UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 2, 2004
Xenomics, Inc.
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(Exact name of registrant as specified in its charter)
Florida 04-3721895
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(State or other jurisdiction IRS Employer
of incorporation or organization) Identification No.)
420 Lexington Avenue, Suite 1609
New York, NY 10170
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(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 729-9216
Used Kar Parts, Inc.
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3 West 57th Street, 8th Floor, New York, New York 10019
(Former name or former address, if changed since last report)
Item 1. Changes in Control of the Registrant.
We are filing this amendment to furnish a Descriptive Memorandum
concerning the company and its recent acquisition of Xenomics as an exhibit.
We completed the acquisition of Xenomics, an unaffiliated California
corporation on July 2, 2004 by issuing 2,258,001 shares of our common stock to
Xenomics' five shareholders in exchange for all outstanding shares of Xenomics
stock (the "Exchange"). The Exchange was made according to the terms of a
Securities Exchange Agreement dated May 18, 2004 ("Exchange Agreement"), which
we filed as an exhibit to a Form 8-K dated May 18, 2004.
We also completed a private placement of 2,645,210 shares of our common
stock for aggregate proceeds of $2,512,949.50. The sale was made to 17
accredited investors ("Investors") directly by us without any general
solicitation or broker. 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.
As part of the Acquisition, 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, 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 shareholders and a consulting agreement with one of
the former Xenomics shareholders.
o entered into a Voting Agreement with the Investors, the former
Xenomics shareholders and certain principal shareholders.
o entered into a Technology Acquisition Agreement with the
former Xenomics shareholders under which we granted an option
to the former Xenomics holders to acquire Xenomics technology
if we fail to apply at least 50% of the net proceeds of all
financing we raise to the development of Xenomics technology
during the period ending July 1, 2006 in exchange for all of
our shares and share equivalents held by the former Xenomics
holders at the time such option is exercised.
Each of the above agreements is filed with this report and the above
summary is qualified by reference to the complete documents.
As a result of the above transactions, we have 15,588,737 shares
outstanding.
We appointed L. David Tomei, Samuil Umansky, Gary Jacobs and Donald
Picker to be directors according to the terms of the Voting Agreement and Mr.
Tomei was appointed Chairman of the Board. Samuil Umansky was appointed
President and Chief Scientific Officer and Christoph Bruening remains Secretary
and Treasurer.
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Item 2. Acquisition or Disposition of Assets.
See Item 1. above for a description of the material terms of the
Exchange Agreement under which Xenomics became our wholly owned subsidiary.
The terms of the Exchange Agreement, including the relative number of
our shares to be issued to the holders of Xenomics shares was determined by arms
length negotiation between our management and that of Xenomics. We intend to
continue utilizing the assets of Xenomics in their efforts to develop diagnostic
tests utilizing transrenal nucleic acids for infectious diseases, prenatal
diagnosis, cancer detection and transplantation compatibility.
Item 5. Other Events and Required FD Disclosure.
We adopted a 2004 Stock Option Plan which is filed as an Exhibit to
this report. We issued options to acquire 3,750,000 shares of our common stock
to officers and consultants for $1.25 per share.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements that may be required by this item are not
included in this report and will, if applicable, be filed by
amendment within 60 days of the date of the filing of this
report.
(b) Pro forma financial statements that may be required by this
item are not included in this report and will, if applicable,
be filed by amendment within 60 days of the date of the filing
of this report.
(c) Exhibits.
Exhibit
Number Description
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2.1 Securities Exchange Agreement by and among Used Kar Parts,
Inc., the individuals named on Schedule 1.1 thereto and
Xenomics dated as of May 18, 2004.*
2.2 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
2.3 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
2.4 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.
2.5 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
2.6 Repurchase Agreement dated as of June 24, 2004 by and between
Used Kar Parts, Inc. and Panetta Partners Ltd.
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Exhibit
Number Description
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3(i).1 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(ii).1 Amended and Restated By-Laws dated June 24, 2004
4.1 Specimen Stock Certificate - Xenomics, Inc.
4.2 Form of Warrant issued to Irv Weiman, Laura Dever and Len
Toboroff
4.3 Xenomics, Inc. 2004 Stock Option Plan
99.1 Descriptive Memorandum **
99.2 Executive Employment Agreement dated effective as of June 24,
2004 by and among Hovsep Melkonyan, Xenomics and Used Kar
Parts, Inc.
99.3 Executive Employment Agreement dated effective as of June 24,
2004 by and among Samuil Umansky, Xenomics and Used Kar Parts,
Inc.
99.4 Consulting Agreement dated effective as of June 24, 2004 by
and among L. David Tomei, Xenomics and Used Kar Parts, Inc.
99.5 Voting Agreement effective as of June 24, 2004 by and among
Used Kar Parts, Inc. the Xenomics Shareholders, the Original
Shareholders and the Investors
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* Incorporated by reference to Exhibit 10.1 to the Form 8-K dated May 18, 2004.
** Filed with this Amendment
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereto duly authorized.
Dated: July 28, 2004 XENOMICS, INC.
By: /s/ Samuil Umansky
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Samuil Umansky, President
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Exhibit 99.1
DESCRIPTIVE MEMORANDUM
Xenomics, Inc.
July 28, 2004
This memorandum provides certain information about Xenomics, Inc. (the
"Company") as of the above date. It is not intended as an offer to sell any
securities of the Company, nor as a solicitation of an offer to buy such
securities, nor does it purport to contain all of the information that a
prospective investor may desire in investigating the Company. The memorandum has
been prepared as a convenient means of providing information to the United
States Securities and Exchange Commission.
THE SECURITIES OF THE COMPANY HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representation other than those contained herein and, if given or made, such
information or representation should not be relied upon as having been
authorized by the Company. The delivery of this memorandum shall not under any
circumstances create any implication that there has been no change in the
Company's affairs since the date hereof, or that the information contained
herein is correct as of any time subsequent to its date.
