybe unable to execute
our business strategy.
IF WE DO NOT RECEIVE REGULATORY APPROVALS, WE WILL NOT BE ABLE TO DEVELOP AND
COMMERCIALIZE THE TR-DNA TECHNOLOGY.
We need FDA approval to market products based on the Tr-DNA technology for
diagnostic uses in the United States and approvals from foreign regulatory
authorities to market products based on the Tr-DNA technology outside the United
States. If we fail to obtain regulatory approval for the marketing of products
based on the Tr-DNA technology, we will be unable to sell such products and will
not be able to sustain operations.
The regulatory review and approval process, which may include evaluation of
preclinical studies and clinical trials of products based on the Tr-DNA
technology, as well as the evaluation of manufacturing processes and contract
manufacturers' facilities, is lengthy, expensive and uncertain. Securing
regulatory approval for products based upon the Tr-DNA technology may require
the submission of extensive preclinical and clinical data and supporting
information to regulatory authorities to establish such products' safety and
effectiveness for each indication. We have limited experience in filing and
pursuing applications necessary to gain regulatory approvals.
Regulatory authorities generally have substantial discretion in the
approval process and may either refuse to accept an application, or may decide
after review of an application that the data submitted is insufficient to allow
approval of any product based upon the Tr-DNA technology. If regulatory
authorities do not accept or approve our applications, they may require that we
conduct additional clinical, preclinical or manufacturing studies and submit
that data before regulatory authorities will reconsider such application. We may
need to expend substantial resources to conduct further studies to obtain data
that regulatory authorities believe is sufficient. Depending on the extent of
these studies, approval of applications may be delayed by several years, or may
require us to expend more resources than we may have available. It is also
possible that additional studies may not suffice to make applications
approvable. If any of these outcomes occur, we may be forced to abandon our
applications for approval, which might cause us to cease operations.
WE MAY FACE SIGNIFICANT COMPETITION FROM LARGE BIOTECHNOLOGY, MEDICAL DIAGNOSTIC
AND OTHER COMPANIES WHICH COULD HARM OUR BUSINESS.
The medical diagnostic industry is intensely competitive and characterized
by rapid technological progress. In each of our potential product areas, we face
significant competition from large biotechnology, medical diagnostic and other
companies. Most of these companies have substantially greater capital resources,
research and development staffs, facilities and experience at conducting
clinical trials and obtaining regulatory approvals. In addition, many of these
companies have greater experience and expertise in developing and
commercializing products.
Since the Tr-DNA technology is under development, we cannot predict the
relative competitive position of any product based upon the Tr-DNA technology.
However, we expect that the following factors will determine our ability to
compete effectively: safety and efficacy; product price; turnaround time; ease
of administration; performance; reimbursement; and marketing and sales
capability.
We believe that many of our competitors spend significantly more on
research and development-related activities than we do. Our competitors may
discover new diagnostic tools or develop existing technologies to compete with
the Tr-DNA technology. Our commercial opportunities will be reduced or
eliminated if these competing products are more effective, are more convenient
or are less expensive than our products.
CHANGES IN HEALTHCARE POLICY COULD SUBJECT US TO ADDITIONAL REGULATORY
REQUIREMENTS THAT MAY DELAY THE COMMERCIALIZATION OF OUR TESTS AND INCREASE OUR
COSTS.
Healthcare policy has been a subject of discussion in the executive and
legislative branches of the federal and many state governments. We have
developed a staged commercialization strategy for our Tr-DNA tests based on
existing healthcare policies. Changes in healthcare policy, if implemented,
could substantially delay the use of our tests, increase costs, and divert
management's attention. We cannot predict what changes, if any, will be proposed
or adopted or the effect that such proposals or adoption may have on our
business, financial condition and results of operations.
9
REIMBURSEMENT MAY NOT BE AVAILABLE FOR PRODUCTS BASED UPON THE TR-DNA
TECHNOLOGY, WHICH COULD IMPACT OUR ABILITY TO ACHIEVE PROFITABILITY.
Market acceptance, sales of products based upon the Tr-DNA technology and
our profitability may depend on reimbursement policies and health care reform
measures. The levels at which government authorities and third-party payors,
such as private health insurers and health maintenance organizations, may
reimburse the price patients pay for such products could affect whether we are
able to commercialize our products. We cannot be sure that reimbursement in the
U.S. or elsewhere will be available for any of our products in the future. If
reimbursement is not available or is limited, we may not be able to
commercialize our products.
WE WILL NEED TO DEVELOP STRATEGIC PARTNERSHIPS TO MARKET AND COMMERCIALIZE
PRODUCTS BASED UPON THE TR-DNA TECHNOLOGY
We currently intend to develop strategic commercial partnerships to market
any future diagnostic products through third parties and will need to enter into
marketing arrangements with them. We may not be able to enter into marketing
arrangements with third parties on favorable terms, or at all. In the event that
we are unable to enter into marketing arrangements for products based upon the
Tr-DNA technology, we may not be able to develop an effective sales force to
successfully commercialize our products. If we fail to enter into marketing
arrangements for our future products and are unable to develop an effective
sales force, our revenues will be severely limited.
OTHER COMPANIES MAY DEVELOP AND MARKET METHODS FOR PRE-NATAL TESTING, WHICH MAY
MAKE OUR TECHNOLOGIES LESS COMPETITIVE, OR EVEN OBSOLETE.
The market for pre-natal testing is large and has attracted competitors,
some of which have significantly greater resources than we have. In the United
States alone, there are approximately 6.2 million pregnancies a year.
Currently, we face competition from alternative procedure-based detection
technologies such as triple-screen, quad-screen, ultrasound imaging, chorionic
villus sampling and amniocentesis. We may be unable to compete effectively
against these competitive technologies either because the test is superior or
because they are more established, physicians have more experience with them or
patients are better educated about them.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY EFFECTIVELY, WE MAY BE
UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGIES, WHICH WOULD IMPAIR
OUR COMPETITIVE ADVANTAGE.
We rely on patent protection as well as a combination of trademark,
copyright and trade secret protection, and other contractual restrictions to
protect our proprietary technologies, all of which provide limited protection
and may not adequately protect our rights or permit us to gain or keep any
competitive advantage. If we fail to protect our intellectual property, we will
be unable to prevent third parties from using our technologies and they will be
able to compete more effectively against us.
We cannot assure you that any of our currently pending or future patent
applications will result in issued patents, or that any patents issued to us
will not be challenged, invalidated or held unenforceable. We cannot guarantee
you that we will be successful in defending challenges made in connection with
our patents and patent applications.
In addition to our patents, we rely on contractual restrictions to protect
our proprietary technology. We require our employees and third parties to sign
confidentiality agreements and employees to also sign agreements assigning to us
all intellectual property arising from their work for us. Nevertheless, we
cannot guarantee that these measures will be effective in protecting our
intellectual property rights.
WE CANNOT GUARANTEE YOU THAT THE PATENTS ISSUED TO US WILL BE BROAD ENOUGH TO
PROVIDE ANY MEANINGFUL PROTECTION NOR CAN WE ASSURE YOU THAT ONE OF OUR
COMPETITORS MAY NOT DEVELOP MORE EFFECTIVE TECHNOLOGIES, DESIGNS OR METHODS
WITHOUT INFRINGING OUR INTELLECTUAL PROPERTY RIGHTS OR THAT ONE OF OUR
COMPETITORS MIGHT NOT DESIGN AROUND OUR PROPRIETARY TECHNOLOGIES.
If we are not able to protect our proprietary technology, trade secrets and
know-how, our competitors may use our inventions to develop competing products.
We own certain patents relating to the Tr-DNA technology. However, these patents
may not protect us against our competitors, and patent litigation is very
expensive. We may not have sufficient cash available to pursue any patent
litigation to its conclusion because currently we do not generate revenues.
We cannot rely solely on our current patents to be successful. The
standards that the U.S. Patent and Trademark Office and foreign patent offices
use to grant patents, and the standards that U.S. and foreign courts use to
interpret patents, are not the same and are not always applied predictably or
uniformly and can change, particularly as new technologies develop. As such, the
degree of patent protection obtained in the U.S. may differ substantially from
that obtained in various foreign countries. In some instances, patents have
issued in the U.S. while substantially less or no protection has been obtained
in Europe or other countries.
10
We cannot be certain of the level of protection, if any, that will be
provided by our patents if we attempt to enforce them and they are challenged in
court where our competitors may raise defenses such as invalidity,
unenforceability or possession of a valid license. In addition, the type and
extent of any patent claims that may be issued to us in the future are
uncertain. Any patents which are issued may not contain claims that will permit
us to stop competitors from using similar technology.
WE MAY INCUR SUBSTANTIAL COSTS TO PROTECT AND ENFORCE OUR PATENTS.
In order to protect or enforce our patent rights, we may initiate actions
against third parties. Any actions regarding patents could be costly and
time-consuming, and divert our management and key personnel from our business.
Additionally, they could put our patents at risk of being invalidated or
interpreted narrowly.
WE MAY BE SUBJECT TO SUBSTANTIAL COSTS AND LIABILITY OR BE PREVENTED FROM
SELLING OUR DIAGNOSTIC TESTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT RIGHTS.
Third parties may assert infringement or other intellectual property claims
against us. Because patent applications in the United States are maintained in
secrecy until a patent issues, others may have filed patent applications for
technology covered by our pending applications. There may be third-party
patents, patent applications and other intellectual property relevant to our
potential products that may block or compete with our products or processes.
Even if third-party claims are without merit, defending a lawsuit may result in
substantial expense to us and may divert the attention of management and key
personnel. In addition, we cannot assure you that we would prevail in any of
these suits or that the damages or other remedies if any, awarded against us
would not be substantial. Claims of intellectual property infringement may
require us to enter into royalty or license agreements with third parties that
may not be available on acceptable terms, if at all. We may also become subject
to injunctions against the further development and use of our technology, which
would have a material adverse effect on our business, financial condition and
results of operations.
Also, patents and applications owned by us may become the subject of
interference proceedings in the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to us,
as well as a possible adverse decision as to the priority of invention of the
patent or patent application involved. An adverse decision in an interference
proceeding may result in the loss or rights under a patent or patent application
subject to such a proceeding.
THE FOLLOWING RISKS RELATE PRINCIPALLY TO OUR COMMON STOCK AND ITS MARKET VALUE:
THERE IS A LIMITED MARKET FOR OUR COMMON STOCK.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"XNOM.OB." There is a limited trading market for our common stock. Accordingly,
there can be no assurance as to the liquidity of any markets that may develop
for our common stock, the ability of holders of our common stock to sell our
common stock, or the prices at which holders may be able to sell our common
stock.
OUR STOCK PRICE MAY BE VOLATILE.
The market price of our common stock is likely to be highly volatile and
could fluctuate widely in price in response to various factors, many of which
are beyond our control, including:
o technological innovations or new products and services by us or our
competitors;
o clinical trial results relating to our tests or those of our
competitors;
o reimbursement decisions by Medicare and other managed care
organizations;
o FDA regulation of our products and services;
o the establishment of partnerships with clinical reference
laboratories;
o health care legislation;
o intellectual property disputes;
o additions or departures of key personnel;
o sales of our common stock
o our ability to integrate operations, technology, products and
services;
o our ability to execute our business plan;
o operating results below expectations;
o loss of any strategic relationship;
o industry developments;
o economic and other external factors; and
o period-to-period fluctuations in our financial results.
Because we are a development stage company with no revenues to date, you
may consider any one of these factors to be material. Our stock price may
fluctuate widely as a result of any of the above.
11
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of the our common stock.
WE HAVE NOT PAID DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY DIVIDENDS IN THE
FUTURE. ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON
STOCK.
We have never paid cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. The payment of dividends on our
common stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.
OUR COMMON STOCK MAY BE DEEMED PENNY STOCK WITH A LIMITED TRADING MARKET.
Our common stock is currently listed for trading on the OTC Bulletin Board
which is generally considered to be a less efficient market than markets such as
NASDAQ or other national exchanges, and which may cause difficulty in conducting
trades and difficulty in obtaining future financing. Further, our securities are
subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the
Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock
rules apply to non-NASDAQ companies whose common stock trades at less than $5.00
per share or which have tangible net worth of less than $5,000,000 ($2,000,000
if the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
"penny stock" because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that we remain subject to the "penny stock
rules" for any significant period, there may develop an adverse impact on the
market, if any, for our securities. Because our securities are subject to the
"penny stock rules," investors will find it more difficult to dispose of our
securities. Further, for companies whose securities are traded in the OTC
Bulletin Board, it is more difficult: (i) to obtain accurate quotations, (ii) to
obtain coverage for significant news events because major wire services, such as
the Dow Jones News Service, generally do not publish press releases about such
companies, and (iii) to obtain needed capital.
ITEM 2. DESCRIPTION OF PROPERTY.
We entered into a lease for separate office space in New York, New York
directly from the unaffiliated landlord for September 2004 occupancy. The space
is approximately 2,000 square feet and the lease is for seven years ending
September 30, 2011. In addition, we have leased a laboratory facility of
approximately 3,700 sq. ft. in Monmouth Junction, New Jersey. We believe that
these facilities, together with laboratory facilities provided to SpaXen by
INMI, will be adequate for our anticipated level of activity.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the three
months ended January 31, 2005.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been quoted on the OTC Bulletin Board under the symbol
"XNOM.OB" since July 27, 2004. Prior to such date, our common stock was quoted
on the OTC Bulletin Board under the symbol "UKAR.OB" but never traded. The
following table shows the reported high and low closing bid quotations per share
for our common stock based on information provided by the OTC Bulletin Board.
Particularly since our common stock is traded infrequently, such
over-the-counter market quotations reflect inter-dealer prices, without markup,
markdown or commissions and may not necessarily represent actual transactions or
a liquid trading market.
