Registration Statement
As filed
with the Securities and Exchange Commission on August 1, 2005
Registration
Number 333-____________
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
XENOMICS,
INC.
(Name of
Small Business Issuer in its Charter)
Florida |
|
8731 |
|
04-3721895 |
(State
or other jurisdiction of incorporation or organization) |
|
(Primary
Standard Industrial Classification Code Number) |
|
(I.R.S.
Employer) Identification No. |
420
Lexington Avenue, Suite 1701
New York,
New York 10170
(212)
729-9216
(Address
and telephone number of principal executive offices)
V. Randy
White, Ph.D.
Chief
Executive Officer
Xenomics,
Inc.
420
Lexington Avenue, Suite 1701
New York,
New York 10170
(212)
297-0808
(Name,
address and telephone number of agent for service)
Copies
to:
Jeffrey
J. Fessler, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas, 21st Floor
New York,
New York 10018
(212)
930-9700
Approximate
date of commencement of proposed sale to the public: From time to time after the
effective date of this Registration Statement.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. x
If this
form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o ______
If this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
o ________
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered |
Amount
To Be
Registered |
Proposed
Maximum Offering Price Per Share (1) |
Proposed
Maximum
Aggregate
Offering
Price |
Amount
of Registration
Fee |
|
|
|
|
|
Common
Stock, $.0001 par value per share |
5,436,597 |
$2.46 |
$13,374,028.62 |
$1,574.12 |
Common
Stock, $.0001 par value per share |
103,200 (2) |
$2.46 |
$253,872.00 |
$29.88 |
Common
Stock, $.0001 par value per share, issuable upon conversion of Series A
Convertible Preferred Stock |
1,288,837 (3) |
$2.46 |
$3,170,539.02 |
$373.17 |
Common
Stock, $.0001 par value per, issuable upon exercise of common stock
purchase warrants |
2,133,178 (4) |
$2.46 |
$5,247,617.88 |
$617.64 |
Total |
8,961,812 |
|
$22,046,057.52 |
$2,594.81 |
(1)
Estimated solely for purposes of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933, as amended. The average of the
high and low price per share of the Registrant's Common Stock on the Over the
Counter Bulletin Board as of July 26, 2005 was $2.46 per share.
(2)
Represents shares of Common Stock that may be issued as dividends pursuant to
the terms of the Series A Convertible Preferred Stock, assuming that the
effective issuance rate for such shares is $2.15 per share.
(3)
Represents shares of Common Stock that may be issued upon conversion of shares
of Series A Convertible Preferred Stock, assuming an effective conversion rate
of $2.15 per share. Pursuant
to Rule 416 there are being registered such additional number of shares of
common stock as may become issuable pursuant to the anti-dilution provisions of
the shares of Series A Convertible Preferred Stock.
(4)
Pursuant
to Rule 416 there are being registered such additional number of shares of
Common Stock as may become issuable pursuant to the anti-dilution provisions of
the warrants.
The
registrant hereby amends this registration statement on such date or date(s) as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the commission acting pursuant to said Section
8(a) may determine.
The
information in this prospectus is not complete and may be changed. The
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
Subject
to Completion, Dated August 1, 2005
XENOMICS,
INC.
8,961,812
Shares of Common Stock
We
are registering 8,961,812 shares of our common stock, par value $0.0001 per
share, for resale by the selling stockholders identified in this prospectus. On
July 13, 2005, we completed a private placement of our securities, including
277,100 shares of our Series A Convertible Preferred Stock and warrants to
purchase 386,651 shares of our common stock. 1,288,837 of the shares of common
stock covered by this prospectus are issuable from time to time upon conversion
of the 277,100 shares of Series A Convertible Preferred Stock at a conversion
rate of $2.15 per share of common stock. 103,200 of the shares of common stock
covered by this prospectus are issuable as in kind dividends with respect to the
277,100 shares of Series A Convertible Preferred Stock. 386,651 of the shares of
common stock covered by this prospectus are issuable from time to time upon
exercise of the warrants to purchase shares of common stock at $3.25 per share,
which are exercisable until July 13, 2010.
Of
the remaining 7,183,124 shares of common stock covered by this prospectus,
2,450,495 shares of common stock were issued in a private placement we completed
in July 2004 and 2,986,102 shares of common stock were issued in a private
placement we completed in two closings, January 2005 and April 2005. The
investors in the January 2005 and April 2005 private placement were also issued
an aggregate 746,527 warrants to purchase shares of common stock at $2.95 per
share, with 367,681 warrants exercisable until January 28, 2010 and 378,846
warrants exercisable until April 7, 2010. The
remaining 1,000,000 warrants were issued pursuant to an investor relations
agreement with Trilogy Capital Partners, Inc. and its designees to purchase
shares of common stock at $2.95 per share and exercisable until January 10,
2008.
We will
not receive any proceeds from the sale of shares of our common stock by the
selling shareholders. We will bear all expenses in connection with the
registration of the shares, other than underwriting discounts and selling
commissions.
Our
common stock currently trades on the Over the Counter Bulletin Board ("OTC
Bulletin Board") under the symbol "XNOM.OB."
On July
29, 2005, the last reported sale price for our common stock on the OTC Bulletin
Board was $2.50 per share.
The
securities offered in this prospectus involve a high degree of risk. See "Risk
Factors" beginning on page 6 of this prospectus to read about factors you should
consider before buying shares of our common stock.
The
selling stockholders are offering these shares of common stock . We do not know
when, how or if the selling stockholders intend to sell the shares covered by
this prospectus or what the price, terms or conditions of any sales will be. The
selling stockholders may sell all or a portion of these shares from time to time
in market transactions through any market on which our common stock is then
traded, in negotiated transactions or otherwise, and at prices and on terms that
will be determined by the then prevailing market price or at negotiated prices
directly or through a broker or brokers, who may act as agent or as principal or
by a combination of such methods of sale. For additional information on the
methods of sale, you should refer to the section entitled "Plan of
Distribution."
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined whether this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date
of this Prospectus is ________________, 2005
TABLE
OF CONTENTS
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F-1 |
You may
only rely on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with different
information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any common stock in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its date.
This
summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including, the section entitled
"Risk Factors" before deciding to invest in our common stock. Xenomics, Inc. is
referred to throughout this prospectus as "Xenomics," "we" or "us."
General
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.
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 Sub’s five
shareholders in exchange for all outstanding shares of Xenomics Sub
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.
Recent
Developments
On July
13, 2005, we closed a private placement of 277,100 shares of Series A
Convertible Preferred Stock and 386,651 warrants to certain investors for
aggregate gross proceeds of $2,771,000. The shares of Series A Convertible
Preferred Stock are convertible at any time by the holder into shares of common
stock at $2.15 per share. The warrants are immediately exercisable at $3.25 per
share and are exercisable at any time within five years from the date of
issuance. We paid an aggregate $277,100 and issued an aggregate 105,432
warrants to purchase common stock to certain selling agents. The warrants are
immediately exercisable at $3.25 per share and will expire five years after
issuance.
This
Offering
|
|
Shares
offered by Selling Stockholders |
8,961,812
shares of common stock, including 1,288,837 shares of common stock
issuable upon conversion of the Series A Convertible Preferred Stock,
103,200 shares of common stock issuable as a dividend with respect to the
Series A Convertible Preferred Stock and 2,133,178 shares of common stock
issuable upon the exercise of warrants. |
|
|
Use
of Proceeds |
We
will not receive any proceeds from the sale of the common stock. However,
we will receive the exercise price of any common stock we sell to the
selling stockholder upon exercise of the warrants. We expect to use the
proceeds received from the exercise of their warrants, if any, for general
working capital purposes. |
|
|
Risk
Factors |
The
purchase of our common stock involves a high degree of risk. You should
carefully review and consider "Risk Factors" beginning on page
6 |
|
|
OTC
Bulletin Board Trading
Symbol |
XNOM.OB |
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 April 30, 2005, we have
accumulated a total deficit of $4,351,411. 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.
The
development of our business will require substantial additional capital in the
future to, among other things, fund our operations and conduct research and
development and commercialize our Tr-DNA technology. We have historically relied
upon private sales of our equity to fund our operations. 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. When
we seek additional capital, we may seek to sell additional equity or debt
securities or to obtain a credit facility, which we may not be able to do on
favorable terms, or at all.
To the
extent that we raise additional funds by issuing equity securities or
convertible debt securities, our stockholders may experience significant
dilution. Sale of additional equity or convertible debt securities at prices
below certain levels will trigger anti-dilution provisions with respect to
certain securities we have previously sold. If additional funds are raised
through a credit facility or the issuance of debt securities or preferred stock,
lenders under the credit facility or holders of these debt securities or
preferred stock would likely have rights that are senior to the rights of
holders of our common stock, and any credit facility or additional securities
could contain covenants that would restrict our operations. Our ability to
obtain additional financing will be subject to a number of factors, including
market conditions, our operating performance and investor sentiment. 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.
Our
Series A Convertible Preferred Stock financing arrangement contains certain
covenants that limit the way we can conduct business.
Our
recently completed Series A Convertible Preferred Stock financing arrangement
includes various covenants limiting our ability to pay dividends and make other
distributions and issuing securities senior or equivalent to the Series A
Convertible Preferred Stock. We also granted the investors a participation right
in future financings and agreed that for the period prior to the effectiveness
of this registration statement we would not effect subsequent placements of our
securities, subject to certain exemptions from these restrictions. These
covenants may limit us in raising additional capital, competing effectively or
taking advantage of new business opportunities.
We
may lose the rights to our Tr-DNA technology if we expend less than 50% of the
proceeds from our aggregate financings on development of the Tr-DNA
technology.
We are a
party to a technology acquisition agreement dated June 24, 2004 with L. David
Tomei, Co-Chairman, Samuil
Umansky,
President, Hovsep Melkonyan, Vice President, Research, Anatoly Lichtenstein and
Kathryn Wilkie (collectively, the “Shareholders”) and Xenomics Sub pursuant to
which the Shareholders have the option for a period of 90 days after the
delivery of an accounting from us (due by August 1, 2006) to acquire the Tr-DNA
technology from us in the event we expended less than 50% of the aggregate net
proceeds received by us from our aggregate equity or debt financings during the
two year period ending on July 2, 2006, on development of the Tr-DNA technology.
In the event the option becomes exercisable after July 2, 2006, the Shareholders
may exercise in which case we will be forced to dispose of the Tr-DNA technology
and we will more than likely cease our development program and be unable to
sustain operations.
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:
|
· |
acceptance
of products based upon the Tr-DNA technology by physicians and patients as
safe and effective diagnostic products, |
|
· |
adequate
reimbursement by third parties; |
|
· |
potential
advantages over alternative treatments; and |
|
· |
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.
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 in order to obtain human urine samples from pregnant women for our
clinical trials. The research contract with Eastern Virginia Medical School is
subject to Institutional Review Board, or IRB, approval. There can be no
assurance we will receive IRB approval from Eastern Virginia Medical School.
These research contracts require that we satisfy certain performance milestones
in order to continue our clinical studies. These performance milestones
include:
|
· |
the
presence of sufficient Tr-DNA of fetal origin during first trimester of
pregnancy to perform genetic testing; |
|
· |
our
ability to reliably harvest Tr-DNA of fetal origin from random maternal
urine collection; |
|
· |
developing
a method with sufficient sensitivity to provide a reliable “negative”
result; and |
|
· |
developing
a method with an acceptable false positive
rate. |
In the
event we do not meet any of these performance milestones our clinical studies
may be materially adversely affected which would have an adverse effect on our
development plan.
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.
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 July 29, 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 may be 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.
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.
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:
|
· |
technological
innovations or new products and services by us or our
competitors; |
|
· |
clinical
trial results relating to our tests or those of our
competitors; |
|
· |
reimbursement
decisions by Medicare and other managed care
organizations; |
|
· |
FDA
regulation of our products and services; |
|
· |
the
establishment of partnerships with clinical reference
laboratories; |
|
· |
health
care legislation; |
|
· |
intellectual
property disputes; |
|
· |
additions
or departures of key personnel; |
|
· |
sales
of our common stock |
|
· |
our
ability to integrate operations, technology, products and services;
|
|
· |
our
ability to execute our business plan; |
|
· |
operating
results below expectations; |
|
· |
loss
of any strategic relationship; |
|
· |
economic
and other external factors; and |
|
· |
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.
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
Series A Convertible Preferred Stock financing may result in dilution to our
common stockholders.