THIS MEMORANDUM INCLUDES STATEMENTS AND ESTIMATES ABOUT THE ANTICIPATED
FUTURE PERFORMANCE OF THE COMPANY AND XENOMICS. THESE STATEMENTS AND ESTIMATES
ARE BASED ON ASSUMPTIONS MADE BY THE COMPANY AND XENOMICS, RESPECTIVELY, WHICH
MAY OR MAY NOT PROVE TO BE CORRECT. NEITHER THE COMPANY NOR XENOMICS REPRESENT
THAT IT HAS MADE THE CORRECT ASSUMPTIONS AND DOES NOT REPRESENT THAT ITS
STATEMENTS AND ESTIMATES ABOUT FUTURE PERFORMANCE WILL PROVE TO BE CORRECT.
MARKET DATA AND INDUSTRY INFORMATION REFERRED TO IN THIS MEMORANDUM ARE
DERIVED FROM VARIOUS TRADE PUBLICATIONS, INDUSTRY SOURCES AND ESTIMATES BY
MANAGEMENT OF THE COMPANY. MANAGEMENT HAS ATTEMPTED TO SATISFY ITSELF AS TO THE
REASONABLENESS OF THE INDUSTRY DATA PRESENTED; HOWEVER NO ASSURANCE CAN BE GIVEN
AS TO ITS ACCURACY.
1
SUMMARY OF OUR BUSINESS AND OPERATIONS
This summary highlights information contained elsewhere in this
descriptive memorandum. This summary is not complete and does not contain all
the information you should consider. You should read this entire descriptive
memorandum carefully, especially the "Risk Factors."
In this descriptive memorandum, the "Company" refers to Xenomics, Inc.,
a Florida corporation. The term "Xenomics" refers to Xenomics, a California
corporation that is a wholly owned subsidiary of the Company. We use the terms
"we," "our," and "us" when we do not need to distinguish among these entities or
their predecessors or when any distinction is clear from the context.
THE COMPANY
General
The Company was incorporated in the State of Florida on April 26, 2002
and planned to develop an on-line marketplace for used car parts. In an effort
to develop that business, the Company entered into a contract with a web hosting
service on a month to month basis to provide storage for website development and
transaction processing. The Company's temporary website arrangement was
suspended to preserve cash and pending new management's evaluation of the
business. We acquired Xenomics, a California corporation, on July 2, 2004.
Xenomics is a biotechnology company that focuses on the development of
diagnostic tests utilizing transrenal nucleic acids (Tr-NA) for a broad range of
diagnostic tests. Tr-NA's are components of DNA derived from the blood stream
that have been shown to cross the kidney barrier and can be detected in urine.
Xenomics is a California corporation that was organized in 1999. 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 R&D company called SpaXen Italia, S.R.L
("SpaXen") which will conduct research and development on non-invasive
diagnostic tests for infectious disease using Tr-NA methodology.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and files reports with the
Commission. Such reports (which contain information about the Company) may be
inspected, without charge, or copied, at prescribed rates, at the public
reference facilities maintained by the Commission. In addition, the Commission
maintains an Internet site that contains reports, proxy and information
statements, and other information, regarding issuers that file electronically
with the Commission. The address of the Commission's site is http://www.sec.gov.
The Company's office is located at 420 Lexington Avenue, Suite 1609,
New York, NY 10170. Our telephone number is (212) 729-9216.
SUMMARY OF ACQUISITION OF XENOMICS BY THE COMPANY
We completed the acquisition of Xenomics, an unaffiliated California
corporation on July 2, 2004 by issuing 2,258,001 shares of our common stock to
Xenomics' five shareholders in exchange for all outstanding shares of Xenomics
stock (the "Exchange"). The Exchange was made according to the terms of a
Securities Exchange Agreement dated May 18, 2004 ("Exchange Agreement"), which
we filed as an exhibit to a Form 8-K dated May 18, 2004.
We also completed a private placement of 2,645,210 shares of our common
stock for aggregate proceeds of $2,512,949.50. The sale was made to 17
accredited investors ("Investors") directly by us without any general
solicitation or broker. 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.
2
As part of the Acquisition, 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, 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 shareholders and a consulting agreement with one of
the former Xenomics shareholders.
o entered into a Voting Agreement with the Investors, the former
Xenomics shareholders and certain principal shareholders.
o entered into a Technology Acquisition Agreement with the
former Xenomics shareholders under which we granted an option
to the former Xenomics holders to acquire Xenomics technology
if we fail to apply at least 50% of the net proceeds of
financing we raise to the development of Xenomics technology
during the period ending July 1, 2006 in exchange for all of
our shares and share equivalents held by the former Xenomics
holders at the time such option is exercised.
Each of the above agreements is filed with this report and the above
summary is qualified by reference to the complete documents.
As a result of the above transactions, we have 15,588,737 shares
outstanding.
We appointed L. David Tomei, Samuil Umansky, Gary Jacob and Donald
Picker to be directors according to the terms of the Voting Agreement and Mr.
Tomei was appointed Chairman of the Board. Samuil Umansky was appointed
President and Chief Scientific Officer and Christoph Bruening remains Secretary
and Treasurer.
DIVIDEND POLICY
It is our present policy not to pay cash dividends and to retain future
earnings to support our growth. We do not anticipate paying any cash dividends
in the foreseeable future.
3
DESCRIPTION OF THE COMPANY'S BUSINESS
Our principal business will be to continue to develop and attempt to
commercially exploit the early stage diagnostic technology developed by
Xenomics.
The Technology
Scientists at Xenomics were the first to report the discovery that a
portion of DNA found in the bloodstream can cross the kidney barrier and be
detected in the urine. The discovery of transrenal nucleic acids (Tr-NA) is
acknowledged as a major breakthrough in the rapidly growing molecular
diagnostics field. Urine analysis of Tr-NA 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.
Xenomics owns proprietary technology protected by broad patents covering the
fields of prenatal diagnosis, cancer detection and transplantation. Pending
patent applications will further extend coverage to any diagnostic applications
of Tr-NA. This patent position will ensure that Xenomics Inc. is the leading
company in the analysis of genetic markers in urine and that others who wish to
enter this field will be required to practice under this intellectual property.