2004 HIGH LOW
---- ---
Fourth Quarter $4.35 $3.65
Third Quarter 3.80 2.75
12
NUMBER OF STOCKHOLDERS
As of May 16, 2005, there were 151 holders of record of our common stock.
DIVIDEND POLICY
Historically, we have not paid any dividends to the holders of our
common stock and we do not expect to pay any such dividends in the foreseeable
future as we expect to retain our future earnings for use in the operation and
expansion of our business.
13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion should be read in conjunction with our consolidated
financial statements and notes to those statements starting on page F-1 of this
Annual Report on Form 10-KSB. In addition to historical information, the
following discussion and other parts of this annual report contain
forward-looking information that involves risks and uncertainties.
OVERVIEW
- --------
We are a development stage molecular diagnostic company that focuses on the
development of DNA-based tests using Tr-DNA. Tr-DNA's are fragments of DNA
derived from dying cells inside the body compartment. The intact DNA is
fragmented in these dying cells, appears in the blood stream and these fragments
have been shown to cross the kidney barrier and can be detected in urine.
Because Tr-DNA originates inside the body, using a safe and simple urine
collection, we believe our patented technology can be applied to a broad range
of testing including: prenatal testing, tumor detection and monitoring, tissue
transplantation, infectious disease, forensic identification, drug development
and bio-terrorism. In March 2004, we organized a joint venture with the
Spallanzani National Institute for Infectious Diseases (Instituto Nazionale per
le Malattie Infettive) in Rome, Italy, in the form of a new R&D company called
SpaXen Italia, S.R.L, or SpaXen, which will conduct research and development on
non-invasive diagnostic tests for infectious disease using Tr-DNA methodology.
HISTORY
- -------
We were incorporated in the State of Florida on April 26, 2002. On July 2, 2004,
we acquired Xenomics, an unaffiliated California corporation ("Xenomics Sub") by
issuing 2,258,001 shares of our common stock to Xenomics Subs' five shareholders
in exchange for all outstanding shares of Xenomics Sub stock (the "Exchange").
The Exchange was made according to the terms of a Securities Exchange Agreement
dated May 18, 2004. As part of the Exchange, we:
o redeemed 1,971,734 pre-split shares (the equivalent of 218,862,474
post-split shares) from Panetta Partners Ltd., a principal shareholder
at the time, for $500,000 or $0.0023 per share.
o amended our articles of incorporation to change our corporate name to
"Xenomics, Inc." and to split our stock outstanding prior to the
redemption 111 for 1 (effective July 26, 2004).
o entered into employment agreements with two of the former Xenomics Sub
shareholders and a consulting agreement with one of the former
Xenomics Sub shareholders.
o entered into a Voting Agreement with certain investors, the former
Xenomics Sub shareholders and certain principal shareholders.
o entered into a Technology Acquisition Agreement with the former
Xenomics Sub shareholders under which we granted an option to the
former Xenomics Sub holders to acquire Xenomics Sub technology if we
fail to apply at least 50% of the net proceeds of financing we raise
to the development of Xenomics Sub technology during the period ending
July 1, 2006 in exchange for all of our shares and share equivalents
held by the former Xenomics Sub holders at the time such option is
exercised.
BUSINESS COMBINATION
- --------------------
Our consolidated financial statements include the results of Xenomics, Inc. a
Florida corporation and our wholly owned subsidiary Xenomics Sub formed on
August 4, 1999. In accordance with Statement of Financial Accounting Standard
("SFAS") No. 141, "Business Combinations", the acquiring entity, for purposes of
applying purchase accounting to record the transaction concluded on July 2, 2004
and presenting our predecessor financial statements, was determined to be
Xenomics Sub. Thus the financial results of Xenomics, Inc., the stand alone
Florida parent corporation, are included in the consolidated financial
statements only since July 2, 2004 and our inception date is August 4, 1999.
Since inception on August 4, 1999 through January 31, 2005, we have sustained
cumulative net losses of $3,426,606. Our losses have resulted primarily from
research and development expenses, patent costs and legal and accounting
expenses. From inception through January 31, 2005, we have not generated any
revenue from operations. We expect to incur additional losses to perform further
research and development activities. We do not currently have any commercial
products and we do not expect to have any for the foreseeable future. Our
product development efforts are in their early stages and we cannot make
estimates of the costs or the time it will take to complete. The risk of
completion of any program is high because of the long duration of clinical
testing, regulatory approval and review cycles and uncertainty of the costs. Net
cash inflows from any products developed may take several years to achieve.
14
RESULTS OF OPERATIONS
- ---------------------
YEARS ENDED JANUARY 31, 2005 AND 2004.
- --------------------------------------
We had no revenues during the years ended January 31, 2005 and 2004 because
we do not have any commercial products and we do not expect to have any for the
foreseeable future.
Operating expenses increased to $3,342,027 during the year ended January
31, 2005 from $521 for the same period in 2004. This increase was primarily the
result of the business combination with Xenomics Sub discussed elsewhere in this
report. During the year ended January 31, 2005, we incurred directors and
officer's liability insurance expense, higher payroll and consulting expenses
and increased rent expenses as we entered into leases for our corporate
headquarters in New York and laboratory space in New Jersey and increased legal,
travel and office expenses.
Other income consisted of interest income of $6,009 during the year ended
January 31, 2005 as compared to in same period in 2004.
Net loss for the year ended January 31, 2005 was $3,336,018 compared to a
loss of $521 for the same period in 2004. The increase in the net loss in 2005
is the result of higher operating expenses as described above.
PLAN OF OPERATIONS
- ------------------
We plan to devote significant financial and other resources to further
research and development, and commercialize tests using our Tr-DNA technology.
Our initial focus is on two key applications: prenatal genetic testing and
infectious disease detection. If developed, we intend to sell these products to
independent clinical laboratories and hospital laboratories approved for
performance of high-complexity tests. We have completed our proof of principle
studies in these two key areas and must now validate these findings in human
clinical samples. It is expected that the next phase of product development will
last throughout the 2006 fiscal year. The next phase requires that we gain
access to clinical samples pertinent to each product focus. We have executed
research contracts with North Shore - Long Island Jewish (LIJ) Health System in
Lake Success, New York and Eastern Virginia Medical School in Norfolk, Virginia.
These research contracts are subject to approval by the medical institutions
respective IRB's which oversee the conduct of all studies involving human
subjects. There can be no assurance that our applications will be approved by
the respective IRB's. Because these studies are overseen by the respective
IRB's, they can be terminated for safety and efficacy issues. If we do not gain
access to human clinical samples, or do not complete the studies, this will
prevent us from developing FDA approved products and will severely limit our
ability to generate revenue through product sales.
We intend to develop our infectious disease applications at SpaXen, our
joint venture with INMI located in Rome Italy. Under the terms of our agreement
with INMI, INMI provides laboratory space to SpaXen and financial support in the
form of chemicals and scientific personnel to work on applications of the Tr-DNA
technology for a broad variety of infectious diseases. The Spallanzani Institute
is a large AIDS treatment center and provides patient care to 4,000 infected
patients. The SpaXen joint venture provides access to needed human clinical
samples for development of our HIV and TB products. If our agreement with INMI
is terminated, we may not be able to gain access to needed human clinical
samples which will prevent us from developing FDA approved products and will
severely limit our ability to generate revenue through product sales.
Our plan of operation is to continue our product development in the two
focus areas of prenatal genetic testing and infectious disease detection with a
goal toward eventually bringing FDA approved products to market. Because cancer
detection and monitoring studies are long and expensive, we are actively seeking
academic-based researchers who are funded to perform evaluations of new
cutting-edge technologies. In this way we expect to progress our understanding
of cancer detection and monitoring with little or no cost to us. Because organ
transplant monitoring is not truly "diagnostic," in the next fiscal year we will
begin to explore licensing arrangements with drug companies who manufacture the
immune-suppression drugs used to prevent organ rejection. If we can conclude a
license agreement, this may provide an early source of revenue for us. However,
there can be no assurance that appropriate strategic partnership or licensing
arrangements will be completed in either of these areas.
We expect it will take 2 to 3 years for our first product to be
commercialized. During the second half of 2006, with the addition of appropriate
regulatory personnel, we intend to create a good manufacturing practice, or GMP,
compliant manufacturing facility. At the same time, we must adopt the FDA
Quality System Regulations (QSR) system of documentation. In most cases, we
expect to purchase bulk quantities of specified raw materials and reagents from
qualified vendors. In some cases, we may synthesize certain materials and
reagents. We expect our manufacturing facility to use bulk materials to assemble
reagent sets, perform quality control testing and package the reagent sets for
shipping and distribution Because we do not have manufacturing experience, we
may not be able to establish a GMP compliant facility or develop reproducible
and effective manufacturing processes at a reasonable cost. In such event, we
will have to rely on third party manufacturers whose availability and cost is
presently unclear.
We entered into a lease for corporate office space in New York City
comprising approximately 2,000 square feet, for seven years ending September 30,
2011. In addition, we have leased a laboratory facility of approximately 3,700
sq. ft. in Monmouth Junction, New Jersey. We believe that these facilities,
together with laboratory facilities provided to SpaXen by INMI, will be adequate
for our anticipated level of activity during fiscal year 2006.
15
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
As of January 31, 2005 we had $3,226,965 in cash and cash equivalents,
compared to $339 as of January 31, 2004. On July 2, 2004 we completed a private
placement of 2,645,210 shares of our common stock for aggregate proceeds of
$2,512,950, or $0.95 per share. The sale was made to 17 accredited investors
directly by us without any general solicitation or broker and thus no finder's
fees were paid.
On January 28, 2005, we closed the first traunche of a private placement in
which we sold 1,470,718 shares of common stock and 367,681 warrants to certain
investors (the "Investors"). The securities were sold as a unit (the "Units") at
a price of $1.95 per Unit for aggregate proceeds of approximately $2.9 million.
Each Unit consisted of one share of common stock and a warrant to purchase one
quarter share of common stock. The warrants are immediately exercisable at $2.95
per share and are exercisable at any time within five years from the date of
issuance. We paid an aggregate $193,438 and issued an aggregate 123,659 warrants
to purchase common stock to various selling agents. In addition, we issued an
aggregate 24,461 shares of common stock to certain of such selling agents, in
lieu of cash. The warrants are immediately exercisable at $2.15 per share and
will expire five years after issuance. On April 7, 2005, we closed the second
traunche of the private placement and sold 1,515,384 shares of common stock and
378,846 warrants to certain additional Investors for aggregate proceeds of
approximately $2.95 million. We paid an aggregate $236,400 and issued an
aggregate 121,231 warrants to purchase common stock to Axiom Capital Management
who acted as the selling agent. The warrants are immediately exercisable at
$2.15 per share and will expire five years after issuance.
In connection with the offer and sale of securities to the Investors we
also entered into a Registration Rights Agreement, dated as of January 28, 2005,
with the Investors pursuant to which we agreed to file, within 120 days after
the closing, a registration statement covering the resale of the shares of
common stock sold to the Investors and the shares of common stock issuable upon
exercise of the Warrants issued to the Investors.
On September 15, 2004 we entered into a seven year lease for our corporate
headquarters in New York City comprising 1,963 square feet with an approximate
fixed rent of $75,000 per year through 2011. On July 7, 2004, we entered into a
two year lease for our laboratory in New Jersey comprising 3,698 square feet
with an approximate fixed rent of $7,400 per month through 2006.
Our working capital requirements will depend upon numerous factors
including but not limited to the nature, cost and timing of: product
development; pre-clinical and clinical testing; obtaining regulatory approvals;
technological advances and our ability to establish collaborative arrangements
with research organizations and individuals needed to commercialize our
products. Our capital resources will be focused primarily on the clinical
development and regulatory approval of our Tr-DNA technology. We expect that our
existing capital resources will be sufficient to fund our operations for at
least the next 12 months. We will be required to raise additional capital to
complete the development and commercialization of our current product
candidates.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of January 31, 2005.
CONTRACTUAL OBLIGATIONS AND COMMITTMENTS
The following is a summary of our significant contractual cash obligations
for the periods indicated that existed as of January 31, 2005, and is based on
information appearing in the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report on Form 10-KSB:
Less than 1-2 3-5 More than
Total 1 Year Years Years 5 Years
----- ------ ----- ----- --------
Operating Leases $ 649,303 $160,878 $200,383 $234,249 $ 53,793
Employment and Consulting Agreements 1,728,375 700,000 700,000 328,375 --
---------- -------- -------- -------- --------
Total obligations $2,377,678 $860,878 $900,383 $562,624 $ 53,793
========== ======== ======== ======== ========
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Our accounting policies are described in Note 3 of the
notes to our consolidated financial statements included in this Annual Report on
Form 10-KSB for the fiscal year ended January 31, 2005. The financial statements
are prepared in accordance with accounting principles generally accepted in the
United States of America, which requires management to make estimates and
assumptions that affect the reported amounts 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
reporting period. Actual results could differ from those estimates
16
Accounting for Business Combinations - We have applied the Financial
Accounting Standards Board Statement of Financial Accounting Standard ("SFAS")
No. 141 "Business Combinations" to the Exchange concluded on July 2, 2004. SFAS
No. 141 addresses financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16, "Business Combinations" in its entirety. All
business combinations in the scope of this Statement are now to be accounted for
using only one method, the purchase method. The accompanying consolidated
financial statements of our company which include the results of Xenomics, Inc.
a Florida corporation and its wholly owned subsidiary Xenomics Sub have been
prepared in accordance with SFAS No. 141 and we have determined that the
acquiring entity was Xenomics Sub.