Dilution
of the per share value of our common shares could result from the conversion of
most or all of the Series A Convertible Preferred Stock we issued to certain of
the selling stockholders. There are currently outstanding 277,100 shares of our
Series A Convertible Preferred Stock, which may be initially converted into a
total of 1,288,837 shares of common stock at the initial
conversion
rate of $2.15. The conversion rate of the Series A Convertible Preferred Stock,
however, is subject to adjustment based on a number of factors, including
selling securities at a price less than the conversion price of the Series A
Convertible Preferred Stock. Holders of our common stock will experience
dilution from the conversion of the Series A Preferred Stock. In the event the
conversion price is lower than the actual trading price on the day of
conversion, the holder could immediately sell all of its converted common
shares, which would have a dilutive effect on the value of the outstanding
common shares. Furthermore, the significant downward pressure on the trading
price of our common stock as Series A Convertible Preferred Stock holders
convert these securities and sell the common shares received on conversion could
encourage short sales by the holders of Series A Convertible Preferred Stock or
other shareholders. This would place further downward pressure on the trading
price of our common stock. Even the mere perception of eventual sales of common
shares issued on the conversion of the Series A Convertible Preferred Stock
could lead to a decline in the trading price of our common stock.
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.
We
have authorized shares of undesignated preferred stock.
Our
certificate of incorporation authorizes the issuance of up to 20,000,000 shares
of "blank check" preferred stock, with such designation rights and preferences
as may be determined from time to time by the Board of Directors. We issued
277,100 shares of Series A Convertible Preferred Stock to certain selling
stockholders listed herein in a private sale which we consummated on July 13,
2005, which shares have rights and preferences senior to our common stock. These
rights and preferences are described in detail in this prospectus under the
caption "Description of Securities — Series A Convertible Preferred Stock."
Subject to the rights of the holders of the Series A Convertible Preferred
Stock, our Board of Directors is empowered, without shareholder approval, to
issue additional shares of preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of our common stock. In the event of such
issuances, the preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of our
company.
A
sale of a substantial number of shares of our common stock may cause the price
of our common stock to decline.
The
market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of common stock. All of
the shares of our common stock covered by this prospectus will be freely
transferable without restriction or further registration under the Securities
Act.
We
are registering 8,961,812 shares of our common stock, par value $0.0001 per
share, for resale by the selling stockholders identified in this prospectus. On
July 13, 2005, we completed a private placement of our securities, including
277,100 shares of our Series A Convertible Preferred Stock and warrants to
purchase 386,651 shares of our common stock. 1,288,837 of the shares of common
stock covered by this prospectus are issuable from time to time upon conversion
of the 277,100 shares of Series A Convertible Preferred Stock at a conversion
rate of $2.15 per share of common stock. 103,200 of the shares of common stock
covered by this prospectus are issuable as in kind dividends with respect to the
277,100 shares of Series A Convertible Preferred Stock. 386,651 of the shares of
common stock covered by this prospectus are issuable from time to time upon
exercise of the warrants to purchase shares of common stock at $3.25 per share,
which are exercisable until July 13, 2010.
Of
the remaining 7,183,124 shares of common stock covered by this prospectus,
2,450,495 shares of common stock were issued in a private placement we completed
in July 2004 and 2,986,102 shares of common stock were issued in a private
placement we
completed
in two closings, January 2005 and April 2005. The investors in the January 2005
and April 2005 private placement were also issued an aggregate 746,527 warrants
to purchase shares of common stock at $2.95 per share, with 367,681 warrants
exercisable until January 28, 2010 and 378,846 warrants exercisable until April
7, 2010. The
remaining 1,000,000 warrants were issued pursuant to an investor relations
agreement with Trilogy Capital Partners, Inc. and its designees to purchase
shares of common stock at $2.95 per share and exercisable until January 10,
2008.
The
Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by us or on our behalf. We and our
representatives may from time to time make written or oral statements that are
"forward-looking," including statements contained in this prospectus and other
filings with the Securities and Exchange Commission, reports to our stockholders
and news releases. All statements that express expectations, estimates,
forecasts or projections are forward-looking statements within the meaning of
the Act. In addition, other written or oral statements which constitute
forward-looking statements may be made by us or on our behalf. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
"projects," "forecasts," "may," "should," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in or suggested by such forward-looking statements. We undertake no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Among the important factors on which
such statements are based are assumptions concerning uncertainties associated
with product development, the risk that we will not obtain approval to market
our products, the risk that our technology will not gain market acceptance, our
ability to obtain additional financing, our ability to attract and retain key
employees, our ability to protect intellectual property, and our ability to
adapt to economic, political and regulatory conditions affecting the healthcare
industry.
We will
not receive any proceeds from the sale of the common stock. However, we will
receive the exercise price of any common stock we sell to the selling
stockholders upon exercise of the warrants. We expect to use the proceeds
received from the exercise of their warrants, if any, for general working
capital purposes.
The
following discussion should be read in conjunction with our consolidated
financial statements and notes to those statements included elsewhere in this
prospectus. In addition to historical information, the following discussion and
other parts of this prospectus 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:
|
· |
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). |
|
· |
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. |
|
· |
entered
into employment agreements with two of the former Xenomics Sub
shareholders and a consulting agreement with one of the former Xenomics
Sub shareholders. |
|
· |
entered
into a Voting Agreement with certain investors, the former Xenomics Sub
shareholders and certain principal
shareholders. |
|
· |
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 April 30, 2005, we have sustained cumulative
net losses of $4,351,411. Our losses have resulted primarily from research and
development expenses, patent costs and legal and accounting expenses. From
inception through April 30, 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.
Results
of Operations
Three
Months Ended April 31, 2005 and 2004
We had no
revenues during the quarters ended April 30, 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 $936,929 during the quarter ended April 30, 2005 from $
2,820 for the same period in 2004. This increase occurred as a result of
increased business activities which began subsequent to July 2, 2004, the date
our business combination and first private placement was completed. Our research
and development expenses increased to $296,646 during the quarter ended April
30, 2005, where none were incurred during the quarter ended April 30, 2004.
These include expenditures in connection with an in-house research and
development laboratory facility in New Jersey, salaries and staff costs, patent
legal, filing and maintenance expenses, regulatory and scientific consulting
fees and laboratory supplies.
During
the quarter ended April 30, 2005, our general and administrative expenses
increased to $575,283 as compared to $2,820 during the quarter ended April 30,
2004 as we incurred higher legal and public accounting fees in connection with
our fund raising activities, directors and officer's liability insurance,
payroll, consulting , investor relation and increased rent expense associated
with our office in New York.
Stock-based
compensation expense in the quarter ended April 30, 2005, related to general and
administrative staff, was $65,000 using the intrinsic value method in accordance
with SFAS 123 and APB 25 for options granted to employees and directors. Had we
used the alternative fair value method our stock based compensation expense
would have been $216,330 in the quarter ended April 30, 2005. Prior to this
quarter we have recorded no stock based compensation expense.
Other
income consisted of interest income of $12,124 and $0 during the quarters ended
April 30, 2005 and 2004 respectively.
Net loss
for the quarter ended April 30, 2005 was $924,805 as compared to a loss of
$2,820 for the same period in 2004. The increase in the net loss in 2005 is the
result of higher operating expenses as described above.
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 0 in the 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. Because these
studies are overseen by the respective IRB’s of the institutions, 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.
Liquidity
and Capital Resources
As of
April 30, 2005 we had $4,987,290 in cash and cash equivalents, compared to
$3,226,965 as of January 31, 2005.
On
January 28, 2005, we closed the first traunche of a private placement in which
we sold 1,368,154 shares of common stock and issued 342,040 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 $ 2,667,900. On
February 2, 2005, we sold an additional 102,564 shares of common stock and
25,641 warrants to the Investors for aggregrate proceeds of $200,000. 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 issued an aggregate 123,659 warrants to purchase common stock to
various selling agents, which are immediately exercisable at $2.15 per share and
will expire five years after issuance. In February 2005, we paid an
aggregate $179,600 in cash and issued 24,461 shares of common stock to certain
selling agents, in lieu of cash.
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 $2,954,999. In connection with this second
tranche we paid an aggregate of $298,000 in fees and issued an aggregate 121,231
warrants to purchase common stock to selling agents. The warrants are
immediately exercisable at $2.15 per share and will expire five years after
issuance.
On July
13, 2005, we closed a private placement of 277,100 shares of Series A
Convertible Preferred Stock and 386,651 warrants to certain investors for
aggregate gross proceeds of $2,771,000. The shares of Series A Convertible
Preferred Stock are convertible at any time by the holder into shares of common
stock at $2.15 per share. The warrants are immediately exercisable at $3.25 per
share and are exercisable at any time within five years from the date of
issuance. We paid an aggregate $277,100 and issued an aggregate 105,432
warrants to purchase common stock to certain selling agents. The warrants are
immediately exercisable at $3.25 per share and will expire five years after
issuance.
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 April 30, 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 prospectus.
|
|
Total |
|
Less
than
1
Year |
|
1-2
Years |
|
3-5
Years |
|
More
than
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
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.
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 we have executed research contracts 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. The
research contract with Eastern Virginia Medical School is subject to
Institutional Review Board, or IRB, approval. 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%
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.
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:
|
· |
INMI
contributed 100,000 Euros in cash and we contributed 100,000 Euros in the
form of intellectual property, as further described below;
|
|
· |
The
term of the joint venture is until December 31, 2009, unless extended or
wound up prior to that date; |
|
· |
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;
|
|
· |
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
co-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;
|
|
· |
The
shareholders of SpaXen may unanimously vote to dissolve SpaXen prior to
the end of the term. |
In
conjunction with the formation of SpaXen, we and INMI entered into a Shareholder
Agreement, which provides, among other terms, the following
|
· |
As
our contribution to SpaXen, we agreed to give 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"); |
|
· |
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");
|
|
· |
INMI
will be the sole owner of all Newly Developed IP;
|
|
· |
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");
|
|
· |
We
will have royalty-free, perpetual, exclusive, worldwide commercialization
rights for Derivative IP; |
|
· |
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;
|
|
· |
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;
|
|
· |
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 |
|
· |
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; |
On June
28, 2005, our company, SpaXen and INMI entered into a license agreement in which
INMI granted to SpaXen an exclusive license to manufacture,
have manufactured, use, import, offer to sell and/or sell products covered by
certain existing and newly developed intellectuall property assigned to INMI,
pertaining to the application of Tr- DNA technology to the field of infectious
diseases. In addition, SpaXen granted to us an exclusive sublicense to
manufacture, use, import and/or sell any products covered by the same INMI
intellectual property licensed by SpaXen from INMI. Pursuant to the
license agreement we agreed to pay to SpaXen a running royalty of 2% of our net
sales of any product resulting from the licensed INMI intellectual property.
SpaXen has agreed to pay INMI a running royalty of 50% of the royalty fees paid
by us.
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 July 29, 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.
Technology
Acquisition Agreement
On June
24, 2004, we entered into a technology acquisition agreement dated June 24, 2004
with L. David Tomei, Co-Chairman, Samuil Umansky, President, Hovsep Melkonyan,
Vice President, Research, Anatoly Lichtenstein and Kathryn Wilkie (collectively,
the “Shareholders”) and Xenomics Sub pursuant to which the Shareholders have the
option for a period of 90 days after the delivery of an accounting from us (due
by August 1, 2006) to acquire the Tr-DNA technology from us in the event we
expended less than 50% of the aggregate net proceeds received by us from our
aggregate equity or debt financings during the two year period ending on July 2,
2006, on development of the Tr-DNA technology. In the event the option is
exercised, the consideration for the acquisition would be the shares of our
common stock owned by the Shareholders plus the market value of any of our
shares of common stock sold by the Shareholders.
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.
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 Screens 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
July 29, 2005 we had 9 full-time and 3 part-time employees. We believe our
employee relations are satisfactory.
We
entered into a lease for separate office space in New York, New York directly
from an 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.
We are
not a party to any pending legal proceedings.
Directors
and Executive Officers
The
following table sets forth information regarding our executive officers and
directors as of July 29, 2005:
Name |
Age |
Positions |
L.
David Tomei, Ph.D. |
60 |
Co-Chairman
of the Board, President , SpaXen Italia, srl |
Gabriele
M. Cerrone |
33 |
Co-Chairman
of the Board |
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 and Co-Chairman since July 8, 2005. 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.
Gabriele
M. Cerrone Mr.
Cerrone has served as Co-Chairman of the Board of Directors since July 8, 2005
and a consultant since June 2005. From March 1999 to January 2005, Mr. Cerrone
served as a Senior Vice President of Investments of Oppenheimer & Co. Inc.,
a financial services firm. Prior to such affiliation, Mr. Cerrone held the
position of Managing Director of Investments at Barrington Capital, L.P., a
merchant bank, between March 1998 and March 1999. Between May 2001 and May 2003,
Mr. Cerrone served on the board of directors of SIGA Technologies, Inc. Mr.
Cerrone currently serves as Chairman of the Board and a consultant to Callisto
Pharmaceuticals, Inc., a biotechnology company.
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 Sciences
(“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.
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 2005, 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 our Annual Report on Form 10-KSB
for the fiscal year ended January 31, 2005.
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.
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.
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 $100,000 or more.