The development of Tr-NA technology has progressed to clinical testing
in a number of medical centers. As a result, the initial operations of Xenomics
will focus on early product opportunities in prenatal diagnosis that use
accepted markers for determining gender, Fragile X Syndrome and Rh
incompatibility. Xenomics plans to expand the prenatal testing capabilities to
include a comprehensive set of markers, and will develop technology in the
diagnostics of cancer and transplantation.
Xenomics plans to develop a pipeline of commercial diagnostic tests
that will initially be performed in-house before transfer to external partners
with access to high-volume markets. Of prime importance to the positioning of
Xenomics will be the need for key diagnostics laboratories and companies to
access Xenomics patents in order to enter the market for urine testing.
The Market
Xenomics believes that the market for Tr-NA technology based diagnostic
products is large and growing at a current rate of 35-40% per annum. Currently
the market for DNA testing is over $3 billion in the US 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 suggests
that this will ultimately become the method of choice for the majority of
genetic tests. We believe the intellectual property of Xenomics positions it to
develop a breadth of products across the diagnostics markets.
Prenatal Testing:
There are 6.2 million pregnancies each year in the United States alone.
Only about 10-15% of patients who should have prenatal genetic tests according
to physicians and genetic counselors actually agree to undergo the procedure.
Xenomics conservatively expects that this compliance will increase to more than
50-70% of the total patients considering that most patients decline chorionic
villus sampling or amniocentesis because of the significant risks inherent in
the procedure. In contrast, donation of a urine specimen is simple, risk-free,
and can be performed early in the first trimester of pregnancy.
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Initial product focus will be on diagnostic tests for determination of
gender, Fragile X Syndrome and Rh incompatibility. Future pipeline products will
include tests for Down Syndrome, Sickle Cell Anemia, Marfan Syndrome, Tay Sachs
Disease, Huntington's disease, Spinocerebellar Ataxia 1, Machado-Joseph Disease,
Rett Syndrome and Hemophilia.
Cancer Testing:
It is anticipated that Tr-NA analysis will become a platform technology
for development of screening tests for the early detection of tumors and
pre-neoplastic conditions. The initial opportunities for diagnostic test
development are gastrointestinal tumors, including colorectal cancer, liver
cancer and pancreatic cancer. About 160,000 new cases of colon cancer and 25,000
new cases of pancreatic cancer occur in the U.S. each year. Routine testing is
recommended for the 60-70 million of people over 50 at risk for colorectal
polyps growth. 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-NA products in the cancer diagnostic arena will be highly
competitive based on cost, simplicity, and patient compliance. For example, it
is likely that a urine test for high-risk precancerous polyps will have better
patient acceptance than invasive colonoscopy.
Transplantation:
Currently, tissue biopsy or blood samples are used to assess graft
survival following organ transplantation (500,000 tests/year). Since grafts can
be identified by a unique series of genetic markers characteristic of the donor,
they can be easily detected in small urine specimens. As the rejection of the
tissue or organ is marked by early death of cells, the Tr-NA test can detect
early evidence of tissue rejection and potentially be used to guide and monitor
immunosuppressive therapies. Opportunities for partnering with companies
developing drugs for controlling tissue rejection, companies developing cell
transplantation, or companies developing novel xenotransplantation technologies
illustrates the breadth of commercial potential of the platform technology.
Infectious diseases:
Agents such as viruses and bacteria that have precise genetic
signatures cause many infectious diseases. The possibility that analysis of
simple urine specimens may provide the common basis for a broad variety of
public health threats is of immense value.
Drug Development and Monitoring of Therapeutic Outcomes:
The Tr-NA test 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. These applications of the transrenal nucleic acid
technology to day-to-day sampling of patient urine would permit therapeutic
decisions to be made on a patient-specific basis. About 1.25 million of new
cancer cases are diagnosed yearly and there are several hundred companies
developing chemotherapeutic agents in the USA alone. This defines the size of
the potential market for applications of Tr-NA technology in tumor monitoring.
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Business Strategy
Xenomics plans to develop small-scale commercial testing capabilities
to perform the Tr-NA test during the first 1-2 years of market launch. This will
be to further validate the testing methodology in the marketplace and to
establish an initial market presence prior to seeking alliances with major
clinical laboratories in order to gain access to substantially larger volumes of
clinical samples. In addition, we hope this strategy will bring in initial
revenues that will fund a portion of the development pipeline. Xenomics has
developed the core capabilities for test development internally and
manufacturing through contract suppliers. Addition of dedicated laboratory space
and personnel is required to speed up the development of initial products and
future diagnostic pipelines.
Xenomics believes that it will have many potential customers and
partnering opportunities owing to core patents on urine analysis of nucleic
acids under which third-parties will need to practice. In comparison with many
other genetic tests, it is anticipated that the Tr-NA test can reduce costs by
approximately 80% as no surgical procedures are involved and specimen
preparation in the laboratory is simple and can easily be automated. Currently,
about 60-80% of the cost of performing prenatal genetic testing is associated
with the surgical procedure followed by time-consuming extraction of DNA from
either amniotic fluid or a chorionic villus biopsy. Therefore, a major advantage
of Xenomics' Tr-NA test, when commercially available, will be the reduced cost
of each test which Xenomics believes will be translated into a substantially
higher margin than has been traditional in the diagnostics industry.
Xenomics believes that there is a strong incentive for client companies
to adopt the Xenomics Tr-NA test to improve their own margins. Through multiple
non-exclusive licenses Xenomics plans to attain economically viable returns
through improved profit-sharing and licensing agreements. Another important
factor that will determine commercial success is that unlike other genetic
testing technologies Xenomics' core Tr-NA test will remain the same irrespective
of the marker and thus the test capabilities can be easily and rapidly expanded
to new markers as they are discovered and validated by additional research and
development. In addition, Xenomics will not be dependent upon a single
methodology for nucleic acid analysis but will be able to partner with "state of
the art" technologies for future generation of products, subject to commercially
viable agreements.