Thus, while Xenomics, Inc. is the parent and registrant, the results of
operations of Xenomics, Inc. are included in our consolidated statement of
operations only since July 2, 2004 and our date of "inception" for accounting
and reporting purposes is August 4, 1999, the date of incorporation of Xenomics
Sub.
Accounting for stock based compensation - We have adopted Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." As provided for by SFAS 123, we have also elected to continue to
account for our stock-based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees ("APB 25")." Accordingly we have recorded no compensation expense to
the extent of employee or director services rendered based on the intrinsic
value of stock options granted under the plans during the years ended January
31, 2005 and 2004.
In December 2002, the Financial Accounting Standards Board issued SFAS No.
148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an
amendment of FASB Statement No. 123," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 and accordingly we have made prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.
Research and development - we do not currently have any commercial
molecular diagnostic products, and we do not expect to have such for several
years, if at all and therefore all research and development costs are expensed
as incurred. While certain of our research and development costs may have future
benefits, our policy of expensing all research and development expenditures is
predicated on the fact that we have no history of successful commercialization
of molecular diagnostic products to base any estimate of the number of future
periods that would be benefited. These include expenditures in connection with
operating our in-house research and development laboratory, salaries and staff
costs, application and filing for regulatory approval of our proposed products,
patent legal, filing and maintenance expenses, regulatory and scientific
consulting fees as well as purchased in-process research and development.
Specifically the fair value of the 2,258,001 common shares issued to former
Xenomics Sub shareholders totaled $2,145,101 on July 2, 2004, the date of the
business combination discussed above. The total consideration paid was allocated
in full to Xenomics Sub research and development projects which had not yet
reached technological feasibility and having no alternative use was charged to
purchased in-process research and development expense during the year ended
January 31, 2005.
17
ITEM 7. FINANCIAL STATEMENTS.
The full text of our audited consolidated financial statements for the
fiscal years ended January 31, 2005 and 2004 begins on page F-1 of this Annual
Report on Form 10-KSB.
ITEM 8A. CONTROLS AND PROCEDURES.
Our Chief Executive Officer and Principal Financial Officer, based on
evaluation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended)
required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of January 31, 2005,
have concluded that our disclosure controls and procedures were effective to
ensure the timely collection, evaluation and disclosure of information relating
to our company that would potentially be subject to disclosure under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated there under.
There has been no significant change in our internal controls over
financial reporting that could significantly affect internal controls subsequent
to October 31, 2004.
18
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding our executive officers and
directors as of May 16, 2005:
Name Age Positions
L. David Tomei, Ph.D............... 60 Chairman of the Board, President , SpaXxen Italia, srl
V. Randy White, Ph.D............... 58 Chief Executive Officer and Director
Hovsep Melkonyan, Ph.D............. 53 Vice President, Research
Bernard Denoyer.................... 57 Vice President - Controller
Samuil Umansky, M.D., Ph.D......... 63 President and Chief Scientific Officer and Director
Christoph Bruening................. 37 Director
Thomas Adams, Ph.D................. 62 Director
Donald H. Picker, Ph.D............. 59 Director
L. DAVID TOMEI, PH.D. Dr. Tomei, one of our founders, has served as Chairman of
the Board of Directors since July 2, 2004. In 1998, Dr. Tomei co-founded
Xenomics, a California corporation (previously known as Diagen, Inc.) and was
its Chairman until its acquisition by us on July 2, 2004. From August 1998 to
January 1999, Dr. Tomei lectured as a Visiting Professor at the University of
Rome, Italy. From September 1992 to July 1998, Dr. Tomei was a scientist with
LXR Biotechnology, Inc., a company of which he was one of the founders. Dr.
Tomei graduated from Canisius College (1968) and received his Master's of
Science (1971) in Biochemistry, and Doctorate in Molecular Pharmacology (1974)
from the Roswell Park Cancer Institute Division of SUNY. From 1973 to 1975, he
headed the FMD virus vaccine R&D laboratory at the Plum Island Animal Disease
Laboratory (USDA, ARS). Dr. Tomei was a scientist at Roswell Park and The Ohio
State University Cancer Center through 1992. Dr. Tomei has published over 140
scientific papers, two books (Cold Spring Harbor Laboratory Press), and holds 16
U.S. patents in the fields of biotechnology and optical design and engineering.
He organized the first International Conference on Apoptosis held at Cold Spring
Harbor, 1991, and, together with Luc Montagnier, organized the First
International Conference on Apoptosis and AIDS held in Paris, 1994.
V. RANDY WHITE, PH.D. Dr. White has served as our Chief Executive Officer since
September 3, 2004 and a director since October 2004. From June 1, 2000 to
December 31, 2002, Dr. White was the Chief Executive Officer of Nanogen, Inc.
From September 1997 to June 2000, Dr. White was the Executive Vice President of
Operations and Research and Development for American Medical Laboratories, Inc.
From September 1975 to December 1992, Dr. White served in various capacities
including Senior Vice President of Operation from 1985 to 1992 of National
Health Laboratories Holdings Inc. Dr White earned a Ph.D. degree in Analytical
Chemistry from the University of Houston in 1972 and completed a post-doctoral
training program in Clinical Chemistry at Damon Medical Laboratories in
Birmingham, Alabama in conjunction with the University of Alabama at Birmingham
in 1973.
HOVSEP MELKONYAN, PH.D. Dr. Melkonyan has served as our Vice President, Research
since July 2004. Dr. Melkonyan graduated from Yerevan State University (Armenia)
in 1974 and received qualifications in two major subjects: physico-chemical
structure of DNA molecules and kinetics of enzymatic reactions. He completed his
Ph.D. program in 1981 at the Institute of Biological Physics, USSR Academy of
Science ("IBP"). Following graduate school, in 1982 Dr. Melkonyan joined The
Institute of Molecular Genetics of the Ministry of USSR Medical Industry. In
1993, Dr. Melkonyan moved to the U.S. and joined LXR Biotechnology, Inc. where
he remained until 1999. Dr. Melkonyan was associated with Xenomics from 1999
until its acquisition by us on July 2, 2004.
SAMUIL R. UMANSKY, M.D., PH.D. Dr. Umansky, one of our founders, has served as
our President, Chief Scientific Officer and Director since July 2, 2004. Dr.
Umansky co-founded Xenomics with Dr. Tomei in 1998. From August 1997 to August
1999, Dr. Umansky was the Chief Scientific Officer of LXR Biotechnology, Inc.
From January 1996 to 1997 he was LXR's Vice President of Molecular Pharmacology
and prior thereto, he was LXR's Director of Cell Biology. Dr. Umansky graduated
from Kiev Medical School (USSR) in 1964. In 1968 he received a Ph.D. and in 1975
a Dr.Sci. in radiobiology from IBP. From 1968 to 1993 Dr. Umansky was a
professor at IBP. He was among the very first scientists to begin studies of
apoptosis, or programmed cell death. He performed pioneering studies on DNA
degradation in dying cells and proposed a hypothesis on the existence of a
genetic cell death program, its evolutionary origin and role in carcinogenesis,
concepts that more recently have become widely accepted. In 1987, for
achievements on the investigation of radiation induced cell death, Dr. Umansky
was awarded the Soviet State Prize, the highest scientific honor awarded to a
scientist in the Soviet Union. He is a co-founder of the USSR Radiobiological
Society.
19
BERNARD DENOYER, CPA. Mr. Denoyer has served as our Vice President and
Controller since February 2005. Since January 2004, Mr. Denoyer has also served
as Vice President, Finance for Callisto Pharmaceuticals, Inc., a public
biotechnology company. From July 2003 to December 2003, Mr. Denoyer served as an
independent consultant to Callisto providing interim CFO services. In addition,
Mr. Denoyer provided interim CFO and other services to emerging technology
companies, principally portfolio companies of Marsh & McLennan Capital, LLC,
from October 2000 to December 2003. From October 1994 until September 2000, Mr.
Denoyer served as Chief Financial Officer and Senior Vice President at META
Group, Inc., a public information technology research company and was
instrumental in their 1995 IPO. From 1990 to 1994 Mr. Denoyer served as Vice
President, Finance for Environetics, Inc. a biopharmaceutical water diagnostic
business acquired by IDEXX Laboratories in 1993. He earned his CPA with Ernst &
Young, has a B.A. in Economics from Fairfield University and an MBA in Finance
with honors from the Columbia Business School
CHRISTOPH BRUENING Mr. Bruening has been a director of our company since
February 2004 and has served as our President, Secretary and Treasurer from
February 2004 to March 2005. Mr. Bruening has served as a Director of Callisto
Pharmaceuticals, Inc. since May 2003. Mr. Bruening organized Value Relations
GmbH, a full service investor relations firm operating in Frankfurt, Germany in
1999 and currently serves as its Managing Partner. From 1998 to 1999, Mr.
Bruening served as a funds manager and Director of Asset Management for Value
Management and Research AG, a private investment fund and funds manager in
Germany. From 1997 to 1998, Mr. Bruening was a financial analyst and Head of
Research for Value Research GmbH. On February 26, 2004. In addition, Mr.
Bruening is currently a member of the advisory board of Clarity AG.
THOMAS ADAMS, PH.D. Dr. Adams has served as a director since October 2004. Dr.
Adams is the founder and Chairman Emeritus of Genta, Inc., a publicly held
biotechnology company in the field of antisense technology, and, since September
1998, has been chairman of the board of directors and Chief Executive Officer of
Leucadia Technologies, a privately held company in the field of medical devices.
From 1989 to 1997, Dr. Adams served as Chief Executive Officer of Genta, Inc. In
1984, Dr. Adams founded Gen-Probe, Inc., a publicly held company that develops
and manufactures diagnostic products, and served as its Chief Executive Officer
and Chairman until its acquisition by Chugai Biopharmaceuticals, Inc. in 1989.
From 1980 to 1984, Dr. Adams was Senior Vice President of Research and
Development at Hybritech, which was later acquired by Eli Lilly and Company in
1986. Dr. Adams has also held management positions at Technicon Instruments and
the Hyland Division of Baxter Travenol, and served as a director of Biosite
Diagnostics, Inc., a publicly held medical research firm, from 1989 to 1998. In
addition, Dr. Adams served as a director of XiFin, Inc., a privately held
application service provider focusing on the financial management needs of
laboratories, and Bio-Mems, a privately held company. Dr. Adams is a director of
La Jolla Pharmaceutical Company. Dr. Adams holds a Ph.D. in Biochemistry from
the University of California at Riverside.
DONALD H. PICKER, PH.D. Dr. Picker was appointed a director of the Company on
July 2, 2004. He has served as Executive Vice President, R&D of Callisto
Pharmaceuticals, Inc. since April 2004. From May 2003 until April 2004, Dr.
Picker served as Senior Vice President, Drug Development of Callisto. Dr. Picker
was Chief Executive Officer and President of Synergy Pharmaceuticals Inc. and a
member of its board of directors from 1998 to April 2003. From 1996 to 1998, Dr.
Picker was President and Chief Operating Officer of LXR Biotechnology Inc. From
1991 to 1996, he was Senior Vice President of Research and Development at Genta
Inc.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
During fiscal 2004, our common stock was not registered under Section 12 of
the Securities Exchange Act of 1934, as amended, and therefore our executive
officers, directors and ten percent or more beneficial holders of our common
stock were not subject to Section 16(a).
CODE OF BUSINESS CONDUCT AND ETHICS
We have adopted a formal Code of Business Conduct and Ethics applicable to
all Board members, executive officers and employees. A copy of this Code of
Business Conduct and Ethics is filed as an exhibit to this annual report.
AUDIT COMMITTEE
The audit committee's responsibilities include: (i) reviewing the
independence, qualifications, services, fees, and performance of the independent
auditors, (ii) appointing, replacing and discharging the independent auditors,
(iii) pre-approving the professional services provided by the independent
auditors, (iv) reviewing the scope of the annual audit and reports and
recommendations submitted by the independent auditors, and (v) reviewing our
financial reporting and accounting policies, including any significant changes,
with management and the independent auditors. The audit committee currently
consists of Thomas Adams and Donald Picker. Our Board has determined that each
of Mr. Adams and Mr. Picker is "independent" as that term is defined under
applicable SEC rules. We currently do not have an audit committee financial
expert serving on our audit committee. We expect to shortly appoint a director
who qualifies as an "audit committee financial expert" as defined in Item 401(e)
of Regulation S-B promulgated by the SEC.
20
COMPENSATION COMMITTEE
We have a compensation committee consisting of Thomas Adams and Donald
Picker. The compensation committee reviews, and makes recommendations to the
board of directors regarding, the compensation and benefits of our chief
executive officer and other executive officers. The compensation committee also
administers the issuance of stock options and other awards under our stock plan
and establishes and reviews policies relating to the compensation and benefits
of our employees.
ITEM 10. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth certain information
concerning compensation paid to our Chief Executive Officer and our four most
highly paid executive officers (the "Named Executive Officers") whose total
annual salary and bonus for services rendered in all capacities for the year
ended January 31, 2005 was $100,000 or more.
Summary Compensation Table
Annual Compensation
Name and Principal Year Other Annual
Position Salary Bonus Compensation
($) ($) ($)
L. David Tomei, Ph.D.
Chairman 2005 58,333 - -
V. Randy White, Ph.D, Chief
Executive Officer 2005 62,019 - -
Samuil R.Umansky, M.D.,
Ph.D, President 2005 83,461 - -
Hovsep Melkonyan, Ph.D, Vice
President, Research 2005 69,153 - -
Option Grants in Fiscal Year 2005
The following table sets forth certain information concerning grants of
stock options to the Named Executive Officers during the fiscal year ended
January 31, 2005.