Summary
Compensation Table |
|
|
|
|
|
|
Annual
Compensation |
Name
and Principal
Position |
Year |
Salary
($) |
Bonus
($) |
Other
Annual Compensation
($) |
|
|
|
|
|
L.
David Tomei, Ph.D, Co-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.
|
|
|
|
|
Name |
Number
of Shares
Underlying
Options
Granted |
Percent
of Total Options
Granted
to Employees in
2005 |
Exercise
Price
Per
Share |
Expiration
Date |
|
|
|
|
|
L.
David Tomei, Ph.D, Co-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 |
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
January
31, 2005 |
Value
of Unexercised In the Money Options at
January
31, 2005 |
Name |
Exercisable |
Unexercisable |
Exercisable |
Unexercisable
(1) |
|
|
|
|
|
L.
David Tomei, Ph.D, Co-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.
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 July
29, 2005, options for 6,290,000 shares were outstanding under the Plan.
1,290,000 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
July 29, 2005.
Equity
Compensation Plan Information
Plan
Category |
|
Number
of Shares of Common
Stock
to be Issued upon
Exercise
of Outstanding
Options |
|
Weighted-Average
Exercise
Price
of Outstanding
Options |
|
Number
of Options
Remaining
Available for
Future
Issuance Under
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 |
|
3,793,501
|
|
$2.71 |
|
n/a |
Not
Approved by |
|
|
|
|
|
|
Stockholders |
|
|
|
|
|
|
Total |
|
8,793,501 |
|
$2.02 |
|
0 |
On May
24, 2005, our Compensation Committee in recognition of the substantial time and
effort to our affairs during the past year by each of Gabriele M. Cerrone,
Co-Chairman, L. David Tomei, Co-Chairman and President of SpaXen Italia, srl,
our joint venture with the Spallanzani National Institute for Infectious
Diseases in Rome, Italy, Samuil Umansky, President and Hovsep Melkonyan, Vice
President, Research, accelerated the vesting of outstanding
stock options dated June 24, 2004 previously granted to each such officer in the
amounts of 1,050,000, 1,012,500, 1,012,500 and 675,000, respectively, so that
such options vest as of May 24, 2005.
In
addition, the Compensation Committee granted additional nonqualified stock
options to Messrs. Cerrone, Tomei, Umansky and Melknoyan in the amounts of
240,000, 255,000, 225,000 and 75,000, respectively, pursuant to the Plan,
subject to stockholder approval of an increase in the number of shares of common
stock issuable under the Plan, as an additional incentive to perform in the
future on behalf of our company and its stockholders. Such options are
exercisable at $2.50 per share with 33-1/3% of the options granted to each
officer vesting on each of the first three anniversaries of the date of grant.
Market
Information
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.
Fiscal
2006 |
|
High |
|
Low |
|
|
|
|
|
|
|
Second
Quarter |
|
$ |
4.46 |
|
$ |
2.08 |
|
First
Quarter |
|
$ |
4.25 |
|
$ |
2.50 |
|
|
|
|
|
|
|
|
|
Fiscal
2005 |
|
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
Fourth
Quarter |
|
$ |
4.35 |
|
$ |
3.65 |
|
Third
Quarter |
|
$ |
3.80 |
|
$ |
2.75 |
|
Number
of Stockholders
As of
July 29, 2005, there were 175 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.
The
following table indicates beneficial ownership of our common stock as of July
29, 2005 by:
|
· |
Each
person or entity known by us to beneficially own more than 5% of the
outstanding shares of our common stock; |
|
· |
Each
of our executive officers and directors;
and |
|
· |
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.
Name
of Beneficial Owner |
|
Number
of Shares |
|
Percentage
of Shares
Beneficially
Owned
(1) |
|
|
|
|
|
Executive
officers and directors: |
|
|
|
|
|
|
|
|
|
L.
David Tomei
Co-Chairman
of the Board |
|
1,950,860
(2) |
|
9.9 |
|
|
|
|
|
Gabriele
M. Cerrone
Co-Chairman
of the Board |
|
1,968,858
(3) |
|
10.0 |
|
|
|
|
|
V.
Randy White
Chief
Executive Officer and Director |
|
300,000
(4) |
|
1.6 |
|
|
|
|
|
Bernard
Denoyer
Vice
President, Controller |
|
0
|
|
|
|
|
|
|
|
Samuil
Umansky
President,
Chief Scientific Officer and Director |
|
1,898,309
(5) |
|
9.7 |
|
|
|
|
|
Hovsep
Melkonyan
Vice
President, Research |
|
1,023,803
(6) |
|
5.3 |
|
|
|
|
|
Christoph
Bruening
Director |
|
115,000 |
|
* |
|
|
|
|
|
Donald
Picker
Director |
|
170,000
(7) |
|
* |
|
|
|
|
|
Thomas
Adams
Director |
|
0 |
|
|
|
|
|
|
|
All
Directors and Executive
Officers
as a group (9 persons) |
|
7,426,830
(8) |
|
32.7 |
* less
than 1%
(1)
Applicable percentage ownership as of July 29, 2005 is based upon 18,604,300
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.
(2)
Includes 1,012,500 shares issuable upon exercise of stock options.
(3)
Consists of 1,050,000 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.
(4) Consists
of 300,000 shares issuable upon exercise of stock options.
(5)
Includes 1,012,500 shares issuable upon exercise of stock options.
(6)
Includes 675,000 shares issuable upon exercise of stock options.
(7)
Includes 75,000 shares issuable upon exercise of stock options.
(8)
Includes 4,125,000 shares issuable upon exercise of stock options.
Below is
information with respect to the number of shares of our common stock owned by
each of the selling stockholders. Except as described in the table below, none
of the selling stockholders has, or had, any position, office or other material
relationship with us or any of our affiliates beyond their investment in, or
receipt of, our securities. See “Plan of Distribution” for additional
information about the selling stockholders and the manner in which the selling
stockholders may dispose of their shares. Beneficial ownership has been
determined in accordance with the rules of the SEC, and includes voting or
investment power with respect to the shares. Unless otherwise indicated in the
table below, to our knowledge, all persons named in the table below have sole
voting and investment power with respect to their shares of common stock, except
to the extent authority is shared by spouses under applicable law. Our
registration of these shares does not necessarily mean that the selling
stockholders will sell any or all of the shares covered by this
prospectus.
We
are registering 8,961,812 shares of our common stock, par value $0.0001 per
share, for resale by the selling stockholders identified in this prospectus. On
July 13, 2005, we completed a private placement of our securities, including
277,100 shares of our Series A Convertible Preferred Stock and warrants to
purchase 386,651 shares of our common stock. 1,288,837 of the shares of common
stock covered by this prospectus are issuable from time to time upon conversion
of the 277,100 shares of Series A Convertible Preferred Stock at a conversion
rate of $2.15 per share of common stock. 103,200 of the shares of common stock
covered by this prospectus are issuable as in kind dividends with respect to the
277,100 shares of Series A Convertible Preferred Stock. 386,651 of the shares of
common stock covered by this prospectus are issuable from time to time upon
exercise of the warrants to purchase shares of common stock at $3.25 per share,
which are exercisable until July 13, 2010.
Of
the remaining 7,183,124 shares of common stock covered by this prospectus,
2,450,495 shares of common stock were issued in a private placement we completed
in July 2004 and 2,986,102 shares of common stock were issued in a private
placement we completed in two closings, January 2005 and April 2005. The
investors in the January 2005 and April 2005 private placement were also issued
an aggregate 746,527 warrants to purchase shares of common stock at $2.95 per
share, with 367,681 warrants exercisable until January 28, 2010 and 378,846
warrants exercisable until April 7, 2010. The
remaining 1,000,000 warrants were issued pursuant to an investor relations
agreement with Trilogy Capital Partners, Inc. and its designees to purchase
shares of common stock at $2.95 per share and exercisable until January 10,
2008.
The
number of shares of common stock that may actually be purchased by some selling
stockholders under the warrants, the number of shares of Series A Convertible
Preferred Stock that may actually be converted into shares of common stock and
the number of shares of common stock that may actually be sold by each selling
stockholder will be determined by such selling stockholder. Because some selling
stockholders may purchase all, some or none of the shares of common stock which
can be purchased under the warrants, some selling stockholders may convert all,
some or none of the shares of Series A Convertible Preferred Stock which can be
purchased into shares of common stock and each selling stockholder may sell all,
some or none of the shares of common stock which each holds, and because the
offering contemplated by this prospectus is not currently being underwritten, no
estimate can be given as to the number of shares of common stock that will be
held by the selling stockholders upon termination of the offering. The
information set forth in the following table regarding the beneficial ownership
after resale of shares is based on the premise that each selling stockholder
will purchase the maximum number of shares of common stock provided for by the
warrants or convert shares of Series A Convertible Preferred Stock into the
maximum number of shares of common stock and each selling stockholder will sell
all of the shares of common stock owned by that selling stockholder and covered
by this prospectus.
Pursuant
to the terms of the Series A Convertible Preferred Stock, dividends are required
to be paid on such shares at the rate of 4% per annum. The dividends may be paid
in cash or in-kind with shares of common stock. We are registering in this
offering 103,200 shares of common stock, which shares may be issued as dividends
to the holders of Series A Convertible Preferred Stock. The number of shares of
common stock that may actually be issued to the selling shareholders as in-kind
dividends will not be known until such times as the dividends are due and
payable. The information set forth in the following table regarding the number
of shares offered by each selling stockholder does not include shares that may
be issued to such stockholders as in-kind dividends. To the extent we issue
in-kind dividends to selling stockholders who hold shares of Series A
Convertible Preferred Stock, the number of shares offered in this offering by
each such selling stockholder shall be automatically increased by the number of
shares of common stock issued as in-kind dividends to such selling stockholders.
We have
filed with the SEC a registration statement, of which this prospectus forms a
part, with respect to the resale of the shares of our common stock from time to
time, under Rule 415 under the Securities Act, on the OTC Bulletin Board, in
privately negotiated transactions, in underwritten offerings or by a combination
of these methods for sale. We have agreed to use our commercially reasonable
efforts to keep this registration statement effective until the later of (i) the
second anniversary of the date on which this registration statement was declared
effective and (ii) the date on which all of the shares of common stock are
eligible for resale under Rule 144 under the Securities Act without restrictions
as to volume.
The
shares of our common stock offered by this prospectus may be offered from time
to time by the persons or entities named below. Except as otherwise disclosed,
the selling stockholders do not have and within the past three years have not
had any position, office or other material relationship with us or any of our
predecessors or affiliates.
Selling
Stockholder |
|
Shares
Beneficially Owned Prior to
Offering |
|
Number
of Shares Offered |
|
Number
of Shares Beneficially Owned After Offering (1) |
|
Percentage
Beneficially
Owned
After
Offering (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blenton
Management |
|
|
631,579 |
|
|
|
631,579 |
|
|
|
0 |
|
|
* |
|
Maria
Rosa Olcese |
|
|
210,526 |
|
|
|
210,526 |
|
|
|
0 |
|
|
|
|
Nicola
Granato |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
0 |
|
|
|
|
Fossil
Ventures LLC |
|
|
210,205 |
|
|
|
200,000 |
|
|
|
10,205 |
|
|
* |
|
The
Promotion Factory |
|
|
394,826 |
|
|
|
360,526 |
|
|
|
34,300 |
|
|
* |
|
Christoph
Bruening (3) |
|
|
115,000 |
|
|
|
100,000 |
|
|
|
15,000 |
|
|
* |
|
MRM
Investment Ltd. |
|
|
210,526 |
|
|
|
105,263 |
|
|
|
105,263 |
|
|
* |
|
Fimi
SpA |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
0 |
|
|
|
|
Beaufort
Ventures Ltd. |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
0 |
|
|
|
|
Mark
Mazzer |
|
|
11,000 |
|
|
|
11,000 |
|
|
|
0 |
|
|
|
|
Svetlana
Griaznova |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
0 |
|
|
|
|
R.