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 R&D company called
SpaXen Italia, S.R.L ("SpaXen"). In laboratories to be provided to SpaXen within
INMI, scientists will be working to apply the Tr-NA 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 Xenomics.
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 Xenomics 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;
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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 chairman of the board of the Company; 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;
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, Xenomics and INMI have
entered into a certain Shareholder Agreement, which provides, among other terms,
the following
o As its contribution to SpaXen, Xenomics assigned to SpaXen all
rights and patent applications to that portion of the TrDNA
technology that applies TrDNA 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 TrDNA 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 Xenomics will have royalty-free, perpetual, exclusive,
worldwide commercialization rights for Derivative IP;
o Xenomics 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, Xenomics' commercialization rights
for Newly Developed IP will terminate, the Contributed IP will
revert back to Xenomics and all capital surplus will be paid
to INMI;
The Shareholder Agreement contemplates SpaXen and Xenomics entering
into a Collaborative Research and License Agreement, which will further define
their respective obligations and rights with respect to the above matters.
Xenomics plans to begin negotiations shortly.
7
It is contemplated that 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.
Intellectual Property
On June 26, 2001, Xenomics announced that its first patent had been
granted by the United States Patent and Trademark Office (Pat. No. 6,251,638).
The patent, entitled "Methods for Detection of Nucleic Acid Sequences in Urine"
describes non-invasive methods of detecting the presence of specific nucleic
acid sequences by analyzing urine samples for the presence of nucleic acids that
have crossed the kidney barrier. More specifically, the patent claims cover
methods of detecting specific fetal nucleic acid sequences by analyzing maternal
urine for the presence of fetal nucleic acids.
On September 13, 2001, Xenomics further strengthened its intellectual
property protection and announced that a second major U.S. patent had been
awarded to it (Pat. No. 6,287,820). The patent covers methods of analyzing
specific nucleic acid alterations for the diagnosis of cancer and the monitoring
of its treatment.
In May, 2002, Xenomics' third U.S. patent was issued (Pat. No.
6,492,144) covering use of Tr-NA technology for analyzing specific nucleic acids
in urine to track the success of transplanted cells, tissues and organs. The
patent also covers methods for evaluating the effects of environmental factors
and aging on the genome.
Currently, Xenomics has pending European Patent Application No.
98924998.2, which covers methods of detecting specific fetal nucleic acid
sequences by analyzing maternal urine for the presence of fetal nucleic acids
and methods of detecting specific nucleic acid alterations for the diagnosis of
disease.
Where appropriate, Xenomics intends to seek other patent protections in
the United States and other countries for improvements upon these methods. No
assurance can be given that Xenomics' patent portfolio will provide it with a
meaningful level of commercial protection.
Manufacturing
We do not intend to invest in large scale manufacturing facilities. We
believe that all of our products in development can be made using well
understood manufacturing methods. Because we do not have manufacturing
experience, we may not be able to 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.
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.
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Generally, certain categories of medical devices, a category that may
be deemed to include products based upon our technologies, require FDA
pre-market approval or clearance before they may be marketed and placed into
commercial distribution. The FDA has not, however, actively regulated in-house
laboratory tests that have been developed and validated by the laboratory
providing the tests. Additionally, the FDA has demonstrated prior enforcement
discretion and is currently undergoing internal review on its legal authority
for regulating these products. Pre-market clearance or approval is not currently
required for this category of products. The FDA does regulate the sale of
certain reagents, including some of our reagents, used in laboratory tests. The
FDA refers to the reagents used in these tests as analyte specific reagents
("ASR"). ASR react with a biological substance including those intended to
identify a specific DNA sequence or protein. These reagents generally do not
require FDA pre-market approval or clearance if they are (i) sold to clinical
laboratories certified by the government to perform high complexity testing and
(ii) labeled in accordance with FDA requirements, including a statement that
their analytical and performance characteristics have not been established. A
similar statement would also be required on all advertising and promotional
materials relating to ASR such as those used in our test. Laboratories also are
subject to restrictions on the labeling and marketing of tests that have been
developed using ASR. We believe that in-house testing based upon our
technologies, and any ASR that we intend to sell to leading clinical reference
laboratories currently do not require FDA approval or clearance. We cannot be
sure, however, that the FDA will not change its policy in a manner that would
result in tests based upon our technologies, or a combination of reagents, to
require pre-market approval or clearance. In addition, we cannot be sure that
the FDA will not change its position in ways that could negatively affect our
operations either through regulation or new enforcement initiatives.
Regardless of whether a medical device or diagnostic test requires FDA
approval or clearance, a number of other FDA requirements apply to its
manufacturer and to those who distribute it. Device manufacturers must be
registered and their products listed with the FDA, and certain adverse events,
correction and removals must be reported to the FDA. The FDA also regulates the
product labeling, promotion, and in some cases, advertising, of medical devices.
Manufacturers must comply with the FDA's Quality System Regulation which
establishes extensive requirements for design, quality control, validation and
manufacturing. Thus, manufacturers and distributors 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 ascertain
compliance with these and other requirements.
Diagnostic Kits
Any diagnostic test kits that we, or our partners, may sell would
require FDA clearance or approval before they could be placed into commercial
distribution. There are two regulatory review procedures by which a product may
receive such approval or clearance. Some products may qualify for clearance
under a pre-market notification, or 510(k) process. Under such a process, the
manufacturer provides to the FDA a pre-market notification that it intends to
begin marketing the product, and demonstrates to the FDA's satisfaction, through
appropriate studies, that the product is substantially equivalent to a
comparative product that has been legally marketed and is currently in
commercial distribution. Clearance of a 510(k) means that the product has the
equivalent intended use, is as safe and effective as, and does not raise
significant questions of safety and effectiveness than a legally marketed
device. A 510(k) submission for an in vitro diagnostic device generally must
include labeling information, performance data, and in some cases, it must
include data from human clinical studies. Marketing may commence under a 510(k)
submission when the FDA issues a clearance letter determining the product to be
substantially equivalent to a comparative device.