Number of Shares Percent of Total Options
Underlying Options Granted to Employees in Exercise Price Expiration
Name Granted 2005 Per Share Date
L. David Tomei, Ph.D. Chairman 1,012,500 18.6% $1.25 6/24/2014
V. Randy White, Ph.D,
Chief Executive Officer 1,425,000 26.2% $2.25 9/13/2014
Samuil R.Umansky, M.D., Ph.D, President 1,012,500 18.6% $1.25 6/24/2014
Hovsep Melkonyan, Ph.D, Vice President,
Research 675,000 12.4% $1.25 6/24/2014
21
Aggregated Option Exercises in Fiscal Year 2005 and Year End Option Values
The following table provides certain information with respect to the Named
Executive Officers concerning the exercise of stock options during the fiscal
year ended January 31, 2005 and the value of unexercised stock options held as
of such date.
Number of Shares Underlying Options at Value of Unexercised In the Money
January 31, 2005 Options at January 31, 2005
Name Exercisable Unexercisable Exercisable Unexercisable
(1)
L. David Tomei, Ph.D. Chairman 1,012,500 $2,784,375
V. Randy White, Ph.D,
Chief Executive Officer 1,425,000 $2,493,750
Samuil R.Umansky, M.D., Ph.D, President 1,012,500 $2,784,375
Hovsep Melkonyan, Ph.D, Vice President,
Research 675,000 $1,856,250
During the fiscal year ended January 31, 2005, no options were exercised.
(1) Amounts calculated by subtracting the exercise price of the options from the
market value of the underlying common stock using the closing price on the OTC
Bulletin Board of $4.00 per share on January 31, 2005.
EMPLOYMENT AGREEMENTS
On February 14, 2005, we entered into an employment agreement with Bernard
Denoyer, pursuant to which Mr. Denoyer will serve as our Vice
President-Controller for period of 1 year commencing February 14, 2005. The
agreement is automatically renewed for successive 1 year periods until written
notice not to renew is delivered by either us or Mr. Denoyer. Mr. Denoyer's
salary is $60,000 per year. In connection with the employment agreement, Mr.
Denoyer received a grant of 75,000 incentive stock options pursuant to our stock
option plan with an exercise price of $2.50 per share. Such options will vest at
the rate of 25,000 per year for a period of three years beginning on January 14,
2006.
On July 2, 2004, we entered into an employment agreement with Samuil
Umansky, Ph.D., pursuant to which Dr. Umansky serves as our President and Chief
Scientific Officer. Dr. Umansky's employment agreement is for a term of 36
months beginning June 24, 2004 and is automatically renewable for successive one
year periods at the end of the term. Dr. Umansky's salary is $175,000 per year
and he is eligible to receive a cash bonus of up to 50% of his salary per year.
In connection with the employment agreement, Dr. Umansky received a grant of
1,012,500 stock options which vest in annual installments of 253,125, 303,750
and 455,625 and are exercisable at $1.25 per share.
On July 2, 2004, we entered into an employment agreement with Hovsep
Melkonyan, Ph.D., pursuant to which Dr. Melkonyan serves as Vice President,
Research for a term of 36 months beginning June 24, 2004, which is automatically
renewable for successive one year periods at the end of the term. Dr.
Melkonyan's salary is $135,000 per year and he is eligible to receive a cash
bonus of up to 50% of his salary per year. In connection with the employment
agreement, Dr. Melkonyan received a grant of 675,000 stock options which vest in
annual installments of 168,750, 202,500 and 303,750 and are exercisable at $1.25
per share.
On July 2, 2004, we entered into a consulting agreement with L. David
Tomei, Ph.D., pursuant to which Dr. Tomei agreed to serve as Co-Chairman of our
Board. Dr. Tomei's consulting agreement is for a term of 36 months beginning
June 24, 2004 and is automatically renewable for successive one year periods at
the end of the term. Dr. Tomei's annual consulting fee is $175,000 per year and
he is eligible to receive cash bonuses upon the achievement of certain
milestones. Dr. Tomei received a grant of 1,012,500 stock options which vest in
annual installments of 253,125, 303,750 and 455,625 and are exercisable at $1.25
per share.
On September 3, 2004, Dr. White and the Company entered into a letter
agreement. Pursuant to the letter agreement, the Company will employ Dr. White
as Chief Executive Officer for a period of 3 years commencing September 13,
2004. Dr. White will be paid an annual base salary of $215,000. We have agreed
to rent for Dr. White's benefit a studio apartment in New York, New York.
Dr. White was granted an aggregate 1,425,000 incentive stock options
pursuant to our Plan with an exercise price of $2.25 per share. 300,000 of such
options shall vest on the first anniversary of the date of the Letter Agreement,
350,000 of such options shall vest on the second anniversary of the date of the
letter agreement and 400,000 of such options shall vest on the third anniversary
of the date of the letter agreement (the "Sale Options"). The remaining 375,000
options shall vest in the event there is a sale of the Company for consideration
equal to $15.00 per share or more.
22
In the event there is a sale of the Company for consideration exceeding
$9.25 per share, Dr. White shall be entitled to a cash bonus of $500,000 and all
of his unvested Sale Options shall immediately vest. In the event there is a
sale of the Company for consideration equal to $15.00 per share or more, Dr.
White shall be entitled to a cash bonus of $750,000. In addition, at any time
during the term of his employment, in the event the stock price of the common
stock of the Company exceeds $9.25 per share for 60 consecutive trading days,
all of Dr. White's unvested Sale Options shall immediately vest.
STOCK OPTION PLAN
In June 2004 we adopted the Xenomics Stock Option Plan, as amended (the
"Plan"). We rely on incentive compensation in the form of stock options to
retain and motivate directors, executive officers, employees and consultants.
Incentive compensation in the form of stock options is designed to provide
long-term incentives to directors, executive officers employees and consultants,
to encourage them to remain with us and to enable them to develop and maintain
an ownership position in our common stock.
The Plan authorizes the grant of stock options to directors, eligible
employees, including executive officers and consultants. The value realizable
from exercisable options is dependent upon the extent to which our performance
is reflected in the value of our common stock at any particular point in time.
Equity compensation in the form of stock options is designed to provide
long-term incentives to directors, executive officers and other employees. We
approve the granting of options in order to motivate these employees to maximize
stockholder value. Generally, vesting for options granted under the Plan is
determined at the time of grant, and options expire after a 10-year period.
Options are granted at an excise price not less than the fair market value at
the date of grant. As a result of this policy, directors, executives, employees
and consultants are rewarded economically only to the extent that the
stockholders also benefit through appreciation in the market. Options granted to
employees are based on such factors as individual initiative, achievement and
performance. In administering grants to executives, we evaluate each executive's
total equity compensation package. We generally review the option holdings of
each of the executive officers, including vesting and exercise price and the
then current value of such unvested options. We consider equity compensation to
be an integral part of a competitive executive compensation package and an
important mechanism to align the interests of management with those of our
stockholders.
A total of 5,000,000 shares have been reserved for issuance under the Plan.
As of January 31, 2005, options for 5,445,000 shares were outstanding under our
Stock Option Plan. 445,000 of such options have been granted to subject to
stockholder approval of an increase in the number of shares that can be granted
under the plan. The options we grant under the Plan may be either "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or non-statutory stock options at the discretion
of the Board of Directors and as reflected in the terms of the written option
agreement. The Plan is not a qualified deferred compensation plan under Section
401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA).
The following table summarizes information about our equity compensation plans
as of January 31, 2005.
EQUITY COMPENSATION PLAN INFORMATION
Plan Category Number of Shares of Common Weighted-Average Exercise Number of Options
- ------------- Stock to be Issued upon Price of Outstanding Remaining Available for
Exercise of Outstanding Options Future Issuance Under
Options Equity Compensation Plans
(excluding securities
reflected in column (a))
(a) (b) (c)
Equity Compensation Plans 5,000,000 $1.50 0
Approved by Stockholders
Equity Compensation Plans 1,956,341 $2.71 n/a
Not Approved by
Stockholders
--------- --------
Total 6,956,341 $1.84 0
--------- --------
23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates beneficial ownership of our common stock as of May
16, 2005 by:
o Each person or entity known by us to beneficially own more than 5% of
the outstanding shares of our common stock;
o Each of our executive officers and directors; and
o All of our executive officers and directors as a group.
Except as otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares beneficially owned, subject to
community property laws, where applicable. Unless other indicated, the address
of each beneficial owner listed below is c/o Xenomics, Inc., 420 Lexington
Avenue, Suite 1701, New York, New York 10170.
Percentage of Shares
Name of Beneficial Owner Number of Shares Beneficially Owned (1)
------------------------ ---------------- ----------------------
Executive officers and directors:
L. David Tomei 1,191,485 (2) 6.2
Chairman of the Board
V. Randy White 0
Chief Executive Officer
and Director
Bernard Denoyer 0
Vice President, Controller
Samuil Umansky 1,138,934 (3) 5.9
President, Chief Scientific Officer
and Director
Hovsep Melkonyan 517,553 (4) 2.7
Vice President, Research
Christoph Bruening 115,000 *
Director
Donald Picker 100,000 (5) *
Director
Thomas Adams 0
Director
All Directors and Executive Officers 2,462,972 (6) 12.5
as a group (8 persons)
Other 5% Stockholders:
Gabriele M. Cerrone 1,181,358 (7) 6.1
* less than 1%
(1) Applicable percentage ownership as of May 16, 2005 is based upon 18,949,300
shares of common stock outstanding. Beneficial ownership is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended.
Under Rule 13d-3, shares issuable within 60 days upon exercise of outstanding
options, warrants, rights or conversion privileges ("Purchase Rights") are
deemed outstanding for the purpose of calculating the number and percentage
owned by the holder of such Purchase Rights, but not deemed outstanding for the
purpose of calculating the percentage owned by any other person. "Beneficial
ownership" under Rule 13d-3 includes all shares over which a person has sole or
shared dispositive or voting power.
24
(2) Includes 253,125 shares issuable upon exercise of stock options.
(3) Includes 253,125 shares issuable upon exercise of stock options.
(4) Includes 168,750 shares issuable upon exercise of stock options.
(5) Includes 75,000 shares issuable upon exercise of stock options.
(6) Include 750,000 shares issuable upon exercise of stock options.
(7) Consists of 262,500 shares issuable upon exercise of stock options owned by
Gabriele M. Cerrone and 918,858 shares of Common Stock owned by Panetta
Partners, Ltd.. Mr. Cerrone is the sole general partner of Panetta
Partners, Ltd. and in such capacity only exercises voting and dispositive
control over securities owned by Panetta. As such, Mr. Cerrone may be
deemed, solely for purposes of Section 13(d) of the Securities Exchange Act
of 1934, as amended, to "beneficially" own securities in which he has no
pecuniary interest and he therefore disclaims such beneficial interest.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As part of our acquisition of Xenomics and the completion of the private
placement, we redeemed 1,971,734 pre-split shares (the equivalent of 218,862,474
post-split shares) from Panetta Partners Ltd., our then single largest
shareholder, for $500,000. The principal purpose of the redemption was to lower
the relative percentage of shares owned by Panetta Partners compared to
non-affiliates.
We sold 100,000 of the 2,645,210 shares sold in the June 2004 private
placement to Christoph Bruening, a director and officer.
25
ITEM 13. EXHIBITS
Exhibit Description
2.1 Capital Stock Purchase Agreement between Panetta Partners, Ltd. and
Jeannine Karklins dated February 24, 2004 (1)
3.1 Articles of Incorporation of the Company (2)
3.2 Articles of Amendment to Articles of Incorporation of Used Kar
Parts, Inc. changing its name to Xenomics, Inc., filed on July 14,
2004 with the Florida Secretary of State (3)
3.2 Amended and Restated By-Laws (4)
4.1 Form of Stock Certificate, $.001 par value (5)
4.2 Form of Warrant issued to Irv Weiman, Laura Dever and Len Toboroff
(6)
4.3 Form of Warrant issued to Trilogy Capital Partners, Inc. (7)
4.4 Form of Warrant to purchase shares of Common Stock issued in
connection with the sale of the Common Stock (8)
10.1 Xenomics, Inc. 2004 Stock Option Plan (9)+
10.2 Securities Exchange Agreement by and among Used Kar Parts, Inc., the
individuals named on Schedule 1.1thereto and Xenomics dated as of
May 18, 2004. (10)
10.3 Closing Agreement entered into effective as of July 2, 2004 by and
among Used Kar Parts, Inc., and Xenomics and L. David Tomei, Samuil
Umansky, Hovsep S. Melkonyan, Kathryn P. Wilke and Anatoly V.
Lichtenstein (11)
10.4 Technology Acquisition Agreement dated effective as of June 24, 2004
by and among Used Kar Parts, Inc., and Xenomics and L. David Tomei,
Samuil Umansky, Hovsep S. Melkonyan, Kathryn P. Wilke and Anatoly V.
Lichtenstein (12)
10.5 Shareholder Escrow Agreement effective as of the 24th day of June,
2004, by and among Used Kar Parts, Inc., Sommer & Schneider LLP, and
the several former shareholders of Xenomics. (13)
10.6 Purchaser Escrow Agreement effective as of the 24th day of June,
2004, by and among Used Kar Parts, Inc., Sommer & Schneider LLP and
the several former shareholders of Xenomics (14)
10.7 Repurchase Agreement dated as of June 24, 2004 by and between Used
Kar Parts, Inc. and Panetta Partners Ltd. Xenomics, Inc. 2004 Stock
Option Plan (15)
10.8 Executive Employment Agreement dated effective as of June 24, 2004
by and among Hovsep Melkonyan, Xenomics and Used Kar Parts, Inc.