Merrill Hunter |
|
|
200,000 |
|
|
|
200,000 |
|
|
|
0 |
|
|
|
|
Luca
Cesare Orlandi |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
0 |
|
|
|
|
Roffredo
Gaetani |
|
|
230,000 |
|
|
|
200,000 |
|
|
|
30,000 |
|
|
* |
|
Mike
Wilkins |
|
|
26,600 |
|
|
|
26,600 |
|
|
|
0 |
|
|
|
|
Burton
LaSalle BioFund I, LLC |
|
|
64,103 |
|
|
|
64,103 |
|
|
|
0 |
|
|
|
|
Geduld
Capital Management, LLC |
|
|
96,154 |
|
|
|
96,154 |
|
|
|
0 |
|
|
|
|
Irwin
Geduld Revocable Trust |
|
|
64,103 |
|
|
|
64,103 |
|
|
|
0 |
|
|
|
|
Howard
Freedberg |
|
|
25,641 |
|
|
|
25,641 |
|
|
|
0 |
|
|
|
|
Jeffrey
Eisenberg |
|
|
31,250 |
|
|
|
31,250 |
|
|
|
0 |
|
|
|
|
Jo-Bar
Enterprises, LLC |
|
|
37,500 |
|
|
|
37,500 |
|
|
|
0 |
|
|
|
|
Stanley
N. Tennant |
|
|
62,500 |
|
|
|
62,500 |
|
|
|
0 |
|
|
|
|
Curtis
F. Brewer, IRA |
|
|
127,500 |
|
|
|
127,500 |
|
|
|
0 |
|
|
|
|
Catalytix,
LDC |
|
|
31,250 |
|
|
|
31,250 |
|
|
|
0 |
|
|
|
|
Catalytix,
LDC Life Science Hedge |
|
|
31,250 |
|
|
|
31,250 |
|
|
|
0 |
|
|
|
|
Mercator
Momentum Fund, LP |
|
|
246,154 |
|
|
|
246,154 |
|
|
|
0 |
|
|
|
|
Mercator
Momentum Fund III, LP |
|
|
171,077 |
|
|
|
171,077 |
|
|
|
0 |
|
|
|
|
Mercator
Advisory Group, LLC |
|
|
38,460 |
|
|
|
38,460 |
|
|
|
0 |
|
|
|
|
Monarch
Point Fund, Ltd. |
|
|
505,848 |
|
|
|
505,848 |
|
|
|
0 |
|
|
|
|
RAB
Investment Fund PLC |
|
|
96,154 |
|
|
|
96,154 |
|
|
|
0 |
|
|
|
|
RAB
American Opportunities Fund Limited |
|
|
81,250 |
|
|
|
81,250 |
|
|
|
0 |
|
|
|
|
Trilogy
Capital Partners, Inc. |
|
|
800,000 |
|
|
|
800,000 |
|
|
|
0 |
|
|
|
|
Market
Byte, LLC |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
0 |
|
|
|
|
MBA
Holdings, LLC |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
0 |
|
|
|
|
The
Lindsay Rosenwald 2000 Family Trust Family Trust Dated As Of
12/15/2000 |
|
|
64,103 |
|
|
|
64,103 |
|
|
|
0 |
|
|
|
|
The
Lindsay A. Rosenwald 2000 Irrevocable Trust Dated
5/14/2000 |
|
|
64,103 |
|
|
|
64,103 |
|
|
|
0 |
|
|
|
|
Philip
Schwartz |
|
|
64,103 |
|
|
|
64,103 |
|
|
|
0 |
|
|
|
|
Cordillera
Fund, L.P. |
|
|
320,512 |
|
|
|
320,512 |
|
|
|
0 |
|
|
|
|
Florida.com,
Inc. |
|
|
95,245 |
|
|
|
95,245 |
|
|
|
0 |
|
|
|
|
Helen
Kramer and Jeffrey Kramer |
|
|
80,129 |
|
|
|
80,129 |
|
|
|
0 |
|
|
|
|
Warren
Schwartz and Theresa Schwartz |
|
|
115,385 |
|
|
|
115,385 |
|
|
|
0 |
|
|
|
|
John
Casper and Ann Casper |
|
|
112,180 |
|
|
|
112,180 |
|
|
|
0 |
|
|
|
|
Selling
Stockholder |
|
Shares
Beneficially Owned Prior
to
Offering |
|
Number
of Shares
Offered |
|
Number
of Shares Beneficially Owned After Offering
(1) |
|
Percentage
BeneficiallyOwned
After
Offering (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
Danz |
|
|
62,284 |
|
|
|
62,284 |
|
|
|
0 |
|
|
|
|
William
McCuddy |
|
|
64,103 |
|
|
|
64,103 |
|
|
|
0 |
|
|
|
|
Michael
Urban and Sherry Urban |
|
|
48,076 |
|
|
|
48,076 |
|
|
|
0 |
|
|
|
|
Sunrise
Equity Partners, L.P. |
|
|
160,256 |
|
|
|
160,256 |
|
|
|
0 |
|
|
|
|
Bear
Stearns Security Corp. F/B/O Michael D. Canfield |
|
|
48,076 |
|
|
|
48,076 |
|
|
|
0 |
|
|
|
|
Bear
Stearns Security Corp. F/B/O Michael S. Urban |
|
|
64,103 |
|
|
|
64,103 |
|
|
|
0 |
|
|
|
|
Ruth
S. Grimes |
|
|
32,051 |
|
|
|
32,051 |
|
|
|
0 |
|
|
|
|
Judith
Pederson and Gunnar Pedersen |
|
|
32,051 |
|
|
|
32,051 |
|
|
|
0 |
|
|
|
|
MicroCapital
Fund LP |
|
|
384,615 |
|
|
|
384,615 |
|
|
|
0 |
|
|
|
|
MicroCapital
Fund Ltd. |
|
|
256,410 |
|
|
|
256,410 |
|
|
|
0 |
|
|
|
|
MicroCapital
LLC |
|
|
30,233 |
|
|
|
30,233 |
|
|
|
0 |
|
|
|
|
CAMOFI
Master LDC |
|
|
211,628 |
|
|
|
211,628 |
|
|
|
0 |
|
|
|
|
Andrew
T. Miltenberg |
|
|
30,233 |
|
|
|
30,233 |
|
|
|
0 |
|
|
|
|
Sheila
Kramer |
|
|
45,348 |
|
|
|
45,348 |
|
|
|
0 |
|
|
|
|
Mendel
Schijueshuurder |
|
|
30,233 |
|
|
|
30,233 |
|
|
|
0 |
|
|
|
|
Moishe
Denburg |
|
|
42,325 |
|
|
|
42,325 |
|
|
|
0 |
|
|
|
|
AtlanticCity.com,
Inc. |
|
|
27,814 |
|
|
|
27,814 |
|
|
|
0 |
|
|
|
|
Carol
Hoffer |
|
|
45,348 |
|
|
|
45,348 |
|
|
|
0 |
|
|
|
|
Randy
Greenfield |
|
|
60,465 |
|
|
|
60,465 |
|
|
|
0 |
|
|
|
|
Abraham
and Esther Hersh Foundation |
|
|
60,465 |
|
|
|
60,465 |
|
|
|
0 |
|
|
|
|
David
Kaleky |
|
|
21,163 |
|
|
|
21,163 |
|
|
|
0 |
|
|
|
|
Nite
Capital LP |
|
|
90,697 |
|
|
|
90,697 |
|
|
|
0 |
|
|
|
|
Valor
Capital Management LP |
|
|
60,465 |
|
|
|
60,465 |
|
|
|
0 |
|
|
|
|
Andrecca
Inc. |
|
|
151,163 |
|
|
|
151,163 |
|
|
|
0 |
|
|
|
|
David
and Arlene Gilmore |
|
|
30,233 |
|
|
|
30,233 |
|
|
|
0 |
|
|
|
|
Kim
Douglas Lund |
|
|
151,163 |
|
|
|
151,163 |
|
|
|
0 |
|
|
|
|
JGB
Capital L.P. |
|
|
151,163 |
|
|
|
151,163 |
|
|
|
0 |
|
|
|
|
Xmark
Opportunity Fund, Ltd. |
|
|
117,000 |
|
|
|
117,000 |
|
|
|
0 |
|
|
|
|
Xmark
Opportunity Fund, L.P. |
|
|
78,000 |
|
|
|
78,000 |
|
|
|
0 |
|
|
|
|
Xmark
JV Investment Partners, LLC |
|
|
195,000 |
|
|
|
195,000 |
|
|
|
0 |
|
|
|
|
* less than
1%.
(1)
Assuming that all shares offered here are sold but no other securities held by
the selling stockholder are sold.
(2)
Except as otherwise noted, we determine beneficial ownership in accordance with
Rule 13d-3(d) promulgated by the Commission under the Securities and Exchange
Act of 1934, as amended. We include shares of common stock issuable pursuant to
options, warrants and convertible securities, to the extent these securities are
currently exercisable or convertible within 60 days of July 29, 2005, as
outstanding for computing the percentage of the person holding such securities.
Unless otherwise noted, each identified person or group possesses sole voting
and investment power with respect to shares, subject to community property laws
where applicable. We treat shares not outstanding but deemed beneficially owned
by virtue of the right of a person or group to acquire them within 60 days as
outstanding only to determine the number and percent owned by such person or
group. Based upon 18,604,300 shares of common stock outstanding as of July 29,
2005.
(3)
Mr. Bruening is a director of our company.
As part
of our acquisition of Xenomics and the completion of the private placement in
July 2004, 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 of our company.
Gabriele
M. Cerrone, our Co-Chairman, serves as a consultant to us pursuant to an
agreement entered into on June 27, 2005. The term of the agreement is for three
years with automatic renewal for successive one year periods unless either party
gives notice to the other not to renew the agreement. The duties of Mr. Cerrone
pursuant to the agreement consist of business development, strategic planning,
capital markets and corporate financing consulting advice. Mr. Cerrone’s
compensation under the agreement is $16,500 per month. In the event the
agreement is terminated without cause or for good reason, Mr. Cerrone will
receive a cash payment equal to the aggregate amount of the compensation
payments for the then remaining term of the agreement. In addition, in such
event, all unvested stock options owned by Mr. Cerrone will immediately
vest and the exercise period of such options will be extended to the later of
the longest period permitted by our stock option plans or ten years following
termination. In the event a change of control of our company occurs, Mr. Cerrone
shall be entitled to such compensation upon the subsequent termination of the
agreement within two years of the change in control unless such termination is
the result of Mr. Cerrone's death, disability or retirement or Mr. Cerrone’s
termination for cause.
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 Form 8-K/A filed with the SEC on July 28, 2004. Our
authorized capital stock consists of 100,000,000 shares of common stock, par
value $.0001 per share and 20,000,000 shares of preferred stock, par value $.001
per share. As of July 29, 2005, there are 18,604,300 shares of common stock
issued and outstanding and 277,100 shares of our preferred stock were
outstanding and designated as Series A Convertible Preferred Stock.
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, we have designated 277,100 shares of preferred
stock as Series A Convertible Preferred Stock.
Rights
of Our Series A Convertible Preferred Stock
Dividends.
Holders
of the Series A Convertible Preferred Stock shall be entitled to receive
cumulative dividends at the rate per share of 4% per annum, payable quarterly on
March 31, June 30, September 30 and December 31, beginning with September 30,
2005. Dividends shall be payable, at our sole election, in cash or shares of
common stock.
Voting
Rights. Shares
of our Series A
Convertible Preferred Stock shall have no voting rights. However, so long as any
shares of Series A Convertible Preferred Stock are outstanding, we shall not,
without the affirmative vote of the holders of the shares of Series A
Convertible Preferred Stock then outstanding, (a) adversely change the powers,
preferences or rights given to the Series A Convertible Preferred Stock, (b)
authorize or create any class of stock senior or equal to the Series A
Convertible Preferred Stock, (c) amend our articles of incorporation or other
charter documents, so as to affect adversely any rights of the holders of Series
A Convertible Preferred Stock or (d) increase the authorized number of shares of
Series A Convertible Preferred Stock.
Liquidation. Upon any
liquidation, dissolution or winding-up of our company, the holders of the Series
A Convertible Preferred Stock shall be entitled to receive an amount equal to
the Stated Value per share, which is $10 per share plus any accrued and unpaid
dividends.
Conversion
Rights. Each
share of Series A Convertible Preferred Stock shall be convertible into that
number of shares of common stock determined by dividing the Stated Value,
currently $10 per share, by the conversion price, currently $2.15 per share. The
conversion price is subject to adjustment for dilutive issuances.
Beginning
July 13, 2006, if the price of the common stock equals $4.30 per share for 20
consecutive trading days, and an average of 50,000 shares of common stock per
day shall have been traded during the 20 trading days, we shall have the right
to deliver a notice to the holders of the Series A Convertible Preferred Stock,
to convert any portion of the shares of Series A Convertible Preferred Stock
into shares of Common Stock at the conversion price.
Voting
Agreement
On June
24, 2004, we entered into a voting agreement with L. David Tomei, Co-Chairman,
Samuil Umansky, President, Hovsep Melkonyan, Vice President, Research, Anatoly
Lichtenstein and Kathryn Wilkie (collectively, the “Xenomics Shareholders”) and
certain other stockholders, including Panetta Partners Ltd., an affiliate of
Gabriele M. Cerrone, Co-Chairman pursuant to which so long as the Xenomics
Shareholders own an aggregate 752,667 shares of common stock of our company,
such Xenomics Shareholders shall have the right to (i) designate 1/3 of the
members of the Board of Directors if the number of directors on the Board is
more than 7, (ii) designate 2 directors if the number of directors on the Board
is between 5 and 7 or (iii) designate 1 director if the number of directors on
the Board is less than 5.