9
If a medical device does not qualify for the 510(k) submission process
by not being substantially equivalent or raising new issues of safety and
effectiveness, the FDA may require submission of a pre-market approval
application, or PMA, before marketing can begin. PMA applications must
demonstrate, among other matters, that the medical device is safe and effective.
A PMA application is a more comprehensive submission than a 510(k) submission,
resulting in longer review and approval timeframes and usually includes the
results of extensive pre-clinical and clinical studies and detailed information
on the product, design and manufacturing system. Before the FDA will approve an
original PMA, the manufacturer must undergo and pass a pre-approval inspection
that assesses its compliance with the requirements of the FDA's Quality System
Regulations.
We believe that if our products are sold in FDA approved diagnostic
test kit form; they would likely require PMA approval. As compared to the 510(k)
process, the PMA process is traditionally more lengthy and costly, and we cannot
be sure that the FDA will approve PMAs for our products in a timely fashion, or
at all. Additionally, FDA requests for additional studies during the review
period are not uncommon, and can significantly delay approvals. Even if we were
able to gain approval of a product for one indication, significant changes to
the product, its indication for use, its labeling or manufacturing and quality
assurance would likely require additional approvals in the form of a PMA
Supplement.
Competition
The biopharmaceutical and medical diagnostic industries are
characterized by rapidly evolving technology and intense competition. Our
competitors include major pharmaceutical, biotechnology and medical diagnostic
companies, most of which have financial, technical and marketing resources
significantly greater than our resources. 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.
Facilities
We temporarily lease office space at 420 Lexington Avenue, Suite 1609,
New York, New York from Callisto Pharmaceuticals, Inc., an affiliate. We entered
into a lease for separate office space at 420 Lexington Avenue 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.
SpaXen plans to occupy laboratory facilities to be provided by INMI under the
SpaXen shareholder agreement. In addition, the Company has leased a laboratory
facility of approximately 3,700 sq. ft. in Monmouth Junction, New Jersey. We
believe that these facilities, together with laboratory facilities to be
provided to SpaXen by INMI, will be adequate for our anticipated level of
activity.
Employees
As of July 16, 2004, our employees are Samuil Umansky and Hovsep
Melkonyan. L. David Tomei serves as a consultant.
Certain Market Information
There is no market for our common stock. Our common stock is quoted on
the OTC Bulletin Board under the trading symbol "XNOM."
10
MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding executive officers
and directors of Xenomics:
Name Position Age
---- -------- ---
L. David Tomei, Ph.D Co-Chairman of the Board 59
President, Spaxen Italia, srl
Samuil Umansky, M.D., Ph.D. President and Chief Scientific Officer 62
and Director
Christoph Bruening Secretary, Treasurer and Director 37
Hovsep Melkonyan, Ph.D Vice President, Research, Xenomics 53
Gary S. Jacob, Ph.D. Director 57
Donald H. Picker, Ph.D. Director 58
L. David Tomei, Ph.D.
Dr. Tomei is a founder of Xenomics and became Co-Chairman of the Board
of the Company on July 2, 2004. 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. He was a scientist at Roswell Park and The Ohio State University Cancer
Center through 1992. During that time he was among the first scientists to
investigate genetically programmed cell death, specifically the molecular
mechanisms of apoptotic DNA fragmentation. He published several discoveries
regarding apoptosis and edited the first two books on this now well known
subject.
In 1992, he became one of the founding scientists of LXR Biotechnology,
Inc. ("LXR"), the first biotechnology company to undertake discovery and
development of apoptosis modulator drugs for treatment of human disease. During
his association with LXR, an Initial Public Offering and three subsequent
private stock offerings were successfully completed between 1994 and 1998. He
initiated and closed two corporate partnerships with large companies in the
medical technology field. He was responsible for increasing the value of LXR
over 640% during his three year tenure as CEO and successfully raised
approximately $51 million in investment capital and established a strong
management team. As Chairman, Dr. Tomei was responsible for attracting
internationally recognized members of the investment banking and biotechnology
communities as LXR directors.
After stepping down from his position at LXR in early 1998, Dr. Tomei
lectured as a Visiting Professor at the University of Rome, Italy. In late 1999,
he joined the other Xenomics founders to establish Xenomics. He will be the
co-Chairman of Xenomics.
Dr. Tomei has published over 110 scientific papers, two books (Cold
Spring Harbor Laboratory Press), and holds 12 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.
11
Samuil R. Umansky, M.D., Ph.D., Dr.Sci.
--------------------------------------
Dr. Umansky is a founder of Xenomics and became President, Chief
Scientific Officer and Director of the Company on July 2, 2004. 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 the Institute of Biological Physics,
USSR Academy of Sciences ("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.
In 1993, Dr. Umansky joined LXR as Director of Cell Biology. In
January, 1996, he became Vice President of Molecular Pharmacology, and in
August, 1997, he was appointed as LXR's Chief Scientific Officer. While at LXR,
Dr. Umansky coordinated research and development in the field of therapeutic
apoptosis modulators. In collaboration with Dr. Melkonyan, Dr. Umansky
discovered a new family of apoptosis-related genes and their role in various
pathological processes including heart attack, carcinogenesis and diabetes. His
investigation of DNA cleavage in dying cells and of the fate of this degraded
DNA led to discovery of a new fundamental phenomenon, ability of DNA fragments
to cross the kidney barrier. This study created a basis for a new technology in
genetic testing, urine DNA analysis that can be applied to prenatal testing,
tumor diagnostics, tumor and organ transplant monitoring. In August 1999,
together with Dr. Tomei and other scientists, Dr. Umansky co-founded Xenomics.
Dr. Umansky has published over 130 papers, has been invited as a
speaker and a chairman for numerous meetings and congresses and acts as an ad
hoc reviewer for many scientific journals and granting agencies. Dr. Umansky
became a U.S. citizen in 2001.
Christoph Bruening
------------------
Mr. Bruening has served as President, Secretary and Treasurer of the
Company since February 2004. 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, Mr. Bruening became
President and the sole director of Used Kar Parts, Inc., a company which planned
to develop an on-line marketplace for used car parts. In addition, Mr. Bruening
is currently a member of the advisory board of Clarity AG.