(16)+
10.9 Consulting Agreement effective as of June 24, 2004 by and among L.
David Tomei, Xenomics and Used Kar Parts, Inc. (17)+
10.10 Voting Agreement effective as of June 24, 2004 by and among L. David
Tomei, the Xenomics Shareholders, the Original Shareholders and the
Investors (18)
10.11 Letter Agreement dated September 3, 2004 between Xenomics, Inc. and
Dr. Randy White (19)+
10.12 Letter of Engagement between Trilogy Capital Partners, Inc. and
Xenomics, Inc. dated January 10, 2005 (20)
10.13 Form of Registration Rights Agreement, dated as of January 28, 2005
by and among the Registrant and the purchasers set forth on the
signature page thereto (21)
10.14 Employment Agreement dated February 14, 2005 between the Company and
Bernard Denoyer (22)+
10.15 Shareholders `Agreement between the Company and the National
Institute of Infectious Diseases "Lazzaro Spallanzani" dated April
7, 2004.
26
14 Code of Business Conduct and Ethics
16 Letter from Baum & Company, PA Re: Change in Certifying Accountant
(23)
31.1 Certification of Chief Executive Officer required under Rule
13a-14(a)/15d-14(a) under the Exchange Act
31.2 Certification of Principal Financial Officer required under Rule
13a-14(a)/15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- --------------------
(1) Incorporated by reference to exhibit 10.1 to the Company's Current Report
on Form 8-K filed on March 11, 2004.
(2) Incorporated by reference to exhibit 3.1 to the Company's Form SB-2
Registration Statement, as amended, filed June 25, 2003.
(3) Incorporated by reference to exhibit 3(i).1 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(4) Incorporated by reference to exhibit 3(ii).1 to the Company's Current
Report on Form 8-K filed on July 19, 2004.
(5) Incorporated by reference to exhibit 4 to the Company's Form SB-2
Registration Statement, as amended, filed June 25, 2003.
(6) Incorporated by reference to exhibit 4.2 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(7) Incorporated by reference to exhibit 4.1 to the Company's Current Report on
Form 8-K filed on January 13, 2005.
(8) Incorporated by reference to exhibit 4.1 to the Company's Current Report on
Form 8-K filed on February 3, 2005.
(9) Incorporated by reference to exhibit 4.3 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(10) Incorporated by reference to exhibit 2.1 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(11) Incorporated by reference to exhibit 2.2 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(12) Incorporated by reference to exhibit 2.3 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(13) Incorporated by reference to exhibit 2.4 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(14) Incorporated by reference to exhibit 99.2 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(15) Incorporated by reference to exhibit 2.6 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(16) Incorporated by reference to exhibit 99.3 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(17) Incorporated by reference to exhibit 99.4 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(18) Incorporated by reference to exhibit 99.5 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(19) Incorporated by reference to exhibit 99.1 to the Company's Current Report
on Form 8-K filed on September 9, 2004.
(20) Incorporated by reference to exhibit 10.1 to the Company's Current Report
on Form 8-K filed on January 13, 2005.
(21) Incorporated by reference to exhibit 10.1 to the Company's Current Report
on Form 8-K filed on February 3, 2005.
(22) Incorporated by reference to exhibit 4.1 to the Company's Current Report on
Form 8-K filed on February 17, 2005.
(23) Incorporated by reference to exhibit 16.1 to the Company's Current Report
on Form 8-K filed on February 3, 2005.
+ Denotes a management contract or compensatory plan or arrangement
27
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES.
The aggregate fees billed and unbilled for the fiscal years ended January 31,
2005 and 2004 for professional services rendered by our principal accountants
for the audits of our annual financial statements and the review of our
financial statements included in our quarterly reports on Form 10-QSB were
approximately $8,000 and $28,271 respectively.
AUDIT-RELATED FEES.
There were no aggregate fees billed for the fiscal years ended January 31, 2005
and 2004 for assurance and related services rendered by our principal
accountants related to the performance of the audit or review of our financial
statements.
TAX AND OTHER FEES.
There were no aggregate fees billed for the fiscal years ended January 31, 2005
and 2004 as there were no tax related or other services rendered by our
principal accountants in connection with the preparation of our federal and
state tax returns.
Consistent with SEC policies and guidelines regarding audit independence, the
Audit Committee is responsible for the pre-approval of all audit and permissible
non-audit services provided by our principal accountants on a case-by-case
basis. Our Audit Committee has established a policy regarding approval of all
audit and permissible non-audit services provided by our principal accountants.
Our Audit Committee pre-approves these services by category and service. Our
Audit Committee has pre-approved all of the services provided by our principal
accountants.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15D 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.
Date: May 16, 2005 Xenomics, Inc.
By: /s/ V. Randy White
------------------
V. Randy White, Ph.D.,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board, President, May 16, 2005
/s/ L. David Tomei SpaXen Italia, srl
- ------------------------------
L. David Tomei, Ph.D
/s/ V. Randy White Chief Executive Officer and Director May 16, 2005
- ------------------------------
V. Randy White, Ph.D
/s/ Bernard F. Denoyer Vice President , Controller May 16, 2005
- ------------------------------
Bernard F. Denoyer
/s/ Samuil Umansky President and Chief Scientific Officer May 16, 2005
- ------------------------------ and Director
Samuil Umansky, M.D., Ph.D
/s/ Christoph Bruening Director May 16, 2005
- ------------------------------
Christoph Bruening
/s/ Thomas Adams Director May 16, 2005
- ------------------------------
Thomas Adams
/s/ Donald H. Picker Director May 16, 2005
- ------------------------------
Donald H. Picker, Ph.D
29
XENOMICS, INC.
(A Development Stage Company)
Index to Consolidated Financial Statements
PAGE
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet as of January 31, 2005 F-3
Consolidated Statements of Operations for the two years
in the period ended January 31, 2005 and for the period
from August 4, 1999 (inception) to January 31, 2005 F-4
Consolidated Statement of Changes in Stockholders'
Equity for the period from August 4, 1999 (inception) to
January 31, 2005 F-5
Consolidated Statements of Cash Flows for the two years
in the period ended January 31, 2005 and for the period
from August 4, 1999 (inception) to January 31, 2005 F-6
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Xenomics, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Xenomics, Inc.
and Subsidiary (a development stage company) (the "Company") as of January 31,
2005, the related consolidated statements of operations, stockholders' equity
and cash flows for the year ended January 31, 2005. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Xenomics, Inc. and
Subsidiary as of January 31, 2005, and the results of their operations and their
cash flows for the year ended January 31, 2005, in conformity with accounting
principles generally accepted in the United States.
/s/ Lazar Levine & Felix LLP
----------------------------
Lazar Levine & Felix LLP
New York, New York
April 8, 2005
F-2
XENOMICS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
AS OF JANUARY 31, 2005
ASSETS
Current Assets:
Cash and cash equivalents $ 3,226,965
Prepaid expenses 35,360
------------
TOTAL CURRENT ASSETS 3,262,325
Property and equipment, net 77,495
Security deposits 58,173
------------
$ 3,397,993
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 95,063
Accrued expenses 111,995
------------
TOTAL CURRENT LIABILITIES 207,058
------------
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000 shares
authorized, none outstanding -
Common stock, $.0001 par value, authorized 100,000,000
shares, 17,306,891 issued at January 31, 2005 1,731
Treasury stock 350,000 common shares, at par (35)
Additional paid-in-capital 6,615,845
Deficit accumulated during the development stage (3,426,606)
------------
3,190,935
------------
$ 3,397,993
============
See accompanying notes
F-3
XENOMICS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the
Period from
August 4, 1999
For the years ended January 31, (inception) to
------------------------------- January 31,
2005 2004 2005
------------ ----------- ---------------
Revenues $ - $ - $ -
------------ ----------- ---------------
Costs and Expenses:
Research and development 545,231 - 635,298
Purchased in-process research
and development 2,145,101 - 2,145,101
General and administrative 651,695 521 652,216
------------ ---------- ---------------
3,342,027 521 3,432,615
------------ ---------- ---------------
Loss from operations (3,342,027) (521) (3,432,615)
Interest income 6,009 - 6,009
------------ ---------- ---------------
Net loss $(3,336,018) $ (521) $(3,426,606)
============ =========== ---------------
Weighted average shares outstanding:
Basic and diluted 14,580,166 13,166,502 11,988,509
Net loss per common share:
Basic and diluted $(0.23) $(0.00) $(0.29)
See accompanying notes
F-4
XENOMICS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Deficit
common stock Accumulated
------ ----- Additional During Total
Shares Par Treasury Paid in Development Stockholders'
issued Value Stock Capital Stage Equity
Balance, January 31, 2003, as
recapitalized 13,166,502 $ 1,317 $ (35) $ 1,428,847 $ (90,067) $ 1,340,062
Net loss for the year ended
January 31, 2004 - - - - (521) (521)
---------- ------- -------- ----------- ------------ ------------
Balance, January 31, 2004 13,166,502 1,317 (35) 1,428,847 (90,588) 1,339,541
Private Placement common stock 2,645,210 265 - 2,512,685 - 2,512,950
Private Placement common stock 1,495,179 149 - 2,674,313 - 2,674,462
Net loss for the year ended January 31, 2005 - - - - (3,336,018) (3,336,018)
---------- ------- -------- ----------- ------------ ------------
Balance, January 31, 2005 17,306,891 $ 1,731 $ (35) $ 6,615,845 $(3,426,606) $ 3,190,935
========== ======= ======== =========== ============ ============
See accompanying notes
F-5
XENOMICS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
Period from
August 4, 1999
For The Years ended January 31, (inception) to
------------------------------- January 31,
2005 2004 2005
------------ ----------- ------------
Cash flows from operating activities:
Net loss $(3,336,018) $ (521) $(3,426,606)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 9,067 - 9,067
Purchased in-process research and
development (non-cash portion) 2,145,101 - 2,145,101
Changes in operating assets and liabilities:
Prepaid expenses (35,360) - (35,360)
Security deposit (57,413) 365 (58,173)
Accounts payable and accrued expenses 207,058 - 207,058
------------ ----------- -----------
Net cash used in operating activities (1,067,565) (156) (1,158,913)
------------ ----------- -----------
Cash flows from investing activities:
Acquisition of equipment (86,562) - (86,562)
----------- ----------- -----------
Net cash used in investing activities (86,562) - (86,562)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock,
net of repurchases 4,380,752 - 4,472,439
----------- ----------- -----------
Net cash provided by financing activities 4,380,752 - 4,380,921
----------- ----------- -----------
Net increase(decrease) in cash and
cash equivalents 3,226,625 (156) 3,226,964
Cash and cash equivalents at beginning of year 339 495 -
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,226,964 $ 339 $ 3,226,964
=========== =========== ===========
See accompanying notes
F-6
XENOMICS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OVERVIEW:
On July 2, 2004, Xenomics, Inc., formerly Used Kar Parts, Inc. acquired all of
the outstanding common stock of Xenomics Sub, a then un-affiliated California
corporation, by issuing 2,258,001 shares of Used Kar Parts, Inc. common stock to
Xenomics Sub's five shareholders (the "Exchange"). The Exchange was made
according to the terms of a Securities Exchange Agreement dated May 18, 2004.
For accounting purposes, the acquisition has been treated as an acquisition of
Used Kar Parts, Inc. by Xenomics Sub and as a recapitalization of Xenomics Sub.
Accordingly, the historical financial statements prior to July 2, 2004 are those
of Xenomics Sub. In connection with the Exchange, Used Kar Parts, Inc.:
o Redeemed 1,971,734 shares (218,862,474 shares post-split shares) from
Panetta Partners Ltd., a principal shareholder, for $500,000 or $0.0023 per
share.
o Amended its articles of incorporation to change its corporate name to
"Xenomics, Inc." and to split its stock outstanding 111 for 1 (effective
July 26, 2004), immediately following the redemption.
o Entered into employment agreements with two of the former Xenomics Sub
shareholders and a consulting agreement with one of the former Xenomics Sub
shareholders.
o Entered into a Voting Agreement with certain investors, the former Xenomics
Sub shareholders and certain principal shareholders.
o Entered into a Technology Acquisition Agreement with the former Xenomics
Sub shareholders under which Xenomics granted an option to the former
Xenomics Sub holders to re-purchase Xenomics Sub technology if Xenomics
fails to apply at least 50% of the net proceeds of financing it raises to
the development of Xenomics Sub technology during the period ending July 1,
2006 in exchange for all Xenomics shares and share equivalents held by the
former Xenomics Sub holders at the time such option is exercised.
o Transferred 350,000 shares of common stock to be held in escrow, in the
name of the Company, to cover any undisclosed liabilities. Such shares as
being treated as treasury shares.
The fair value of the 2,258,001 shares issued to former Xenomics Sub
shareholders in the business combination totaled $2,145,101 on July 2, 2004. The
fair value per share of $0.95 used to determine this amount was the value per
share Xenomics sold common stock in a private placement on July 2, 2004. The
total consideration was allocated in full to the Xenomics research and
development projects which had not yet reached technological feasibility and
having no alternative use was charged to purchased in-process research and
development expense during the year ended January 31, 2005. All of the above
transactions have been included as part of the recapitalization.
The combined entities (Xenomics, Inc. and Xenomics Sub, referred to as
"Xenomics" or "the Company"), are considered to be in the development stage.
Since inception August 4, 1999 the Company's efforts have been principally
devoted to research and development, securing and protecting our patents and
raising capital. From inception through January 31, 2005, Xenomics has sustained
cumulative net losses of $3,426,606. Xenomics's losses have resulted primarily
from expenditures incurred in connection with research and development
activities, application and filing for regulatory approval of our proposed
products, patent filing and maintenance expenses, purchase of in-process
research and development, outside accounting and legal services and regulatory,
scientific and financial consulting fees. From inception through January 31,
2005, Xenomics has not generated any revenue from operations, expects to incur
additional losses to perform further research and development activities and
does not currently have any commercial molecular diagnostic products approved by
the Food and Drug Administration, and does not expect to have such for several
years, if at all.