Listing
Our
common stock is listed on the OTC Bulletin Board under the symbol
“XNOM.OB.”
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is StockTrans, Inc., 44 W.
Lancaster Avenue, Ardmore, Pennsylvania 19003.
The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
-
ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
- block
trades in which the broker-dealer will attempt to sell the shares as agent, but
may position and resell a portion of the block as principal to facilitate the
transaction;
-
purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
- an
exchange distribution in accordance with the rules of the applicable
exchange;
-
privately negotiated transactions;
- short
sales;
- through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;
-
broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
- a
combination of any such methods of sale; and
- any
other method permitted pursuant to applicable law.
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering. Upon any
exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act. If a selling stockholder is deemed to be an underwriter, the
selling stockholder may be subject to certain statutory liabilities including,
but not limited to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act. Selling stockholders who are deemed underwriters within
the meaning of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The SEC staff is of a view that selling
stockholders who are registered broker-dealers or affiliates of registered
broker-dealers may be underwriters under the Securities Act. We will not pay any
compensation or give any discounts or commissions to any underwriter in
connection with the securities being offered by this prospectus. Because
of their affiliation with a broker-dealer, Sunrise Equity Partners, L.P.,
The
Lindsay Rosenwald 2000 Family Trust Family Trust Dated As Of
12/15/2000
and The
Lindsay A. Rosenwald 2000 Irrevocable Trust Dated 5/14/2000,
each of which are selling stockholders, is deemed to be an underwriter in
connection with the offering of its respective shares under this prospectus.
Each of Sunrise Equity Partners, L.P., The
Lindsay Rosenwald 2000 Family Trust Family Trust Dated As Of
12/15/2000
and The
Lindsay A. Rosenwald 2000 Irrevocable Trust Dated 5/14/2000
has represented to us that it purchased its respective shares in the ordinary
course of business and at the time of such purchase, had no agreements or
understandings to distribute such shares.
To the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.
We have
agreed with the selling stockholders to keep the registration statement of which
this prospectus constitutes a part effective until the earlier (i) the date that
is two (2) years after the last day of the calendar month following the month in
which the effective date of the registration statement occurs, (ii) the date
when the selling stockholder may sell all securities registered under the
registration statement under Rule 144 without volume or other restrictions or
limits or (iii) the date the selling stockholders no longer own any of the
securities registered under the registration statement.
The
validity of the common stock has been passed upon by Sichenzia Ross Friedman
Ference LLP, New York, New York. Sichenzia Ross Friedman Ference LLP owns 5,000
shares of our common stock.
The
financial statements included in the Prospectus have been audited by Lazar
Levine & Felix LLP, an independent registered public accounting firm, to the
extent and for the periods set forth in their report appearing elsewhere herein
and are included in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
We filed
with the SEC a registration statement on Form SB-2 under the Securities Act for
the common stock to be sold in this offering. This prospectus does not contain
all of the information in the registration statement and the exhibits and
schedules that were filed with the registration statement. For further
information with respect to the common stock and us, we refer you to the
registration statement and the exhibits and schedules that were filed with the
registration statement. Statements made in this prospectus regarding the
contents of any contract, agreement or other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we refer
you to the full text of the contract or other document filed as an exhibit to
the registration statement. A copy of the registration statement and the
exhibits and schedules that were filed with the registration statement may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at the SEC's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, Woolworth Building, 233 Broadway New York, New York. Copies of all or any
part of the registration statement may be obtained from the SEC upon payment of
the prescribed fee. Information regarding the operation of the public reference
rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
Our
Articles of Incorporation provide that, to the fullest extent permitted by law,
none of our directors or officers shall be personally liable to us or our
shareholders for damages for breach of any duty owed to our shareholders or us.
In
addition, we have the power, by our by-laws or in any resolution of our
stockholders or directors, to undertake to indemnify the officers and directors
of ours against any contingency or peril as may be determined to be in our best
interest and in conjunction therewith, to procure, at our expense, policies of
insurance. At this time, no statute or provision of the by-laws, any contract or
other arrangement provides for insurance or indemnification of any of our
controlling persons, directors or officers that would affect his or her
liability in that capacity.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by us of
expenses incurred or paid by our directors, officers or controlling persons in
the successful defense of any action, suit or proceedings, is asserted by such
director, officer, or controlling person in connection with any securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issues.
(A
Development Stage Company)
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-7 |
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.
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/s/
Lazar Levine & Felix LLP |
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Lazar
Levine & Felix LLP |
New York,
New York
April 8,
2005
(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
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the years ended January 31, |
|
For
the
Period
from
August
4, 1999
(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
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
During |
|
Total |
|
|
|
Common Stock |
|
Treasury |
|
Additional |
|
Development |
|
Stockholders' |
|
|
|
Shares
issued |
|
Par
Value |
|
Stock |
|
Paid
in 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
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
the Years ended January 31, |
|
For
the
Period
from
August
4, 1999
(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
XENOMICS,
INC.
(A
Development Stage Company)
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.:
|
· |
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. |
|
· |
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. |
|
· |
Entered
into employment agreements with two of the former Xenomics Sub
shareholders and a consulting agreement with one of the former Xenomics
Sub shareholders. |
|
· |
Entered
into a Voting Agreement with certain investors, the former Xenomics Sub
shareholders and certain principal
shareholders. |
|
· |
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.
|
|
· |
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.
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
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.
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 ⅛% 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.
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
of
Shares |
|
Exercise
Price
Per
Share |
|
Weighted
Average
Exercise
Price |
|
|
|
|
|
|
|
|
|
Balance,
August 4, 1999 (inception) to January 31, 2004 |
|
|
0
|
|
|
|
|
$0.00 |
|
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 |
|
Exercise
Price |
|
Number
of
Shares |
|
Weighted
Average
Remaining
Life |
|
Weighted
Average
Exercise
Price |
|
Number
of
Shares |
|
Weighted
Average
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.
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.
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 |
|
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEET
AS
OF APRIL 30, 2005
(Unaudited)
ASSETS
Current
Assets: |
|
|
|
Cash
and cash equivalents |
|
$ |
4,987,290 |
|
Prepaid
expenses |
|
|
44,501 |
|
TOTAL
CURRENT ASSETS |
|
|
5,031,791 |
|
|
|
|
|
|
Property
and equipment, net |
|
|
102,537
|
|
Security
deposits |
|
|
55,608 |
|
|
|
$ |
5,189,936 |
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
Current
Liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
110,151 |
|
Accrued
expenses |
|
|
71,256 |
|
TOTAL
CURRENT LIABILITIES |
|
|
181,407 |
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
Preferred
stock, $.001 par value, 20,000,000 shares authorized, none outstanding
|
|
|
— |
|
Common
stock, $.0001 par value, authorized 100,000,000 shares, 18,949,300 issued
at April 30, 2005 |
|
|
1,895 |
|
Treasury
stock 350,000 common shares, at par |
|
|
(35 |
) |
Additional
paid-in-capital |
|
|
9,358,080 |
|
Deficit
accumulated during the development stage |
|
|
(4,351,411 |
) |
|
|
|
5,008,529 |
|
|
|
$ |
5,189,936 |
|
See
accompanying notes
XENOMICS,
INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the quarters ended April 30, |
|
For
the
Period
from
August
4, 1999
(inception)
to
April
30, |
|
|
|
2005 |
|
2004 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses: |
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
296,646
|
|
|
— |
|
|
931,944 |
|
Purchased
in-process research and development |
|
|
— |
|
|
— |
|
|
2,145,101 |
|
General
and administrative |
|
|
575,283
|
|
|
2,820
|
|
|
1,227,499 |
|
Stock-based
compensation - general and administrative |
|
|
65,000
|
|
|
— |
|
|
65,000
|
|
|
|
|
936,929
|
|
|
2,820
|
|
|
4,369,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(936,929 |
) |
|
(2,820 |
) |
|
(4,369,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
12,124
|
|
|
— |
|
|
18,133 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(924,805 |
) |
$ |
(2,820 |
) |
$ |
(4,351,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic
and diluted |
|
|
17,716,394
|
|
|
13,166,502
|
|
|
12,232,074 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share: |
|
|
|
|
|
|
|
|
|
|
Basic
and diluted |
|
|
$
(0.05 |
) |
|
$
(0.00 |
) |
|
$
(0.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
common
stock |
|
|
|
Additional |
|
During |
|
Total |
|
|
|
Shares |
|
Par |
|
Treasury |
|
Paid
in |
|
Development |
|
Stockholders' |
|
|
|
Issued |
|
Value |
|
Stock |
|
Capital |
|
Stage |
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 31, 2003, as recapitalized |
|
|
13,293,527
|
|
$ |
1,330 |
|
$ |
(35 |
) |
$ |
1,435,397 |
|
$ |
(90,067 |
) |
$ |
1,346,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended January 31, 2004 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(521 |
) |
|
(521 |
) |
Balance,
January 31, 2004 |
|
|
13,293,527 |
|
|
1,330
|
|
|
(35 |
) |
|
1,435,397
|
|
|
(90,588 |
) |
|
1,346,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Placement common stock |
|
|
2,645,210 |
|
|
265
|
|
|
— |
|
|
2,512,685 |
|
|
— |
|
|
2,512,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Placement common stock |
|
|
1,368,154
|
|
|
137
|
|
|
— |
|
|
2,667,763 |
|
|
— |
|
|
2,667,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the quarter ended April 30, 2005 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(924,805 |
) |
|
(924,805 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Placement common stock |
|
|
1,642,409
|
|
|
164
|
|
|
— |
|
|
2,677,235
|
|
|
— |
|
|
2,677,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
of employee stock option |
|
|
— |
|
|
— |
|
|
— |
|
|
65,000
|
|
|
— |
|
|
65,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
April 30, 2005 (Unaudited) |
|
|
18,949,300
|
|
$ |
1,895 |
|
$ |
(35 |
|
$ |
9,358,080 |
|
$ |
(4,351,411 |
) |
$ |
5,008,529 |
|
See
accompanying notes
XENOMICS,
INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
For
the |
|
|
|
|
|
Period
from |
|
|
|
|
|
August
4, 1999 |
|
|
|
|
|
(inception)
to |
|
|
|
For The
Quarters ended April 30, |
|
April
30, |
|
|
|
2005 |
|
2004 |
|
2005 |
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
Net
loss |
|
$ |
(924,805 |
) |
$ |
(2,820 |
) |
$ |
(4,351,411 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,533
|
|
|
2,796 |
|
|
13,601 |
|
Purchased
in-process research and development (non-cash portion) |
|
|
— |
|
|
— |
|
|
2,145,101 |
|
Stock-based
compensation |
|
|
65,000
|
|
|
— |
|
|
65,000
|
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses |
|
|
(9,141 |
) |
|
— |
|
|
(44,501 |
) |
Security
deposit |
|
|
2,565
|
|
|
— |
|
|
(55,608 |
) |
Accounts
payable and accrued expenses |
|
|
(25,651 |
) |
|
— |
|
|
181,407 |
|
Net
cash used in operating activities |
|
|
(887,499 |
) |
|
(24 |
) |
|
(2,046,411 |
) |
Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Acquisition
of equipment |
|
|
(29,575 |
) |
|
— |
|
|
(116,137 |
) |
Net
cash used in investing activities |
|
|
(29,575 |
) |
|
— |
|
|
(116,137 |
) |
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock, net of repurchases |
|
|
2,677,399 |
|
|
— |
|
|
7,149,838 |
|
Net
cash provided by financing activities |
|
|
2,677,399
|
|
|
— |
|
|
7,149,838 |
|
Net
increase(decrease) in cash and cash equivalents |
|
|
1,760,325
|
|
|
(24 |
) |
|
4,987,290 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the period |
|
|
3,226,965
|
|
|
339
|
|
|
— |
|
Cash
and cash equivalents at end of the period |
|
$ |
4,987,290 |
|
$ |
315 |
|
$ |
4,987,290 |
|
See
accompanying notes
XENOMICS,
INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
April
30, 2005
(Unaudited)
1.
BUSINESS OVERVIEW:
Xenomics,
Inc. (“Xenomics” or the “Company") is considered to be in the development stage.
Since inception on August 4, 1999 Xenomics’ efforts have been principally
devoted to research and development, securing and protecting our patents and
raising capital. From inception through April 30, 2005, Xenomics has sustained
cumulative net losses of $4,351,411. 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 April 30, 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 products 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 and the
nature and timing of costs and competing technologies being developed by
organizations with significantly greater resources.
2.
BASIS OF PRESENTATION:
The
accompanying condensed 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
CASH
EQUIVALENTS - Cash and cash equivalents consist of short term, highly liquid
investments, with original maturities of less than four months when purchased
and are stated at cost plus accrued interest.