Hovsep Melkonyan, Ph.D.
-----------------------
Hovsep 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 IBP. Following graduate school, in 1982 Dr. Melkonyan
joined The Institute of Molecular Genetics of the Ministry of USSR Medical
Industry. In this Institution he was enrolled in the Molecular Genetics group
focused on studies and development of amino acid producing Gram positive
bacterial strains. In 1987 Dr. Melkonyan was invited to the IBP to establish a
molecular biology lab, projected to be a core facility. At the same time, he was
granted financial support from the Russian Government for investigations on
biological consequences of the Chernobyl AES Disaster.
12
In 1993, Dr. Melkonyan emigrated to the U.S. and joined LXR. Dr.
Melkonyan took part in several research programs ranging from pharmacological
physiology to development of new diagnostic technologies. He identified and
cloned a family of genes encoding secreted proteins with apoptosis modifying
activities and was involved in development of experimental procedures for the
extraction of cell free DNA from blood and urine and its utilization as a target
for PCR based diagnostics. The results of these studies are patented in the U.S.
and internationally.
Gary S. Jacob, Ph.D.
--------------------
Dr. Jacob was appointed a director of the Company on July 2, 2004. He
has served as Chief Executive Officer as well as Chief Scientific Officer of
Callisto Pharmaceuticals, Inc. since May 2003 and Chairman of Synergy
Pharmaceuticals Inc. since October 2003. Dr. Jacob served as Chief Scientific
Officer of Synergy Pharmaceuticals Inc. from 1999 to 2003. From 1990 to 1998,
Dr. Jacob served as a Monsanto Science Fellow, specializing in the field of
Glycobiology. From 1997 to 1998, Dr. Jacob was Director of Functional Genomics,
Corporate Science & Technology, Monsanto, where he played a pivotal role in the
rapid development of Monsanto's plant genomics strategy and the buildup of the
in-house advanced genomics program. From 1990 to 1997, Dr. Jacob was Director of
Glycobiology, G.D. Searle Pharmaceuticals Inc. From 1986 to 1990, Dr. Jacob was
Manager of the G.D. Searle Glycobiology Group located at Oxford University,
England.
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 March 2004, Dr. Picker served as Senior
Vice President, Drug Development. 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., an apoptosis drug development
company. From 1991 to 1996, he was Senior Vice President of Research and
Development at Genta Inc., an antisense drug development company.
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
13
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.
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).
Employment Agreements
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, 303,570
and 445,625 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 in annual
installments of 253,125, 303,750 and 455,625 and are exercisable at $1.25 per
share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the acquisition of Xenomics and the completion of the
private placement, the Company 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 private placement
to Christoph Bruening, a director and officer.
14
Callisto Pharmaceuticals, Inc. is allowing us to use a small office for
a nominal fee until office space we rented from a non-affiliated landlord is
ready for occupancy in September 2004. Gabriel Cerrone, the managing partner of
Panetta Partners Ltd., which is a principal shareholder of the Company, is a
director of Callisto.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates beneficial ownership of the Company's
common stock as of May 14, 2003 by:
o Each person or entity known by the Company to beneficially own
more than 5% of the outstanding shares of the Company's common
stock;
o Each executive officer and director of the Company; and
o All executive officers and directors of the Company as a
group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Percentage of beneficial ownership is based on
stock outstanding as of July 27, 2004.
Unless otherwise indicated, the address of each beneficial owner listed below is
c/o Xenomics, Inc., 420 Lexington Avenue, Suite 1609, New York, New York 10170.
Number of Percentage of Shares
Name of Beneficial Owner Shares Beneficially Owned
- ------------------------ ------ ------------------
Directors and Executive Officers:
- ---------------------------------
L. David Tomei, Co-Chairman 938,360(1) 6.0%
Samuil Umansky, President and CSO 885,809(2) 5.7%
Hovsep Melkonyan, Vice President Research 348,803(3) 2.2%
Christoph Bruening, Secretary, Treasurer
and Director 115,000 *
Donald Picker, Director 100,000 *
Gary S. Jacob, Director 75,000 *
All Executive Officers and Directors
as a group (6 persons) 2,462,972(4) 15.8%
Other Greater than 5% Holders:
- ------------------------------
Panetta Partners Ltd. 918,858(5) 5.9%
1275 First Avenue, Suite 296,
New York, NY 10021
- ---------------
* Less than 1%
15
(1) Does not include 1,012,500 shares which may be acquired upon the
exercise of options which do not vest for more than 60 days.
(2) Does not include 1,012,500 shares which may be acquired upon the
exercise of options which do not vest for more than 60 days.
(3) Does not include 675,000 shares which may be acquired upon the exercise
of options that do not vest for more than 60 days.
(4) Does not include the shares described in notes (1) to (3) above.
(5) Does not include 1,050,000 shares which may be obtained upon the
exercise of options granted to the managing partner of Panetta which do
not vest for more than 60 days.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our
articles of incorporation and bylaws, each as amended, is only a summary. You
should also refer to the copies of our articles of incorporation and bylaws
which are included as exhibits to this report. Our authorized capital stock
consists of 120,000,000 shares of common stock, par value $.00005 per share and
20,000,000 shares of preferred stock, par value $.0001 per share. As of July 27,
2003, there are 15,588,737 shares of common stock issued and outstanding and no
shares of preferred stock issued and outstanding.
Common Stock
Holders of our common stock are entitled to one vote for each share
held on all matters submitted to a vote of our stockholders. Holders of our
common stock are entitled to receive dividends ratably, if any, as may be
declared by the board of directors out of legally available funds, subject to
any preferential dividend rights of any outstanding preferred stock. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are
fully paid and nonassessable. The rights, preferences and privileges of holders
of our common stock are subject to, and may be adversely affected by, the rights
of holders of shares of any series of preferred stock which we may designate and
issue in the future without further stockholder approval.