Xenomics's product development efforts are thus in their early stages and
Xenomics cannot make estimates of the costs or the time it will take to
complete. The risk of completion of any program is high because of the many
uncertainties involved in bringing new drugs to market including the long
duration of clinical testing, the specific performance of proposed products
under stringent clinical testing protocols, the extended regulatory approval and
review cycles, the nature and timing of costs and competing technologies being
developed by organizations with significantly greater resources.
F-7
2. BASIS OF PRESENTATION:
The accompanying consolidated financial statements of Xenomics, which include
the results of Xenomics, Inc. a Florida corporation and its wholly owned
subsidiary Xenomics, a California corporation ("Xenomics Sub"), have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). All significant intercompany balances and
transactions have been eliminated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts 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 reporting period. Actual results could
differ from those estimates.
CASH EQUIVALENTS - Cash and cash equivalents consist of short term, highly
liquid investments, with original maturities of less than six months when
purchased and are stated at cost.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Xenomics's financial instruments consist
of cash and accounts payable. These financial instruments are stated at their
respective carrying values which are equivalent to fair value due to their short
term nature.
BUSINESS CONCENTRATIONS AND CREDIT RISKS - All of Xenomics's cash and cash
equivalents as of January 31, 2005 (approximately $3,318,000) are on deposit
with a major money center financial institution. Deposits at any point in time
may exceed federally insured limits.
PROPERTY AND EQUIPMENT - Fixed assets are recorded at cost. Depreciation and
amortization are provided on a straight-line basis over the estimated useful
lives of the assets as follows:
Furniture and fixtures - 3 years
Lab equipment - 5 years
RESEARCH AND DEVELOPMENT - Xenomics does not currently have any commercial
molecular diagnostic products, and does not expect to have such for several
years, if at all and therefore, research and development costs are expensed as
incurred. These include expenditures in connection with an in-house research and
development laboratory, salaries and staff costs, application and filing for
regulatory approval of our proposed products, patent legal, filing and
maintenance expenses, purchase of in-process research and development,
regulatory and scientific consulting fees to outside suppliers.
INCOME TAXES - Income taxes are accounted for under the asset and liability
method prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded for temporary
differences between financial statement carrying amounts and the tax basis of
assets and liabilities. Deferred tax assets and liabilities reflect the tax
rates expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely than
not that some or the entire deferred tax asset will not be realized.
NET LOSS PER SHARE - Basic and diluted net loss per share is presented in
conformity with SFAS No. 128, "Earnings per Share," for all periods presented.
In accordance with SFAS No. 128, basic and diluted net loss per common share was
determined by dividing net loss applicable to common stockholders by the
weighted-average common shares outstanding during the period. Diluted
weighted-average shares are the same as basic weighted-average shares since the
inclusion of issuable shares pursuant to the exercise of stock options and
warrants, would have been antidilutive. As of January 31, 2005 Xenomics had
5,445,000 stock options outstanding, whereas none were outstanding as of January
31, 2004. In addition Xenomics had 1,511,342 common stock warrants outstanding
which were 100% vested as of January 31, 2005 and none outstanding as of January
31, 2004. All share and per share amounts have been restated to reflect the 111
for 1 stock split which was effected July 26, 2004 as discussed in Note 1.
ACCOUNTING FOR STOCK BASED COMPENSATION - Xenomics has adopted Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." As provided for by SFAS 123, Xenomics has also elected to
continue to account for its stock-based compensation programs according to the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees ("APB 25")." Accordingly no compensation expense has been
recognized to the extent of employee or director services rendered based on the
intrinsic value of stock options granted under the plans during the years ended
January 31, 2005 and 2004
F-8
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment
of FASB Statement No. 123," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
(see below) and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
Had compensation cost for stock options granted to employees and directors been
determined based upon the fair value at the grant date for awards, consistent
with the methodology prescribed under SFAS 123, Xenomics's net loss would have
been as follows:
Years Ended January 31,
---------------------------
2005 2004
------------ ------------
Net loss, as reported $(3,336,018) $ (521)
Add: Stock-based employee compensation expense
recorded under APB No. 25 intrinsic method - -
Deduct: Stock-based employee compensation
expense determined under Fair Value based method
for all employee awards (205,711) -
------------ ------------
Pro forma net loss $(3,541,729) $ (521)
============ ============
Net loss per share:
Basic and diluted -as reported $ (0.23) $ (0.00)
============ ============
Basic and diluted -pro forma $ (0.24) $ (0.00)
============ ============
Range of Fair Value per share for
options granted to employees $0.02 to $1.40 N/A
Black-Scholes Methodology Assumptions:
Dividend yield 0% 0%
Risk free interest rate 4.25% to 4.50% N/A
Expected lives of options 7 to 10 years N/A
Volatility of 0% was used until Xenomics's common stock began to trade publicly
on July 2, 2004. Since July 5, 2004 through January 31, 2005 Xenomics has used
80% volatility to determine Fair Value of options granted to employees.
RECENT ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY - In December 2004, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard ("SFAS") No. 123 (Revised 2004), "Share-Based Payment." SFAS
No 123R is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation"
and supersedes Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees" and its related implementation guidance. SFAS No.
123R focuses primarily on accounting for transactions in which an entity obtains
employee services through share-based payment transactions. SFAS No 123R
requires a public entity to measure the cost of employee services received in
exchange for the award of equity instruments based on the fair value of the
award at the date of grant. The cost will be recognized over the period during
which an employee is required to provide services in exchange for the award.
SFAS No. 123R is effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. While Xenomics cannot
precisely determine the impact on net loss as a result of the adoption of SFAS
No 123R, estimated compensation expense related to prior periods can be found
above in this footnote.
F-9
4. PROPERTY AND EQUIPMENT:
Fixed assets consists of laboratory, testing and computer equipment and fixtures
stated at fair value on the date of acquisition, July 2, 2004 or cost when
subsequently acquired and place in service. Depreciation expense for the years
ended January 31, 2005 and for the period August 4, 1999 (inception) to January
31, 2005 was $9,067 and $0, respectively. AS of January 31, 2005, property and
equipment consisted of the following:
Furniture and fixtures $ 6,158
Laboratory equipment 80,404
--------
86,562
Less - accumulated depreciation (9,067)
--------
Property and equipment, net $ 77,495
========
5. STOCKHOLDERS' EQUITY:
All share and per share amounts have been restated to reflect the 111 for 1
stock split which was effected July 26, 2004 as discussed in Note 1.
On July 2, 2004 we completed a private placement of 2,645,210 shares of our
common stock for aggregate proceeds of $2,512,950, or $0.95 per share. The sale
was made to 17 accredited investors directly by us without any general
solicitation or broker and thus no finder's fees were paid. We filed a Form D
with the Securities and Exchange Commission ("SEC") and the offering is claimed
to be exempt from registration pursuant to Rule 506 of Regulation D under the
Securities Act of 1933, as amended.
On January 28, 2005, the Company closed a private placement of 1,470,718 shares
of common stock and 367,681 warrants to certain investors (the "Investors"). The
securities were sold as a unit (the "Units") at a price of $1.95 per Unit for
aggregate proceeds of approximately $2.9 million. Each Unit consisted of one
share of common stock and a warrant to purchase one quarter share of common
stock. The warrants are immediately exercisable at $2.95 per share and are
exercisable at any time within five years from the date of issuance. The Company
paid an aggregate $193,438 and issued an aggregate 123,659 warrants to purchase
common stock to various selling agents. In addition, the Company issued an
aggregate 24,461 shares of common stock to certain of such selling agents, in
lieu of cash. The warrants are immediately exercisable at $2.15 per share and
will expire five years after issuance.
In connection with the offer and sale of securities to the Investors the Company
also entered into a Registration Rights Agreement, dated as of January 28, 2005
(the "Registration Rights Agreement"), with the Investors pursuant to which the
Company has agreed to file, within 120 days after the closing, a registration
statement covering the resale of the shares of common stock sold to the
Investors and the shares of common stock issuable upon exercise of the Warrants
issued to the Investors. In the event a registration statement covering such
shares of Common Stock is not filed with the SEC by the 120th day after the
final closing of the Offering, the Company shall pay to the investors, at the
Company's option in cash or common stock, an amount equal to ?% of the gross
proceeds raised in the Offering for each 30 day period that the registration
statement is not filed with the SEC.
On April 7, 2005, subsequent to the balance sheet date, we closed a private
placement of 1,515,384 shares of common stock and 378,846 warrants to certain
additional Investors. The securities were sold as a unit (the "Units") at a
price of $1.95 per Unit for aggregate proceeds of approximately $2.95 million.
Each Unit consisted of one share of common stock and a warrant to purchase one
quarter share of common stock. The warrants are immediately exercisable at $2.95
per share and are exercisable at any time within five years from the date of
issuance. We paid an aggregate $236,400 and issued an aggregate 121,231 warrants
to purchase common stock to Axiom Capital Management who acted as the selling
agent. The warrants are immediately exercisable at $2.15 per share and will
expire five years after issuance. These April 7, 2005 Investors became parties
to the same Registration Rights Agreement as the January 28, 2005 Investors
6. STOCK OPTION PLAN:
In June 2004 we adopted the Xenomics Stock Option Plan, as amended (the "Plan").
The Plan authorizes the grant of stock options to directors, eligible employees,
including executive officers and consultants. Generally, vesting for options
granted under the Plan is determined at the time of grant, and options expire
after a 10-year period. Options are granted at an excercise price not less than
the fair market value at the date of grant.
F-10
A total of 5,000,000 shares have been reserved for issuance under the Plan. As
of January 31, 2005, options for 5,445,000 shares were outstanding under the
Plan. 445,000 of such options have been granted subject to stockholder approval
of an increase in the number of shares that can be granted under the plan. The
options granted under the Plan may be either "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended or
non-statutory stock options at the discretion of the Board of Directors
The Company recognizes deferred compensation expense for the intrinsic value of
unvested stock options granted to employees. Deferred stock-based compensation
will be amortized to stock-based compensation expense over the vesting period of
the stock option. During the twelve months ended January 31, 2005 and 2004 and
for the period from August 4, 1999 (inception) to January 31, 2005 Xenomics
recognized no stock-based compensation expense related to issuance of stock and
stock options. At January 31, 2005, there was no unamortized deferred
compensation.
The following represent options outstanding for the years since August 4, 1999
(inception) through January 31, 2005.
Number Exercise Price Weighted Average
of Shares Per Share Exercise Price
----------- -------------- ----------------
Balance, August 4, 1999 0 $0.00
(inception) to January 31,
2004 Activity for the
year ended January 31, 2005:
Add: new grants 5,445,000 $1.25 - $2.50 $1.56
Less: cancellations and forfeitures 0
Less: exercises 0
-----------
Balance, January 31, 2005 5,445,000 $1.25 - $2.50 $1.56
===========
Options are exercisable as follows at January 31, 2005:
Options Outstanding Options Exercisable
-------------------------------------------------- --------------------------------
Number Weighted Average Weighted Average Number Weighted Average
Exercise Price of Shares Remaining Life Exercise Price of Shares Exercise Price
$1.25 3,825,000 9.5 years $1.25 75,000 $1.25
$2.25 - $2.50 1,620,000 9.5 years $2.28 0 --
--------- ------
All Options 5,445,000 9.5 years $1.56 75,000 $1.25
========= ======
7. INCOME TAXES:
At January 31, 2005, Xenomics had available Federal net operating tax loss carry
forwards of approximately $1,000,000 expiring through 2024 to offset future
taxable income. The net deferred tax asset has been fully offset by a valuation
allowance due to uncertainties regarding realization of benefits from these
future tax deductions. As a result of the change in control provisions of
Internal Revenue Code Section 382, a significant portion of these net operating
loss carry forwards may be subject to limitation on future utilization.
F-11
8. SPAXEN JOINT VENTURE
In March, 2004, Xenomics organized a joint venture with the Spallanzani National
Institute for Infectious Diseases (Instituto Nazionale per le Malattie
Infettive, "INMI") in Rome, Italy, in the form of a new Italian company called
SpaXen Italia, S.R.L ("SpaXen"). Shares of SpaXen are held 50% by INMI and 50%
by Xenomics. SpaXen was capitalized with 100,000 Euros from INMI in cash and
Xenomics contributed 100,000 Euros in the form of certain proprietary
intellectual property in the field of infectious diseases. Xenomics has no
obligation to fund the joint venture other than by the continuing contribution
of the use of it's intellectual property in the field of infectious diseases.
9. COMMITMENTS AND CONTINGENCIES:
LICENSE AGREEMENTS:
On May 18, 2004, Xenomics entered into a Technology Acquisition Agreement with
the former Xenomics Sub shareholders under which Xenomics granted an option to
the former Xenomics Sub holders to re-purchase Xenomics Sub technology if
Xenomics fails to apply at least 50% of the net proceeds of financing it raises
to the development of Xenomics Sub technology during the period ending July 1,
2006. The repurchase would constitute an exchange for all Xenomics shares and
share equivalents held by the former Xenomics Sub holders at the time such
option is exercised
EMPLOYMENT AND CONSULTING AGREEMENTS:
On February 14, 2005, subsequent to the balance sheet date, we entered into an
employment agreement with Bernard Denoyer, pursuant to which Mr. Denoyer will
serve as Vice President-Controller for a period of 1 year commencing February
14, 2005. The agreement is automatically renewed for successive 1 year periods
until written notice not to renew is delivered by either us or Mr. Denoyer. Mr.
Denoyer's salary is $60,000 per year. In connection with the employment
agreement, Mr. Denoyer received a grant of 75,000 incentive stock options
pursuant to Xenomics's stock option plan with an exercise price of $2.50 per
share. Such options will vest at the rate of 25,000 per year for a period of
three years beginning on January 14, 2006.