BUSINESS
CONCENTRATIONS AND CREDIT RISKS - All of Xenomics's cash and cash equivalents as
of April 30, 2005 are on deposit with a major money center financial
institution, or invested in short term money market instruments, principally
U.S. Treasury Bills, not exceeding maturities of 120 days. Bank deposits at any
point in time may exceed federally insured limits.
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 April 30, 2005, Xenomics had 5,495,000 stock options
outstanding, whereas none were outstanding as of April 30, 2004. In addition
Xenomics had 2,011,418 common stock warrants outstanding which were 100% vested
as of April 30, 2005 and none outstanding as of April 30, 2004. All share and
per share amounts have been restated to reflect the 111 for 1 stock split which
was effective July 26, 2004.
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"). During the quarter ended April 30, 2005, Xenomics recorded
$65,000 in stock-based compensation expense.
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 Quarterly
and Annual financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
(see below)
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:
|
|
Quarters
Ended April 30, |
|
|
|
2005 |
|
2004 |
|
Net
loss, as reported |
|
$ |
(924,805 |
) |
$ |
(2,820 |
) |
|
|
|
|
|
|
|
|
Add:
Stock-based employee compensation expense |
|
|
|
|
|
|
|
recorded
under APB No. 25 intrinsic method |
|
|
65,000
|
|
|
— |
|
|
|
|
|
|
|
|
|
Deduct:
Stock-based employee compensation |
|
|
|
|
|
|
|
expense
determined under Fair Value based method |
|
|
|
|
|
|
|
for
all employee awards |
|
|
(216,330 |
) |
|
— |
|
Pro
forma net loss |
|
$ |
(1,076,135 |
) |
$ |
(2,820 |
) |
|
|
|
|
|
|
|
|
Net
loss per share: |
|
|
|
|
|
|
|
Basic
and diluted -as reported |
|
$ |
(0.05 |
) |
$ |
(0.00 |
) |
Basic
and diluted -pro forma |
|
$ |
(0.06 |
) |
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
Fair
Value per share for options granted to employees |
|
$ |
2.27 |
|
|
N/A |
|
|
|
|
|
|
|
|
|
Black-Scholes
Methodology Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
yield |
|
|
0 |
% |
|
N/A |
|
Risk
free interest rate |
|
|
4.50 |
% |
|
N/A
|
|
Expected
lives of options |
|
|
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 April 30, 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 Quarterly
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.
4.
STOCKHOLDERS' EQUITY:
On July
2, 2004 the Company completed a private placement of 2,645,210 shares of its
common stock for aggregate proceeds of $2,512,950, or $0.95 per share. The sale
was made to 17 accredited investors directly by the Company without any general
solicitation or broker and thus no finder's fees were paid.
On
January 28, 2005, the Company closed a private placement of 1,368,154 shares of
common stock and 342,040 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 $2,667,900. On February 2, 2005 the Company sold an
additional 102,564 shares of common stock and 25,641 warrants to the Investors
for aggregate proceeds of $200,000. 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 issued an
aggregate 123,659 warrants to purchase common stock to various selling agents,
which are immediately exercisable at $2.15 per share and will expire five years
after issuance. In February 2005, the Company paid an aggregate $179,600 in cash
and issued 24,461 shares of common stock to certain selling agents, in lieu of
cash.
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.
On April
7, 2005, the Company closed a private placement of 1,515,384 shares of common
stock and 378,846 warrants to certain additional Investors for aggregate
proceeds of $2,954,999. The Company paid an aggregate $298,000 in fees and
issued an aggregate 121,231 warrants to purchase common stock to selling agents.
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.
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
ITEM
24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The
Florida Business Corporation Act, or FBCA, permits a Florida corporation to
indemnify any person who may be a party to any third party proceeding by reason
of the fact that such person is or was a director, officer, employee, or agent
of the corporation, against liability incurred in connection with such
proceeding (including any appeal thereof) if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The FBCA
permits a Florida corporation to indemnify any person who may be a party to a
derivative action if such person acted in any of the capacities set forth in the
preceding paragraph, against expenses and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the estimated expenses of
litigating the proceeding to conclusion, actually and reasonably incurred in
connection with the defense or settlement of such proceeding (including
appeals), provided that the person acted under the standards set forth in the
preceding paragraph. However, no indemnification shall be made for any claim,
issue, or matter for which such person is found to be liable unless, and only to
the extent that, the court determines that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnification for such expenses which the
court deems proper.
The FBCA
provides that any indemnification made under the above provisions, unless
pursuant to a court determination, may be made only after a determination that
the person to be indemnified has met the standard of conduct described above.
This determination is to be made by a majority vote of a quorum consisting of
the disinterested directors of the board of directors, by duly selected
independent legal counsel, or by a majority vote of the disinterested
stockholders. The board of directors also may designate a special committee of
disinterested directors to make this determination. Notwithstanding, the FBCA
provides that a Florida corporation must indemnify any director, or officer,
employee or agent of a corporation who has been successful in the defense of any
proceeding referred to above.
Notwithstanding
the foregoing, the FBCA provides, in general, that no director shall be
personally liable for monetary damages to our company or any other person for
any statement, vote, decision, or failure to act, regarding corporate management
or policy, unless: (a) the director breached or failed to perform his duties as
a director; and (b) the director’s breach of, or failure to perform, those
duties constitutes (i) a violation of criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (ii) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (iii)
unlawful distributions, (iv) with respect to a proceeding by or in the right of
the company to procure a judgment in its favor or by or in the right of a
stockholder, conscious disregard for the best interest of the company, or
willful misconduct, or (v) with respect to a proceeding by or in the right of
someone other than the company or a stockholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property. The term “recklessness,” as used above, means the action, or omission
to act, in conscious disregard of a risk: (a) known, or so obvious that it
should have been known, to the directors; and (b) known to the director, or so
obvious that it should have been known, to be so great as to make it highly
probable that harm would follow from such action or omission.
The FBCA
further provides that the indemnification and advancement of payment provisions
contained therein are not exclusive and it specifically empowers a corporation
to make any other further indemnification or advancement of expenses under any
bylaw, agreement, vote of stockholders, or disinterested directors or otherwise,
both for actions taken in an official capacity and for actions taken in other
capacities while holding an office. However, a corporation cannot indemnify or
advance expenses if a judgment or other final adjudication establishes that the
actions of the director or officer were material to the adjudicated cause of
action and the director or officer (a) violated criminal law, unless the
director or officer had reasonable cause to believe his conduct was unlawful,
(b) derived an improper personal benefit from a transaction, (c) was or is a
director in a circumstance where the liability for unlawful distributions
applies, or (d) engages in willful misconduct or conscious disregard for the
best interests of the corporation in a proceeding by or in right of the
corporation to procure a judgment in its favor or in a proceeding by or in right
of a stockholder.
Our
Articles of Incorporation provide that, to the fullest extent permitted by law,
none of our directors or officers shall be personally liable to us or our
shareholders for damages for breach of any duty owed to our shareholders or us.
As indicated in section 607.0850 of the Florida Statute, Florida law provides
that a director shall have no personal liability for any statement, vote,
decision or failure to act, regarding corporate management or policy by a
director, unless the director breached or failed to perform the duties of a
director.
In
addition, we shall have the power, by our by-laws or in any resolution of our
stockholders or directors, to undertake to indemnify the officers and directors
of ours against any contingency or peril as may be determined to be in our best
interest and in conjunction therewith, to procure, at our expense, policies of
insurance. At this time, no statute or provision of the by-laws, any contract or
other arrangement provides for insurance or indemnification of any of our
controlling persons, directors or officers that would affect his or her
liability in that capacity.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to our directors, officers, and controlling persons pursuant to the
foregoing provisions or otherwise, we have been advised that in the opinion of
the Securities Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by our
director, officer, or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered hereunder,
we will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
ITEM
25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth an estimate of the costs and expenses payable by
Xenomics, Inc. in connection with the offering described in this registration
statement. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee:
Securities
and Exchange Commission Registration Fee |
|
$ |
2,594.81 |
|
Printing
and Engraving Expenses |
|
|
3,000.00 |
|
Accounting
Fees and Expenses |
|
|
5,000.00 |
|
Legal
Fees and Expenses |
|
|
25,000.00 |
|
Miscellaneous |
|
|
1,405.19 |
|
|
|
|
|
|
Total |
|
$ |
37,000.00 |
|
ITEM
6. RECENT SALES OF UNREGISTERED SECURITIES
On July
13, 2005, the Company closed a private placement of 277,100 shares of Series A
Convertible Preferred Stock and 386,651 warrants to certain investors for
aggregate gross proceeds of $2,771,000. The warrants are immediately exercisable
at $3.25 per share and are exercisable at any time within five years from the
date of issuance. The Company paid an aggregate $277,100 and issued an
aggregate 105,432 warrants to purchase common stock to certain selling agents.
The warrants are immediately exercisable at $3.25 per share and will expire five
years after issuance. In connection with the offer and sale of securities to the
investors and the selling agents, the Company relied on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and Rule 506 promulgated thereunder. The Company
believes that the investors and the selling agents are "accredited investors",
as such term is defined in Rule 501(a) promulgated under the Securities
Act.
On
January 28, 2005, the Company closed the first traunche of a private placement
in which it 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. 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. On
April 7, 2005, the Company 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. The
Company 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 and the
selling agents, the Company relied on the exemption from registration provided
by Section 4(2) of the Securities Act, and Rule 506 promulgated thereunder. The
Company believes that the Investors and the selling agents are "accredited
investors", as such term is defined in Rule 501(a) promulgated under the
Securities Act.
On
January 10, 2005, the Company entered into a letter of engagement (the
"Agreement") with Trilogy Capital Partners, Inc. ("Trilogy"). The term of the
Agreement is for twelve months beginning on January 10, 2005 and terminable
thereafter by either party upon 30 days' prior written notice. Pursuant to the
Agreement, Trilogy will provide marketing and financial public relations
services to the Company and will assume the responsibilities of an investor
relations officer for the Company.
Pursuant
to the Agreement, the Company issued warrants to purchase 1,000,000 shares of
Common Stock of the Company at an exercise price of $2.95 per share (the
"Warrants"). The Warrants issued to Trilogy are exercisable upon issuance and
expire on January 10, 2008. The offer and sale of these securities was made in
reliance on Section 4(2) of the Securities Act of 1933, as amended.
On July
2, 2004, the Company completed a private placement of 2,645,210 shares of its
common stock for aggregate proceeds of $2,512,950, or $0.95 per share. The sale
was made to 17 accredited investors directly by the Company without any general
solicitation or broker and thus no finder’s fees were paid. In connection with
the offer and sale of these securities, the Company relied on the exemption from
registration provided by Section 4(2) of the Securities Act and Rule 506
promulgated thereunder.
From May
2002 through January 2003, the Company issued 2,000,000 shares of its common
stock to its founder, Jeannine Karklins, at $.001 (par value), for an aggregate
amount of $2,000.00 and issued 68,000 shares of its common stock at a price of
$.05 per share or aggregate cash proceeds of $3,400 to 22 investors, of which
all persons were of non-accredited status. Approximately 35 investors were
solicited and 18 of these people purchased Company common stock. The investors
were business associates and friends. A total of 6 prospective investors called
the Company’s corporate office concerning investment information after being
referred by the 35 original people solicited by Jeannine Karklins. Of these 6
prospective investors, 4 became investors in the Company. Stock certificates
issued contained a legend that evidences the securities have not been registered
under the Act and therefore cannot be resold unless they are registered under
the Act or unless an exemption from registration is available.
The
shares were issued in reliance on the exemptions from registration provided by
Rule 504 of Regulation D and Section 4 (2) of the Securities Act.