Preferred Stock
Our board of directors is authorized without further stockholder
approval, to issue from time to time up to a total of 20,000,000 shares of
preferred stock in one or more series and to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each series, including the dividend rights, dividend rates, conversion
rights, voting rights, term of redemption, redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of these series without further vote or action by the stockholders.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of our management without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of common stock. The issuance of preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of common stock,
including the loss of voting control to others. Currently, there are no shares
of preferred stock outstanding and we have no present plans to issue any shares
of preferred stock.
16
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is StockTrans,
Inc., 44 W. Lancaster Avenue, Ardmore, Pennsylvania 19003.
RISK FACTORS
Any investment in our Shares involves a high degree of risk. Some of the risks
that may be material to your decision to invest and to the Company and Xenomics'
performance are set forth in this Section. The Shares should not be purchased by
persons who cannot afford the loss of their entire investment. In addition to
any other information presented in this Memorandum, prospective investors should
consider carefully the following risk factors when evaluating the Company,
Xenomics, and their respective businesses and in considering whether to invest
in the Company. The words "may," "will," "intends," "plans," "expects,"
"anticipates," "estimates" and similar expressions identify forward-looking
statements. Forward-looking statements are subject to a number of risks and
uncertainties. As a result of the risk factors set forth in this section and the
other information provided in this Memorandum, actual results could differ
materially from those described in the forward-looking statements. Except as
required by law, the Company and Xenomics undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise after the date of this Memorandum. You
should be aware that the Private Securities Litigation Reform Act of 1995 and
Section 27A of the Securities Act of 1933 do not exempt from liability any
forward-looking statements that we make.
Risks Related to the Company's Business
No operating history in the planned business
The Company has virtually no operating history and no experience in
operating a research and development company.
If the Company loses key employees and consultants or is unable to
attract or retain qualified personnel, its business could suffer
The Company's success will be highly dependent on its ability to
attract and retain qualified scientific and management personnel. The Company
will be highly dependent on its management, scientific staff, and consultants,
including Dr. L. David Tomei, Dr. Samuil Umansky and Dr. Hovsep Melkonyan. The
loss of the services of Drs. Tomei, Umansky and Melkonyan or other personnel or
consultants could have a material adverse effect on the Company's operations.
Although the Company expects to enter into employment agreements with each of
its key management and scientific employees and consulting agreements with its
key outside scientific advisors, any of such persons may terminate his or her
employment or consulting arrangement with the Company at any time on short
notice. Accordingly, there can be no assurance that these employees and
consultants will remain associated with the Company. The loss of the services of
the principal members of its personnel or consultants may impede the Company's
ability to commercialize its product candidates.
The Company's 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. The Company faces 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. The Company's inability to develop
additional expertise or to hire and retain such qualified personnel could have a
material adverse effect on the Company's operations.
17
The following risks relate principally to the Company's Common Stock
and its market value:
There is no existing market for the Company's Common Stock.
The Company's Common Stock is quoted on the Over the Counter Bulletin
Board under the symbol "XNOM.OB." There is no active trading market for any of
our securities. Accordingly, there can be no assurance as to the liquidity of
any markets that may develop for the securities, the ability of holders of the
securities to sell their securities, or the prices at which holders may be able
to sell their securities.
The market price of the Company's Common Stock may be adversely
affected by several factors.
The market price of the Company's Common Stock could fluctuate
significantly in response to various factors and events, including:
o the Company's ability to integrate operations, technology,
products and services;
o the Company's ability to execute its business plan;
o operating results below expectations;
o announcements of technological innovations or new products by
us or the Company's competitors;
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.
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 Company's 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 stock.
The Company has never paid cash dividends on its stock and does not
anticipate paying cash dividends in the foreseeable future. The payment of
dividends on the Company's 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 the Company does not pay dividends, its
stock may be less valuable because a return on your investment will only occur
if its stock price appreciates.
A sale of a substantial number of shares of the Company's Common Stock
may cause the price of its Common Stock to decline.
If the Company's shareholders sell substantial amounts of Common Stock
in the public market, including shares issued upon the exercise of outstanding
options or warrants, the market price of the Company's Common Stock could fall.
These sales also may make it more difficult for the Company to sell equity or
equity-related securities in the future at a time and price that the Company
deems reasonable or appropriate.
Risks Related to Xenomics' Business
Xenomics is a development stage company with no operating history
18
Xenomics is a development stage company focused on the development and
commercialization of Tr-NA technology. Xenomics, to date, has experienced
negative cash flow from development of the Tr-NA technology. It has currently no
products ready for commercialization, has not generated any revenue from
operations and expects to incur substantial net losses for the foreseeable
future to further develop and commercialize the Tr-NA technology. Xenomics is
unable to predict the extent of these future net losses, or when we may attain
profitability, if at all. If Xenomics is unable to generate significant revenue
from the Tr-NA technology or attain profitability, Xenomics will not be able to
sustain operations.
If Xenomics fails to obtain the capital necessary to fund its
operations, it will be unable to develop any products for commercialization.
Xenomics believes that the net proceeds from the recent private
placmeent will not be sufficient to meet its capital requirements for the
development of any product based upon the Tr-NA technology to the stage of
commercialization. Xenomics expects capital outlays and operating expenditures
to increase substantially over the next several years as its expands its
operations. Xenomics may also need to spend more money than currently expected
because it may change its product development plans. Xenomics has no committed
sources of capital and does not know whether additional financing will be
available when needed, or, if available, that the terms will be favorable. If
additional funds will not be available, Xenomics will be forced to curtail or
cease operations.
If Xenomics is unable to manage its expected growth, it may not be able
to develop its business.
Xenomics ability to develop its business requires an effective planning
and management process. Xenomics has 3 employees and will need to hire a
significant number of additional employees in the near term. If Xenomics fails
to identify, attract, retain and motivate highly skilled personnel, it may be
unable to continue our development and commercialization activities.
Xenomics expects that its anticipated future growth will place a
significant strain on its management, systems and resources. To manage the
anticipated growth of its our operations, Xenomics will need to increase
management resources and implement new financial and management controls,
reporting systems and procedures. If Xenomics is unable to manage its growth,
Xenomics could be unable to execute our business strategy.