On July 2, 2004, we entered into an employment agreement with Samuil Umansky,
Ph.D., pursuant to which Dr. Umansky serves as Xenomics's President and Chief
Scientific Officer. Dr. Umansky's employment agreement is for a term of 36
months beginning June 24, 2004 and is automatically renewable for successive one
year periods at the end of the term. Dr. Umansky's salary is $175,000 per year
and he is eligible to receive a cash bonus of up to 50% of his salary per year.
In connection with the employment agreement, Dr. Umansky received a grant of
1,012,500 stock options which vest in annual installments of 253,125, 303,750
and 455,625 and are exercisable at $1.25 per share.
On July 2, 2004, we entered into an employment agreement with Hovsep Melkonyan,
Ph.D., pursuant to which Dr. Melkonyan serves as Vice President, Research for a
term of 36 months beginning June 24, 2004, which is automatically renewable for
successive one year periods at the end of the term. Dr. Melkonyan's salary is
$135,000 per year and he is eligible to receive a cash bonus of up to 50% of his
salary per year. In connection with the employment agreement, Dr. Melkonyan
received a grant of 675,000 stock options which vest in annual installments of
168,750, 202,500 and 303,750 and are exercisable at $1.25 per share.
On July 2, 2004, we entered into a consulting agreement with L. David Tomei,
Ph.D., pursuant to which Dr. Tomei agreed to serve as Co-Chairman of Xenomics's
Board. Dr. Tomei's consulting agreement is for a term of 36 months beginning
June 24, 2004 and is automatically renewable for successive one year periods at
the end of the term. Dr. Tomei's annual consulting fee is $175,000 per year and
he is eligible to receive cash bonuses upon the achievement of certain
milestones. Dr. Tomei received a grant of 1,012,500 stock options which vest in
annual installments of 253,125, 303,750 and 455,625 and is exercisable at $1.25
per share.
On September 3, 2004, Dr. Randy White and Xenomics entered into a letter
agreement. Pursuant to the letter agreement, Xenomics will employ Dr. White as
Chief Executive Officer for a period of 3 years commencing September 13, 2004.
Dr. White will be paid an annual base salary of $215,000. We have agreed to rent
for Dr. White's benefit a studio apartment in New York, New York. Dr. White was
granted an aggregate 1,425,000 incentive stock options pursuant to Xenomics's
Plan with an exercise price of $2.25 per share. 300,000 of such options shall
vest on the first anniversary of the date of the Letter Agreement, 350,000 of
such options shall vest on the second anniversary of the date of the letter
agreement and 400,000 of such options shall vest on the third anniversary of the
date of the letter agreement (the "Sale Options"). The remaining 375,000 options
shall vest in the event there is a sale of Xenomics for consideration equal to
$15.00 per share or more. In the event there is a sale of Xenomics for
consideration exceeding $9.25 per share, Dr. White shall be entitled to a cash
bonus of $500,000 and all of his unvested Sale Options shall immediately vest.
In the event there is a sale of Xenomics for consideration equal to $15.00 per
share or more, Dr. White shall be entitled to a cash bonus of $750,000. In
addition, at any time during the term of his employment, in the event the stock
price of the common stock of Xenomics exceeds $9.25 per share for 60 consecutive
trading days, all of Dr. White's unvested Sale Options shall immediately vest.
F-12
LEASE AGREEMENTS:
On September 15, 2004, Xenomics entered into a seven year lease for its
corporate headquarters in New York City with an approximate rent of $75,000
annually through September 30, 2011. On September 1, 2004, Xenomics entered a
two year lease for laboratory space in New Jersey, with an approximate rent of
$90,000 annually through September 2006. During the years ended January 31, 2005
and for the period from August 4, 1999 (inception) to January 31, 2005, total
rent expense was $74,637. No rent expense was incurred prior to September 1,
2004. Total annual commitments under these leases for each of the twelve months
ended January 31, are as follows:
2006 $ 160,867
2007 125,342
2008 75,041
2009 76,542
2010 78,073
2011 79,634
2012 53,793
----------
Total $ 649,303
==========
F-13
Index to Exhibits
Exhibit Description
2.1 Capital Stock Purchase Agreement between Panetta Partners, Ltd. and
Jeannine Karklins dated February 24, 2004 (1)
3.3 Articles of Incorporation of the Company (2)
3.4 Articles of Amendment to Articles of Incorporation of Used Kar
Parts, Inc. changing its name to Xenomics, Inc., filed on July 14,
2004 with the Florida Secretary of State (3)
3.2 Amended and Restated By-Laws (4)
4.1 Form of Stock Certificate, $.001 par value (5)
4.2 Form of Warrant issued to Irv Weiman, Laura Dever and Len Toboroff
(6)
4.3 Form of Warrant issued to Trilogy Capital Partners, Inc. (7)
4.4 Form of Warrant to purchase shares of Common Stock issued in
connection with the sale of the Common Stock (8)
10.1 Xenomics, Inc. 2004 Stock Option Plan (9)+
10.2 Securities Exchange Agreement by and among Used Kar Parts, Inc., the
individuals named on Schedule 1.1thereto and Xenomics dated as of
May 18, 2004. (10)
10.3 Closing Agreement entered into effective as of July 2, 2004 by and
among Used Kar Parts, Inc., and Xenomics and L. David Tomei, Samuil
Umansky, Hovsep S. Melkonyan, Kathryn P. Wilke and Anatoly V.
Lichtenstein (11)
10.4 Technology Acquisition Agreement dated effective as of June 24, 2004
by and among Used Kar Parts, Inc., and Xenomics and L. David Tomei,
Samuil Umansky, Hovsep S. Melkonyan, Kathryn P. Wilke and Anatoly V.
Lichtenstein (12)
10.5 Shareholder Escrow Agreement effective as of the 24th day of June,
2004, by and among Used Kar Parts, Inc., Sommer & Schneider LLP, and
the several former shareholders of Xenomics. (13)
10.6 Purchaser Escrow Agreement effective as of the 24th day of June,
2004, by and among Used Kar Parts, Inc., Sommer & Schneider LLP and
the several former shareholders of Xenomics (14)
10.7 Repurchase Agreement dated as of June 24, 2004 by and between Used
Kar Parts, Inc. and Panetta Partners Ltd. Xenomics, Inc. 2004 Stock
Option Plan (15)
10.8 Executive Employment Agreement dated effective as of June 24, 2004
by and among Hovsep Melkonyan, Xenomics and Used Kar Parts, Inc.
(16)+
10.9 Consulting Agreement effective as of June 24, 2004 by and among L.
David Tomei, Xenomics and Used Kar Parts, Inc. (17)+
10.10 Voting Agreement effective as of June 24, 2004 by and among L. David
Tomei, the Xenomics Shareholders, the Original Shareholders and the
Investors (18)
10.11 Letter Agreement dated September 3, 2004 between Xenomics, Inc. and
Dr. Randy White (19)+
10.12 Letter of Engagement between Trilogy Capital Partners, Inc. and
Xenomics, Inc. dated January 10, 2005 (20)
10.13 Form of Registration Rights Agreement, dated as of January 28, 2005
by and among the Registrant and the purchasers set forth on the
signature page thereto (21)
10.14 Employment Agreement dated February 14, 2005 between the Company and
Bernard Denoyer (22)+
10.15 Shareholders `Agreement between the Company and the National
Institute of Infectious Diseases "Lazzaro Spallanzani" dated April
7, 2004.
i
14 Code of Business Conduct and Ethics
16 Letter from Baum & Company, PA Re: Change in Certifying Accountant
(23)
31.1 Certification of Chief Executive Officer required under Rule
13a-14(a)/15d-14(a) under the Exchange Act
31.2 Certification of Principal Financial Officer required under Rule
13a-14(a)/15d-14(a) under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- --------------------
(1) Incorporated by reference to exhibit 10.1 to the Company's Current Report
on Form 8-K filed on March 11, 2004.
(2) Incorporated by reference to exhibit 3.1 to the Company's Form SB-2
Registration Statement, as amended, filed June 25, 2003.
(3) Incorporated by reference to exhibit 3(i).1 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(4) Incorporated by reference to exhibit 3(ii).1 to the Company's Current
Report on Form 8-K filed on July 19, 2004.
(5) Incorporated by reference to exhibit 4 to the Company's Form SB-2
Registration Statement, as amended, filed June 25, 2003.
(6) Incorporated by reference to exhibit 4.2 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(7) Incorporated by reference to exhibit 4.1 to the Company's Current Report on
Form 8-K filed on January 13, 2005.
(8) Incorporated by reference to exhibit 4.1 to the Company's Current Report on
Form 8-K filed on February 3, 2005.
(9) Incorporated by reference to exhibit 4.3 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(10) Incorporated by reference to exhibit 2.1 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(11) Incorporated by reference to exhibit 2.2 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(12) Incorporated by reference to exhibit 2.3 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(13) Incorporated by reference to exhibit 2.4 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(14) Incorporated by reference to exhibit 99.2 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(15) Incorporated by reference to exhibit 2.6 to the Company's Current Report on
Form 8-K filed on July 19, 2004.
(16) Incorporated by reference to exhibit 99.3 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(17) Incorporated by reference to exhibit 99.4 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(18) Incorporated by reference to exhibit 99.5 to the Company's Current Report
on Form 8-K filed on July 19, 2004.
(19) Incorporated by reference to exhibit 99.1 to the Company's Current Report
on Form 8-K filed on September 9, 2004.
(20) Incorporated by reference to exhibit 10.1 to the Company's Current Report
on Form 8-K filed on January 13, 2005.
(21) Incorporated by reference to exhibit 10.1 to the Company's Current Report
on Form 8-K filed on February 3, 2005.
(22) Incorporated by reference to exhibit 4.1 to the Company's Current Report on
Form 8-K filed on February 17, 2005.
(23) Incorporated by reference to exhibit 16.1 to the Company's Current Report
on Form 8-K filed on February 3, 2005.
+ Denotes a management contract or compensatory plan or arrangement
ii
Exhibit 10.15
SHAREHOLDERS' AGREEMENT - COMPANY SPAXEN ITALIA SRL
BETWEEN
The National Institute of Infectious Diseases "Lazzaro Spallanzani", from now
named INMI, represented by the legal representative Dr Raffaele Perrone
Donnorso, born in Naples on 03/13/1939 and having his address for the
institutional functions in the National Institute of Infectious Diseases
"Lazzaro Spallanzani", situated in Via Portuense n.292 - 00149 ROME, Fiscal Code
and Vat number 050800991002
AND
The Xenomics Inc. represented by the legal representative Dr. L. David Tomei,
born in Williamsporto (USA) on 04/27/1945 and having his address in Piazzale
Clementi, 5 - 00030 Genazzano - ROME, Fiscal Code TMO LDV 45D27 Z404D
WHEREAS
1) the partnership shares in the company SpaXen Italia srl are held as
follows:
- - INMI 50%; INMI will contribute euro 100.000,00 in cash to SpaXen
Italia srl;
- - Xenomics Inc. 50%; Xenomics Inc. will contribute all right, in a certain
technology and related patent application (collectively, the "Contributed
IP") that applies Xenomics Inc. proprietary Transrenal Nucleic Acid
technology ("Xenomics IP") to the field of infectious diseases, as it will
be further provided in a certain Collaborative Research and License
Agreement to be entered into by the shareholders and SpaXen Italia srl as
soon as reasonably possible upon formation of SpaXen Italia srl.
INMI and Xenomics Inc. agree that the Contributed IP has a value equal to
INMI's cash contribution and INMI provide the cost related to the guarantee
required by the art. 2484 of Civil Code concerning the Xenomics Inc.
contribute.
2) it is the intention of all the shareholders that any profits made be
reinvested into research activity in order to develop additional
intellectual property and patents pertaining to the application of
transrenal DNA technology to pathologies caused by or associated with
infection agents and to develop of additional patents (collectively, the
"Newly Developed IP");
3) it is the intention of all the shareholders that any losses suffered
following devaluations of the capitalized research costs, insofar as deemed
no longer suitable for the obtainment of patents within the time-span of
the company's duration, must not be covered by means of further
contributions of cash or other assets and consequently, in the event of
losses of such entity that they would impinge on the capital stock by
reducing it to an extent exceeding the minimum limits established by law,
they shall resolve without delay to put the company into liquidation; it is
the further intention of all shareholders, that the Contributed IP shall
revert back to Xenomics Inc. upon liquidation of SpaXen Italia srl;
4) it is the intention of all the shareholders that, taking into account the
validity of the research costs borne together with the need for further
contributions of capital, any further capital stock increases be resolved
upon with the exclusive commitment to provide contributions in cash;
5) it is the intention of the shareholders that any surpluses found to exist
following liquidation proceedings be deemed the exclusive property of INMI,
provided, however, that the Contributed IP shall revert back to Xenomics
Inc. upon liquidation of SpaXen Italia srl;
6) it is the intention of the shareholders that the Newly Developed IP shall
be the property of INMI, that all patents pertaining to the Newly Developed
IP shall be in the name of INMI, that SpaXen Italia srl will obtain a
license to utilize the Newly Developed IP, and that Xenomics Inc. will
obtain the exclusive, worldwide right to commercialise the Newly Developed
IP, all as further to be provided in the Collaborative Research and License
Agreement as soon as possible upon formation of SpaXen Italia srl;
7) In order to accomplish its mission SpaXen Italia Srl requires personnel on
the staff of INMI, laboratory spaces and scientific equipments necessary to
carry out the research project.
IT IS HEREBY AGREED AND STIPULATED AS FOLLOWS:
A) The shareholders INMI and Xenomics Inc. note in any case that for any
distribution of profits to be effected it is necessary for a resolution to
be passed with 100% of the shareholders' votes, and that consequently, in
practice, each shareholder has a de facto right of veto.