ITEM
27. EXHIBITS
Exhibit
|
Description |
|
|
2.1 |
Capital
Stock Purchase Agreement between Panetta Partners, Ltd. and Jeannine
Karklins dated February 24, 2004 (Incorporated by reference to exhibit
10.1 to the Company's Current Report on Form 8-K filed on March 11,
2004) |
|
|
3.1 |
Articles
of Incorporation of the Company (Incorporated by reference to exhibit 3.1
to the Company's Form SB-2 Registration Statement, as amended, filed on
June 25, 2003) |
|
|
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 (Incorporated by reference to exhibit 3(i).1 to the
Company’s Current Report on Form 8-K filed on July 19,
2004) |
|
|
3.3 |
Amended
and Restated By-Laws (Incorporated by reference to exhibit 3(ii).1 to the
Company’s Current Report on Form 8-K filed on July 19,
2004) |
|
|
3.4 |
Articles
of Amendment to Articles of Incorporation of Xenomics, Inc. (Incorporated
by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K
filed on July 19, 2005) |
|
|
4.1 |
Form
of Stock Certificate, $.001 par value (Incorporated by reference to
exhibit 4 to the Company's Form SB-2 Registration Statement, as amended,
filed June 25, 2003) |
|
|
4.2 |
Form
of Warrant issued to Irv Weiman, Laura Dever and Len Toboroff
(Incorporated by reference to exhibit 4.2 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
4.3 |
Form
of Warrant issued to Trilogy Capital Partners, Inc. (Incorporated by
reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed
on January 13, 2005) |
|
|
4.4 |
Form
of Warrant to purchase shares of Common Stock issued in connection with
the sale of the Common Stock (Incorporated by reference to exhibit 4.1 to
the Company’s Current Report on Form 8-K filed on February 3,
2005) |
Exhibit
|
Description |
|
|
4.5 |
Form
of Warrant to purchase shares of Common Stock issued in connection with
the sale of the Series A Convertible Preferred Stock (Incorporated by
reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed
on July 19, 2005) |
|
|
4.6 |
Form
of Warrant to purchase shares of Common Stock issued to selling agents in
connection with the sale of the Series A Convertible Preferred Stock
(Incorporated by reference to exhibit 4.1 to the Company’s Current Report
on Form 8-K filed on July 19, 2005) |
|
|
5.1 |
Opinion
of Sichenzia Ross Friedman Ference LLP* |
|
|
10.1 |
Xenomics,
Inc. 2004 Stock Option Plan (Incorporated by reference to exhibit 4.3 to
the Company’s Current Report on Form 8-K filed on July 19,
2004)+ |
|
|
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
(Incorporated by reference to exhibit 2.1 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
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 (Incorporated by
reference to exhibit 2.2 to the Company’s Current Report on Form 8-K filed
on July 19, 2004) |
|
|
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
(Incorporated by reference to exhibit 2.3 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
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
(Incorporated by reference to exhibit 2.4 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
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
(Incorporated by reference to exhibit 99.2 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
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
(Incorporated by reference to exhibit 2.6 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
10.8 |
Executive
Employment Agreement dated effective as of June 24, 2004 by and among
Hovsep Melkonyan, Xenomics and Used Kar Parts, Inc. (Incorporated by
reference to exhibit 99.3 to the Company’s Current Report on Form 8-K
filed on July 19, 2004)+ |
|
|
10.9 |
Consulting
Agreement effective as of June 24, 2004 by and among L. David Tomei,
Xenomics and Used Kar Parts, Inc. (Incorporated by reference to exhibit
99.4 to the Company’s Current Report on Form 8-K filed on July 19,
2004)+ |
|
|
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
(Incorporated by reference to exhibit 99.5 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
10.11 |
Letter
Agreement dated September 3, 2004 between Xenomics, Inc. and Dr. Randy
White (Incorporated by reference to exhibit 99.1 to the Company’s Current
Report on Form 8-K filed on September 9, 2004)+ |
|
|
10.12 |
Letter
of Engagement between Trilogy Capital Partners, Inc. and Xenomics, Inc.
dated January 10, 2005 (Incorporated by reference to exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 13,
2005) |
|
|
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 (Incorporated by reference to exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on February 3, 2005) |
|
|
10.14 |
Employment
Agreement dated February 14, 2005 between the Company and Bernard Denoyer
(Incorporated by reference to exhibit 4.1 to the Company’s Current Report
on Form 8-K filed on February 17, 2005)+ |
Exhibit
|
Description |
|
|
10.15 |
Shareholders
Agreement between the Company and the National Institute of Infectious
Diseases “Lazzaro Spallanzani” dated April 7, 2004 (Incorporated by
reference to exhibit 10.15 to the Company’s Annual Report on Form 10-KSB
filed on May 17, 2005) |
|
|
10.16
|
Stock
Option Grant Agreement for Nonstatutory Stock Options of L. David Tomei
dated June 24, 2004 (Incorporated by reference to exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.17 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of Samuil Umansky
dated June 24, 2004 (Incorporated by reference to exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.18 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of Hovsep Melknoyan
dated June 24, 2004 (Incorporated by reference to exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.19 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of L. David Tomei
dated May 24, 2005 (Incorporated by reference to exhibit 10.4 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.20 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of Samuil Umansky
dated May 24, 2005 (Incorporated by reference to exhibit 10.5 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.21 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of Hovsep Melkonyan
dated May 24, 2005 (Incorporated by reference to exhibit 10.6 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.22 |
Consulting
Agreement dated June 24, 2005 between Xenomics, Inc. and Gabriele M.
Cerrone*+ |
|
|
10.23 |
Form
of Securities Purchase Agreement dated July 13, 2005 by and among
Xenomics, Inc. and the purchasers set forth on the signature page thereto
(Incorporated by reference to exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on July 19, 2005) |
|
|
10.24 |
Form
of Registration Rights Agreement dated July 13, 2005 by and among
Xenomics, Inc. and the purchasers signatory thereto (Incorporated by
reference to exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on July 19, 2005) |
|
|
14
|
Code
of Business Conduct and Ethics (Incorporated
by reference to exhibit 10.15 to the Company’s Annual Report on Form
10-KSB filed on May 17, 2005) |
|
|
16
|
Letter
from Baum & Company, PA Re: Change in Certifying
Accountant (Incorporated
by reference to exhibit 16.1 to the Company’s Current Report on Form 8-K
filed on February 3, 2005) |
|
|
21.1 |
Subsidiary
of the Registrant* |
|
|
23.1 |
Consent
of Sichenzia Ross Friedman Ference LLP (included in exhibit
5.1)* |
|
|
23.2 |
Consent
of Lazar Levine & Felix LLP* |
|
|
24.1 |
Power
of Attorney (included on page
II-7)* |
* Filed
herewith
+ Denotes
a management contract or compensatory plan or arrangement
ITEM
28. UNDERTAKINGS
(a) The
undersigned Registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(c)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that
it has reasonable grounds to believe that it meets all the requirements for
filing on Form SB-2 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on this 1st day of August, 2005.
|
|
|
|
XENOMICS,
INC. |
|
|
|
|
By: |
/s/
V. Randy White |
|
|
|
V.
Randy White
Chief
Executive Officer |
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints V. Randy White and Bernard Denoyer, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any subsequent registration
statements pursuant to Rule 462 of the Securities Act of 1933 and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature |
|
Title |
|
Date |
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/s/
L. David Tomei |
|
Co-Chairman
of the Board, President, Spaxen Italia, srl |
|
August
1, 2005 |
L.
David Tomei, Ph.D |
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/s/
Gabriele M. Cerrone |
|
Co-Chairman
of the Board |
|
August
1, 2005 |
Gabriele
M. Cerrone |
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|
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|
|
/s/
V. Randy White |
|
Chief
Executive Officer and Director |
|
August
1, 2005 |
V.
Randy White, Ph.D |
|
|
|
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|
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|
/s/
Bernard Denoyer |
|
Vice
President - Controller |
|
August
1, 2005 |
Bernard
Denoyer |
|
|
|
|
|
|
|
|
|
/s/
Samuil Umansky |
|
President
and Chief Scientific Officer and Director |
|
August
1, 2005 |
Samuil
Umansky, M.D., Ph.D |
|
|
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|
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/s/
Christoph Bruening |
|
Director |
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August
1, 2005 |
Christoph
Bruening |
|
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/s/
Thomas Adams |
|
Director |
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August
1, 2005 |
Thomas
Adams |
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/s/
Donald H. Picker |
|
Director |
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August
1, 2005 |
Donald
H. Picker, Ph.D |
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INDEX
TO EXHIBITS
Exhibit
|
Description |
|
|
2.1 |
Capital
Stock Purchase Agreement between Panetta Partners, Ltd. and Jeannine
Karklins dated February 24, 2004 (Incorporated by reference to exhibit
10.1 to the Company's Current Report on Form 8-K filed on March 11,
2004) |
|
|
3.1 |
Articles
of Incorporation of the Company (Incorporated by reference to exhibit 3.1
to the Company's Form SB-2 Registration Statement, as amended, filed on
June 25, 2003) |
|
|
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 (Incorporated by reference to exhibit 3(i).1 to the
Company’s Current Report on Form 8-K filed on July 19,
2004) |
|
|
3.3 |
Amended
and Restated By-Laws (Incorporated by reference to exhibit 3(ii).1 to the
Company’s Current Report on Form 8-K filed on July 19,
2004) |
|
|
3.4 |
Articles
of Amendment to Articles of Incorporation of Xenomics, Inc. (Incorporated
by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K
filed on July 19, 2005) |
|
|
4.1 |
Form
of Stock Certificate, $.001 par value (Incorporated by reference to
exhibit 4 to the Company's Form SB-2 Registration Statement, as amended,
filed June 25, 2003) |
|
|
4.2 |
Form
of Warrant issued to Irv Weiman, Laura Dever and Len Toboroff
(Incorporated by reference to exhibit 4.2 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
4.3 |
Form
of Warrant issued to Trilogy Capital Partners, Inc. (Incorporated by
reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed
on January 13, 2005) |
|
|
4.4 |
Form
of Warrant to purchase shares of Common Stock issued in connection with
the sale of the Common Stock (Incorporated by reference to exhibit 4.1 to
the Company’s Current Report on Form 8-K filed on February 3,
2005) |
|
|
4.5 |
Form
of Warrant to purchase shares of Common Stock issued in connection with
the sale of the Series A Convertible Preferred Stock (Incorporated by
reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed
on July 19, 2005) |
|
|
4.6 |
Form
of Warrant to purchase shares of Common Stock issued to selling agents in
connection with the sale of the Series A Convertible Preferred Stock
(Incorporated by reference to exhibit 4.1 to the Company’s Current Report
on Form 8-K filed on July 19, 2005) |
|
|
5.1 |
Opinion
of Sichenzia Ross Friedman Ference LLP* |
|
|
10.1 |
Xenomics,
Inc. 2004 Stock Option Plan (Incorporated by reference to exhibit 4.3 to
the Company’s Current Report on Form 8-K filed on July 19,
2004)+ |
|
|
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
(Incorporated by reference to exhibit 2.1 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
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 (Incorporated by
reference to exhibit 2.2 to the Company’s Current Report on Form 8-K filed
on July 19, 2004) |
|
|
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
(Incorporated by reference to exhibit 2.3 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
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
(Incorporated by reference to exhibit 2.4 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
Exhibit
|
Description |
|
|
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 (Incorporated by reference to exhibit 99.2 to the
Company’s Current Report on Form 8-K filed on July 19,
2004) |
|
|
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
(Incorporated by reference to exhibit 2.6 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
10.8 |
Executive
Employment Agreement dated effective as of June 24, 2004 by and among
Hovsep Melkonyan, Xenomics and Used Kar Parts, Inc. (Incorporated by
reference to exhibit 99.3 to the Company’s Current Report on Form 8-K
filed on July 19, 2004)+ |
|
|
10.9 |
Consulting
Agreement effective as of June 24, 2004 by and among L. David Tomei,
Xenomics and Used Kar Parts, Inc. (Incorporated by reference to exhibit
99.4 to the Company’s Current Report on Form 8-K filed on July 19,
2004)+ |
|
|
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
(Incorporated by reference to exhibit 99.5 to the Company’s Current Report
on Form 8-K filed on July 19, 2004) |
|
|
10.11 |
Letter
Agreement dated September 3, 2004 between Xenomics, Inc. and Dr. Randy
White (Incorporated by reference to exhibit 99.1 to the Company’s Current
Report on Form 8-K filed on September 9, 2004)+ |
|
|
10.12 |
Letter
of Engagement between Trilogy Capital Partners, Inc. and Xenomics, Inc.
dated January 10, 2005 (Incorporated by reference to exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 13,
2005) |
|
|
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 (Incorporated by reference to exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on February 3, 2005) |
|
|
10.14 |
Employment
Agreement dated February 14, 2005 between the Company and Bernard Denoyer
(Incorporated by reference to exhibit 4.1 to the Company’s Current Report
on Form 8-K filed on February 17, 2005)+ |
|
|
10.15 |
Shareholders
Agreement between the Company and the National Institute of Infectious
Diseases “Lazzaro Spallanzani” dated April 7, 2004 (Incorporated by
reference to exhibit 10.15 to the Company’s Annual Report on Form 10-KSB
filed on May 17, 2005) |
|
|
10.16
|
Stock
Option Grant Agreement for Nonstatutory Stock Options of L. David Tomei
dated June 24, 2004 (Incorporated by reference to exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.17 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of Samuil Umansky
dated June 24, 2004 (Incorporated by reference to exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.18 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of Hovsep Melknoyan
dated June 24, 2004 (Incorporated by reference to exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.19 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of L. David Tomei
dated May 24, 2005 (Incorporated by reference to exhibit 10.4 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.20 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of Samuil Umansky
dated May 24, 2005 (Incorporated by reference to exhibit 10.5 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.21 |
Stock
Option Grant Agreement for Nonstatutory Stock Options of Hovsep Melkonyan
dated May 24, 2005 (Incorporated by reference to exhibit 10.6 to the
Company’s Current Report on Form 8-K filed on May 31, 2005)+ |
|
|
10.22 |
Consulting
Agreement dated June 24, 2005 between Xenomics, Inc. and Gabriele M.