If Xenomics does not receive regulatory approvals, it will not be able
to develop and commercialize the Tr-NA technology.
Xenomics needs FDA approval to market products based on the Tr-NA
technology for diagnostic uses in the United States and approvals from foreign
regulatory authorities to market products based on the Tr-NA technology outside
the United States. If Xenomics fails to obtain regulatory approval for the
marketing of products based on the Tr-NA technology for, Xenomics 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-NA technology, as well as the evaluation of manufacturing process and
contract manufacturers' facilities, is lengthy, expensive and uncertain.
Securing regulatory approval for products based upon the Tr-NA 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. Xenomics has limited experience in filing and
pursuing applications necessary to gain regulatory approvals.
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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-NA technology. If regulatory
authorities do not accept or approve Xenomics' applications, it may require that
Xenomics conduct additional clinical, preclinical or manufacturing studies and
submit that data before regulatory authorities will reconsider such application.
Xenomics 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 to expend more resources than Xenomics may have available.
It is also possible that additional studies may not suffice to make applications
approvable. If any of these outcomes occur, Xenomics may be forced to abandon
its applications for approval, which might cause Xenomics to cease operations.
Xenomics may face significant competition from large pharmaceutical,
biotechnology and other companies which could harm its business.
The biotechnology industry is intensely competitive and characterized
by rapid technological progress. In each of Xenomics' potential product areas,
it faces significant competition from large pharmaceutical, biotechnology 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-NA technology is under development, Xenomics cannot
predict the relative competitive position of any product based upon the Tr-NA
technology. However, Xenomics expects that the following factors will determine
its ability to compete effectively: safety and efficacy; product price; ease of
administration; and marketing and sales capability.
Xenomics believes that many of its 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
our the Tr-NA technology. Xenomics' commercial opportunities will be reduced or
eliminated if these competing products are more effective, are more convenient
or are less expensive than Xenomics' products.
The Tr-NA technology may fail to achieve market acceptance, which could
harm Xenomics' business.
The use of the Tr-NA technology has never been commercialized for any
indication. Even if approved for sale by the appropriate regulatory authorities,
physicians may not prescribe diagnostic products based upon the Tr-NA
technology, in which event Xenomics may be unable to generate significant
revenue or become profitable.
Acceptance of the Tr-NA technology will depend on a number of factors
including: acceptance of products based upon the Tr-NA technology by physicians
and patients as safe and effective diagnostic products, adequate reimbursement
by third parties, and competitive product approvals.
Reimbursement may not be available for products based upon the Tr-NA
technology, which could impact Xenomics' ability to achieve profitability.
Market acceptance, sales of products based upon the Tr-NA technology
and Xenomics' 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
Xenomics is able to commercialize its products. Xenomics cannot be sure that
reimbursement in the U.S. or elsewhere will be available for any of its products
in the future. If reimbursement is not available or is available only to limited
levels, Xenomics may not be able to commercialize its products.
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Xenomics will need others to market and commercialize products based
upon the Tr-NA technology
Xenomics currently intends to market any future products through third
parties and will need to enter into marketing arrangements with them. Xenomics
may not be able to enter into marketing arrangements with third parties on
favorable terms, or at all. In the event that Xenomics will be unable to enter
into marketing arrangements for products based upon the Tr-NA technology, it may
not be able to develop an effective sales force to successfully commercialize
its products. If Xenomics fails to enter into marketing arrangements for its
future products and is unable to develop an effective, its revenues will be
severely limited.
If Xenomics fails to protect its intellectual property rights,
competitors may develop competing products and our business will suffer.
lf Xenomics is not able to protect its proprietary technology, trade
secrets and know-how, its competitors may use its inventions to develop
competing products. Xenomics owns certain patents relating to the Tr-NA
technology. However, these patents may not protect Xenomics against our
competitors, and patent litigation is very expensive. If Xenomics spends a
significant portion of its cash, including the proceeds from this Offering, it
may be unable to pursue litigation to its conclusion because currently Xenomics
does not generate revenues.
Xenomics cannot rely solely on its 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.
Xenomics is uncertain of the level of protection, if any, that will be
provided by our patents if Xenomics attempts to enforce them and they are
challenged in court where Xenomics 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 Xenomics in the
future are uncertain. Any patents which are issued may not contain claims that
will permit Xenomics to stop competitors from using similar technology.
An application to obtain one additional patent is currently being
pursued with the European Patent Office. Other than this activity, Xenomics has
no pending legal or governmental proceedings involving any of U.S. or European
patent applications or patents owned by or licensed to us.
In addition to the patented technology, Xenomics is also relying on
unpatented technology, trade secrets and confidential information relating to
the Tr-NA technology. Xenomics may not be able to effectively protect its rights
to this technology or information. Other parties may independently develop
substantially equivalent information and techniques or otherwise gain access to
or disclose this technology. Xenomics generally requires each of its employees,
consultants, collaborators, and certain contractors to execute a confidentiality
agreement at the commencement of an employment, consulting or collaborative
relationship with Xenomics. However, these agreements may not provide effective
protection of this technology or information or, in the event of unauthorized
use or disclosure, they may not provide adequate remedies.
If product liability lawsuits are brought against Xenomics, it may
incur substantial liabilities.
The testing, marketing, distributing and sale of pharmaceutical,
therapeutic, and diagnostic products entail an inherent risk of product
liability. There may be unknown adverse events associated with the use of the
Tr-NA technology which may result in product liability suits being brought
against Xenomics. Whether or not Xenomics will ultimately be successful in
defending potential product liability litigation, such litigation would consume
substantial amounts of its financial and managerial resources, and might result
in adverse publicity or reduced acceptance of its products in the market, all of
which would impair Xenomics' business. It is anticipated that Xenomics will
obtain clinical trial insurance and product liability insurance in the future.
However, Xenomics may not be able to maintain its clinical trial insurance or
product liability insurance at an acceptable cost, if at all, and insurance may
not provide adequate coverage against potential claims or losses.
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