B) The same commitment noted in point "A" above is made with reference to
losses suffered following the devaluation of capitalized research costs,
the valuation of which shall be effected in the balance sheet in the manner
required by the rules of accountancy, meaning that no resolution must be
passed in consequence of proposals on the agenda of extraordinary general
meetings of shareholders regarding the coverage of possible losses. In this
case too, the articles of association will have established that
resolutions of this type must be passed with a majority equal to 100%. It
follows that should SpaXen Italia Srl suffer losses due to devaluations of
research costs such as to affect the capital stock to such an extent as to
entail the consequence of dissolution and liquidation as per article 2484
No. 4) of the Civil Code, the shareholders undertake in any case to resolve
to put the company into voluntary liquidation.
C) Any surplus left over following the winding-up of SpaXen Srl shall be made
over exclusively to INMI provided, however, that the Contributed IP shall
revert back to Xenomics Inc. Accordingly, the shareholder Xenomics Inc.
pledges here and now that in that event it will make a donation to INMI in
an amount corresponding to whatever liquidation surplus it may be entitled
to (however, excluding the Contributed IP).
D) In the event that the evaluation of research expenses should instead show
the need for further capital because the research in question has proved
valid and deserves to be continued and/or because there has arisen a shared
desire to accelerate the time-schedule needed to obtain the patent, the
shareholders may pass unanimous resolutions for capital stock increases,
even in the form of instalments, for amounts agreed upon following the
approval of a final costs estimate for these research expenses for the
purpose of obtaining the relative patent. It is mutually agreed that any
resolution whatsoever to increase the capital stock can be passed only if
unanimous and exclusively providing for contributions in cash, and that any
resolution for this purpose must maintain unchanged the reciprocal
percentage shares of capital stock held by the shareholders at the date of
incorporation of SpaXen Italia srl.
E) The right of ownership of the Newly Developed IP obtained from the research
activities of SpaXen Italia Srl shall be the property of INMI whilst SpaXen
Italia srl shall retain the user's license for utilisation of the patent.
Any intellectual property that may be derived from SpaXen's research for
the application of transrenal DNA technology in fields other than to
pathologies caused by or associated with infection agents ("Derivative
IP"), shall be the sole property of SpaXen Italia srl and any patent for
such Derivative IP shall be in SpaXens' name. It is also agreed that the
shareholder Xenomics Inc. shall hold the exclusive worldwide right to
market the products based upon the Newly Developed and Derivative IP. To
this end, Xenomics Inc. here and now undertakes to grant SpaXen srl
royalties in the maximum amount of 10% of the net proceeds relative to the
products marketed using Newly Developed IP. The user's license held by
SpaXen Italia srl for Newly Developed IP shall expire once SpaXen Italia
srl is closed down. Once the
user's license has lapsed, the royalties from the marketing of products
shall become payable directly to INMI. The exclusive right for the
commercialization of the products shall have a duration of 5 years. At the
end of the five-year period it must be deemed to have expired, but can be
renewed for a further period of five years; provided that if a patent
incorporating the Newly Developed IP has been issued at that time, INMI and
SpaXen Italia srl must agree to revnew such commercialisation rights for
the duration of such patent. The attribution of commercialisation rights to
Xenomics Inc. is understood to be in return for the attribution of the
Newly Developed IP to INMI. Consequently, the attribution of these two
rights shall be the object of a gratuitous legal transaction, any fiscal
consequence of which shall be to Spaxen's charge. The shareholders and
SpaXen Italia srl agree to enter into a Collaborative Research and
Licensing Agreement as soon as reasonably possible after the formation of
SpaXen Italia srl to provide in more detail for the respective rights of
obligations of the parties mentioned in this paragraph E.
F) The agreement indicated in point "E" must be set out in a trilateral
synallagmatic contract between Spaxen Italia srl, the company Xenomics Inc
and INMI, and must take into account any fiscal problems pertaining to the
transfer price.
G) INMI undertakes, within the limits of its available resources, and taking
into consideration in any case the need to assure its own current levels of
research, to make available to SpaXen Italia Srl personnel and laboratory
spaces equipped with the scientific equipments necessary to carry out the
research project. This undertaking shall be subject to annual review.
All disputes arising out of the interpretation, performance and/or termination
of the above contract shall be submitted for settlement to a Committee of three
arbitrators, of which two shall be appointed by the parties, one each, and the
third by the two thus appointed by mutual agreement or otherwise by the
presiding judge of the Court of Rome, who shall also appoint the arbitrator to
be appointed by the party to whom the invitation is addressed should it fail to
do so within the time limits. The arbitrators shall decide according to the law
following the procedural rules established in articles 806 et seq. of the Civil
Procedure Code and may decide also with regard to the right of withdrawal of the
dissenting party.
Read and signed in four original copies.
Rome, April 7th 2004
National Institute of Infectious Diseases Xenomics Inc.
"Lazzaro Spallanzani"
Prof. Raffaele Perrone Donnorso Dr. L. David Tomei
Exhibit 14
XENOMICS, INC.
CODE OF BUSINESS CONDUCT AND ETHICS
Xenomics, Inc. (the "Company") has adopted the following Code of Business
Conduct and Ethics (this "Code") for directors and executive officers of the
Company. This Code is intended to focus the Board and each director and
executive officer on areas of ethical risk, provide guidance to directors and
executive officer to help them recognize and deal with ethical issues, provide
mechanisms to report unethical conduct, and help foster a culture of honesty and
accountability. Each director and executive officer must comply with the letter
and spirit of this Code.
No code or policy can anticipate every situation that may arise.
Accordingly, this Code is intended to serve as a source of guiding principles
for directors and executive officers. Directors and executive officers are
encouraged to bring questions about particular circumstances that may implicate
one or more of the provisions of this Code to the attention of the Chairman of
the Audit Committee, who may consult with inside or outside legal counsel as
appropriate.
1. MAINTAIN FIDUCIARY DUTIES
Directors and executive officers must be loyal to the Company and must act
at all times in the best interest of the Company and its shareholders and
subordinate self-interest to the corporate and shareholder good. Directors and
executive officers should never use their position to make a personal profit.
Directors and executive officers must perform their duties in good faith, with
sound business judgment and with the care of a prudent person.
2. CONFLICT OF INTEREST.
A "conflict of interest" occurs when the private interest of a director or
executive officer interferes in any way, or appears to interfere, with the
interests of the Company as a whole. Conflicts of interest also arise when a
director or executive officer, or a member of his or her immediate family,(1)
receives improper personal benefits as a result of his or her position as a
director or executive officer of the Company. Loans to, or guarantees of the
obligations of, a director or executive officer, or a member of his or her
family, may create conflicts of interest.
Directors and executive officers must avoid conflicts of interest with the
Company. Any situation that involves, or may reasonably be expected to involve,
a conflict of interest with the Company must be disclosed immediately to the
Chairman of the Audit Committee.
- --------
(1) New York Stock Exchange proposed Rule 303A(2)(b) defines "immediate family"
to include a person's spouse, parents, children, siblings, mothers-in-law and
fathers-in-law, sons and daughters-in-law, and anyone (other than employees of
such person) who share such person's home.
This Code does not attempt to describe all possible conflicts of interest
which could develop. Some of the more common conflicts from which directors and
executive offices must refrain, however, are set out below.
o RELATIONSHIP OF COMPANY WITH THIRD-PARTIES. Directors and executive
officers may not engage in any conduct or activities that are inconsistent
with the Company's best interests or that disrupt or impair the Company's
relationship with any person or entity with which the Company has or
proposes to enter into a business or contractual relationship.
o COMPENSATION FROM NON-COMPANY SOURCES. Directors and executive officers may
not accept compensation, in any form, for services performed for the
Company from any source other than the Company.
o GIFTS. Directors and executive officers and members of their families may
not offer, give or receive gifts from persons or entities who deal with the
Company in those cases where any such gift is being made in order to
influence the actions of a director as member of the Board or the actions
of an executive officer as an officer of the Company, or where acceptance
of the gifts would create the appearance of a conflict of interest.
3. CORPORATE OPPORTUNITIES.
Directors and executive officers owe a duty to the Company to advance its
legitimate interests when the opportunity to do so arises. Directors and
executive officers are prohibited from: (a) taking for themselves personally
opportunities that are discovered through the use of corporate property,
information or the director's or executive officer's position; (b) using the
Company's property, information, or position for personal gain; or (c) competing
with the Company, directly or indirectly, for business opportunities, PROVIDED,
HOWEVER, if the Company's disinterested directors determine that the Company
will not pursue an opportunity that relates to the Company's business, a
director or executive officer may do so.
4. CONFIDENTIALITY.
Directors and executive officers must maintain the confidentiality of
information entrusted to them by the Company or its customers, and any other
confidential information about the Company that comes to them, from whatever
source, in their capacity as director or executive officer, except when
disclosure is authorized or required by laws or regulations. Confidential
information includes all non-public information that might be of use to
competitors, or harmful to the Company or its customers, if disclosed.
5. PROTECTION AND PROPER USE OF COMPANY ASSETS.
Directors and executive officers must protect the Company's assets and
ensure their efficient use. Theft, loss, misuse, carelessness and waste of
assets have a direct impact on the Company's profitability. Directors and
executive officers must not use Company time, employees, supplies, equipment,
tools, buildings or other assets for personal benefit without prior
authorization from the Chairman of the Audit Committee or as part of a
compensation or expense reimbursement program available to all directors or
executive officers.
2
6. FAIR DEALING.
Directors and executive officers shall deal fairly and oversee fair dealing
by employees and officers with the Company's directors, officers, employees,
customers, suppliers and competitors. None should take unfair advantage of
anyone through manipulation,, concealment, abuse of privileged information,
misrepresentation of material facts or any other unfair dealing practices.
7. COMPLIANCE WITH LAWS, RULES AND REGULATIONS.
Directors and executive officers shall comply, and oversee compliance by
employees, officers and other directors, with all laws, rules and regulations
applicable to the Company, including insider-trading laws. Transactions in
Company securities are governed by Company Policy entitled "Insider Trading
Compliance Program."
8. WAIVERS OF THE CODE OF BUSINESS CONDUCT AND ETHICS.
Any waiver of this Code may be made only by the Board or a Board committee
and must be promptly disclosed to the public by filling a Form 8-K Report.
9. ENCOURAGING THE REPORTING OF ANY ILLEGAL OR UNETHICAL BEHAVIOR.
Directors and executive officers should promote ethical behavior and take
steps to ensure the Company (a) encourages employees to talk to supervisors,
managers and other appropriate personnel when in doubt about the best course of
action in a particular situation; (b) encourages employees to report violations
of laws, rules or regulations to appropriate personnel; and (c) informs
employees that the Company will not permit retaliation for reports made in good
faith.
10. FAILURE TO COMPLY; COMPLIANCE PROCEDURES.
A failure by any director or executive officer to comply with the laws or
regulations governing the Company's business, this Code or any other applicable
Company policy or requirement may result in disciplinary action, and, if
warranted, legal proceedings.
Directors and executive officers should communicate any suspected violations of
this Code promptly to the Chairman of the Audit Committee. Violations will be
investigated by the Board or by a person or persons designated by the Board and
appropriate action will be taken in the event of any violations of this Code.
3
EXHIBIT 31.1
CERTIFICATION
I, V. Randy White, certify that:
1. I have reviewed this annual report on Form 10-KSB of Xenomics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer , including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures , as of the end of the
period covered by this report based on such evaluation; and
c) disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is
likely to materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the small
business issuer's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the small business issuer's ability to record,
process, summarize and report financial data and have identified for the small
business issuer's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuers internal
control over financial reporting.
May 16, 2005
/s/ V. Randy White, Ph.D.
------------------------------
Name: V. Randy White, Ph.D.
Title: Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION
I, Bernard Denoyer, certify that:
1. I have reviewed this annual report on Form 10-KSB of Xenomics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer , including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures , as of the end of the
period covered by this report based on such evaluation; and
c) disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter (the small business issuer's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is
likely to materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the small
business issuer's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the small business issuer's ability to record,
process, summarize and report financial data and have identified for the small
business issuer's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuers internal
control over financial reporting.
May 16, 2005
/s/ Bernard Denoyer
--------------------
Name: Bernard Denoyer
Title: Vice President - Controller
(Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
XENOMICS, INC.
FORM 10-KSB FOR THE YEAR ENDED JANUARY 31, 2005
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I am the Chief Executive Officer of Xenomics, Inc., a Florida corporation
(the "Company"). I am delivering this certificate in connection with the Form
10-KSB of the Company for the year ended January 31, 2005 and filed with the
Securities and Exchange Commission ("Form 10-KSB").
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, I hereby certify that, to the best of my
knowledge, the Form 10-KSB fully complies with the requirements of Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 and that the information
contained in the Form 10-KSB fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: May 16, 2005
/s/ V. Randy White
-------------------
Name: V. Randy White, Ph.D.
Title: Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF VICE PRESIDENT-CONTROLLER
XENOMICS, INC.
FORM 10-KSB FOR THE YEAR ENDED JANUARY 31, 2005
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I am the Vice President - Controller of Xenomics, Inc., a Florida
corporation (the "Company"). I am delivering this certificate in connection with
the Form 10-KSB of the Company for the year ended January 31, 2005 and filed
with the Securities and Exchange Commission ("Form 10-KSB").
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, I hereby certify that, to the best of my
knowledge, the Form 10-KSB fully complies with the requirements of Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 and that the information
contained in the Form 10-KSB fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: May 16, 2005
/s/ Bernard Denoyer
--------------------
Name: Bernard Denoyer
Title: Vice President - Controller