Cerrone*+ |
Exhibit
|
Description |
|
|
10.23 |
Form
of Securities Purchase Agreement dated July 13, 2005 by and among
Xenomics, Inc. and the purchasers set forth on the signature page thereto
(Incorporated by reference to exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on July 19, 2005) |
|
|
10.24 |
Form
of Registration Rights Agreement dated July 13, 2005 by and among
Xenomics, Inc. and the purchasers signatory thereto (Incorporated by
reference to exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on July 19, 2005) |
|
|
14
|
Code
of Business Conduct and Ethics (Incorporated
by reference to exhibit 10.15 to the Company’s Annual Report on Form
10-KSB filed on May 17, 2005) |
|
|
16
|
Letter
from Baum & Company, PA Re: Change in Certifying
Accountant (Incorporated
by reference to exhibit 16.1 to the Company’s Current Report on Form 8-K
filed on February 3, 2005) |
|
|
21.1 |
Subsidiary
of the Registrant* |
|
|
23.1 |
Consent
of Sichenzia Ross Friedman Ference LLP (included in exhibit
5.1)* |
|
|
23.2 |
Consent
of Lazar Levine & Felix LLP* |
|
|
24.1 |
Power
of Attorney (included on page
II-7)* |
* Filed
herewith
+ Denotes
a management contract or compensatory plan or arrangement
II-10
Opinion and Consent
EXHIBIT
5.1
Sichenzia
Ross Friedman Ference LLP
1065
AVENUE OF THE AMERICAS NEW YORK NY 10018
TEL
212 930 9700 FAX 212 930 9725 WEB WWW.
SRFF.COM
VIA
ELECTRONIC TRANSMISSION
Securities
and Exchange Commission
450
Fifth Street, N.W.
Washington,
CC 20549
Ladies
and Gentlemen:
We
refer to the registration statement on Form SB-2 (the “Registration Statement”)
under the Securities Act of 1933, as amended (the “Act”), filed by Xenomics,
Inc., a Florida corporation (the “Company”), with the Securities and Exchange
Commission on August 1, 2005.
We
have examined the originals, photocopies, certified copies or other evidence of
such records of the Company, certificates of officers of the Company and public
officials, and other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as certified copies or photocopies and the authenticity of the
originals of such latter documents.
Based
on our examination mentioned above, we are of the opinion that the securities
being registered to be sold pursuant to the Registration Statement are duly
authorized and will be, when sold in the manner described in the Registration
Statement, legally and validly issued, and fully paid and
nonassessable.
We
hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement. In giving the foregoing consent, we do not hereby admit that we are
in the category of persons whose consent is required under Section 7 of the Act,
or the rules and regulations of the Securities and Exchange Commission.
|
|
|
|
Very
truly yours, |
|
|
|
|
/s/ Sichenzia Ross Friedman Ference LLP |
|
|
|
Sichenzia
Ross Friedman Ference LLP |
Consulting Agreement
EXHIBIT 10.22
CONSULTING
AGREEMENT
This
Agreement is made and entered into as of the 24th day of June, 2005 by and
between Gabriele M. Cerrone (“Consultant”) and Xenomics, Inc,. a Florida
corporation, (the “Company”).
WHEREAS,
the Consultant guided the Company’s acquisition of Xenomics, a California
corporation, its recapitalization and initial financing, several rounds of
additional financing, and advised management in strategic planning and the
development of strategic relationships for more than a period of one year
without compensation; and
WHEREAS,
the Company’s management and Board of Directors wishes to assure that the
Company will continue to have the services of the Consultant available to it;
and
WHEREAS,
the Company’s Board of Directors has determined, in light of the importance of
the Consultant’s continued services to the stability and interests of the
Company and its stockholders to reinforce and encourage the Consultant’s
continued attention and dedication to the Company’s affairs.
WHEREAS,
the Company desires to engage Consultant to provide certain consulting services,
and Consultant is willing to be engaged by the Company to provide such services,
on the terms and conditions set forth below;
NOW,
THEREFORE, in consideration of the mutual covenants and agreements contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1.
Purpose:
The Company hereby engages Consultant for the term specified in Paragraph 2
hereof to render consulting advice to the Company relating to business
development, corporate finance and capital markets matters upon the terms and
conditions set forth herein.
2.
Effective
Date and Term:
|
2.1 |
Effective
Date.
This Agreement shall become effective as of July 1, 2005 (the “Effective
Date”). |
|
2.2 |
Term.
Unless earlier terminated pursuant to Section 10 hereof, the term of this
Agreement shall commence upon the date that Consultant assumes his
responsibilities under this Agreement (the “Start Date”) and shall
continue from the Start Date to the third anniversary thereof (the
“Initial Term”). This Agreement shall thereafter be automatically renewed
for successive one year periods unless either party shall notify the other
in writing of its intention not to renew this Agreement (a “Non-renewal
Notice”), which notice shall be given at least 90 days prior to the end of
the then current term (the “Expiration Date”). The period from the
Commencement Date to the Expiration Date, including the Renewal Term, if
any, is referred to herein as the “Term.” |
3.
Duties
of Consultant: During
the term of this Agreement, the Consultant shall devote such portion of his
business time and attention to affairs of the Company reasonably necessary to
provide the Company with such regular and customary business development,
strategic planning, capital markets and corporate finance consulting advice as
is reasonably requested by the Company’s management and Board of Directors,
provided that Consultant shall not be required to undertake duties not
reasonably within the scope of this Agreement. So long as the Consultant serves
as a member of the Company’s Board of Directors, Consultant shall serve as
Co-Chairman of the Board.
3.1.
Permissible
Services. The
Consultant’s services will include advising the Company’s Board of Directors and
senior management on the following matters:
|
(i) |
in-licensing
and out-licensing technologies and
compounds; |
|
(ii) |
capitalization
and corporate organization of the Company; |
|
(iii) |
structure
and pricing of offerings of the Company’s securities in public and private
transactions; |
|
(iv) |
alternative
uses of corporate assets; |
|
(v) |
structure
and use of debt; |
|
(vi) |
application
and maintenance of listing of the Company’s stock in securities exchanges
and other appropriate markets; |
|
(viii) |
management
recruitment and compensation; and |
|
(ix) |
presentations
to institutional and professional individual investors in the U.S. and
Europe. |
3.2
Prohibited
Services.
The services to be rendered by the Consultant to the Company shall not (unless
the Consultant is appropriately licensed, registered or there is an exemption
available from such licensing or registration) include, directly or indirectly:
any activities which require the Consultant to register as a broker-dealer under
the Securities Exchange Act of 1934.
4.
Compensation:
In consideration for the services rendered by Consultant to the Company pursuant
to this Agreement, the Company agrees to pay Consultant (a) a signing bonus of
$50,000 payable on the Start Date; and (b) the annual sum of $198,000 at the
rate of $16,500 per month commencing on the Start Date (“Base Compensation”).
The Consultant’s Base Compensation may be increased, but not decreased by the
Compensation Committee of the Company’s Board of Directors (or similar committee
serving that function, the “Committee”). Once increased, such increased amount
shall constitute the Consultant’s Base Compensation and shall not be decreased.
In addition, Consultant shall be granted periodically options under the
Company’s various equity incentive plans commensurate with and having the same
term and conditions as those granted to the Company’s senior executive officers.
The Company will include the shares of equity securities of the Company which
may be issued upon the exercise of the options in any registration statement
under the Securities Act of 1933 which includes securities issuable to any other
executive officer of the Company. The Consultant shall be eligible to earn a
cash bonus of up to 15% of Base Compensation for each calendar of the
Term
(or
portion thereof) based on meeting performance objectives and bonus criteria to
be mutually identified by Consultant and the Company’s Board of Directors.
5.
Expenses
and Services:
|
5.1 |
Consultant
is authorized to incur reasonable expenses in carrying out his duties and
responsibilities under this Agreement, including, without limitation,
expenses for travel, cellular telephone (including access charges and
business calls), and business entertainment. Additionally, Consultant
shall, after having obtaining the approval of the Company’s Chief
Financial Officer, which shall not be unreasonably withheld, be authorized
to incur reasonable expenses for the attendance of conferences in fields
relating to genetic testing, technology of interest to the Company,
finance of biotechnology ventures, and similar items related to
Consultant’s duties and responsibilities as Consultant deems necessary.
Company will reimburse Consultant for all such expenses upon presentation
by Consultant of appropriately itemized accounts of such expenditures or
the Company will pay such expenses
directly. |
|
5.2 |
During
the Term, Consultant shall be provided with office facilities and access
to Company information and financial records and an experienced
administrative assistant (which may be shared with no more than one senior
executive officer) as is deemed appropriate by the Consultant and approved
by the Company’s Chief Financial Officer and in the absence of a CFO, the
Company’s CEO. Such services and facilities will not be diminished without
the Consultant’s prior consent. |
6.
Liability
of Consultant:
The Company acknowledges that all opinions and advice (written or oral) given by
Consultant to the Company in connection with Consultant’s engagement are
intended solely for the benefit and use of the Company in considering the
transaction to which they relate, and the Company agrees that no person or
entity other than the Company shall be entitled to make use of or rely upon the
advice of Consultant to be given hereunder, and no such opinion or advice shall
be used for any other purpose or reproduced, disseminated, quoted or referred to
at any time, in any manner or for any purpose, nor may the Company make any
public references to Consultant, or use Consultant’s name in any annual reports
or any other reports or releases of the Company without Consultant’s prior
written consent. Consultant’s maximum liability shall not exceed the cash
compensation received from the Company.
7.
Consultant’s
Services to Others:
The Company acknowledges that Consultant and its affiliates are in the business
of investing in and providing financial and strategic consulting services to
others. Nothing herein contained shall be construed to limit or restrict
Consultant in conducting such business with respect to others, or in rendering
such advice to others.
8.
Company
Information:
a.
The
Company recognizes and confirms that, in advising the Company and in fulfilling
it engagement hereunder, Consultant will use and rely on data, material and
other information furnished to Consultant by the Company. The Company
acknowledges and agrees that in performing its services under this engagement,
Consultant may rely upon the data, material and other information supplied by
the Company without independently verifying the accuracy, completeness or
veracity of same. The Company agrees to notify Consultant in writing via
overnight courier, facsimile or e-mail of any material event and/or change with
in twenty-four hours of its occurrence.
b.
Consultant
recognizes and acknowledges that by reason of Consultant’s retention by and
service to the Company before, during and, if applicable, after the Term,
Consultant will have access to certain confidential and proprietary information
relating to the Company’s business, which may include, but is not limited to,
trade secrets, trade “know-how,” product development techniques and plans,
formulas, customer lists and addresses, financing services, funding programs,
cost and pricing information, marketing and sales techniques, strategy and
programs, computer programs and software and financial information relating
to the field of in which the Company is actually engaged in research,
development, collaboration or sales at the time of such disclosure (collectively
referred to as “Confidential Information”). Consultant acknowledges that such
Confidential Information is a valuable and unique asset of the Company and
Consultant covenants that it will not, unless expressly authorized in writing by
the Company, at any time during the Consulting Term use any Confidential
Information or divulge or disclose any Confidential Information to any person,
firm or corporation except in connection with the performance of Consultant’s
duties for the Company and in a manner consistent with the Company’s policies
regarding Confidential Information. Consultant also covenants that at any time
after the termination of this Agreement, directly or indirectly, it will not use
any Confidential Information or divulge or disclose any Confidential Information
to any person, firm or corporation, unless such information is in the public
domain through no fault of Consultant or except when required to do so by a
court of law, by any governmental agency having supervisory authority over the
business of the Company or by any administrative or legislative body (including
a committee thereof) with apparent jurisdiction to order Consultant to divulge,
disclose or make accessible such information. All written Confidential
Information (including, without limitation, in any computer or other electronic
format) which comes into Consultant’s possession during the Consulting Term
shall remain the property of the Company. Except as required in the performance
of Consultant’s duties for the Company, or unless expressly authorized in
writing by the Company, Consultant shall not remove any written Confidential
Information from the Company’s premises, except in connection with the
performance of Consultant’s duties for the Company and in a manner consistent
with the Company’s policies regarding Confidential Information. Upon termination
of this Agreement, the Consultant agrees to return immediately to the Company
all written Confidential Information (including, without limitation, in any
computer or other electronic format) in Consultant’s possession.
9.
Consultant
an Independent Contractor:
Consultant shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof. It is expressly
understood and agreed to by the parties hereto that Consultant shall
have
no
authority to act for, represent or bind the Company or any affiliate thereof in
any manner, except as may be agreed to expressly by the Company in writing from
time to time.
10. Termination:
10.1 Termination
Without Cause or for Good Reason.
|
(a) |
If
this Agreement is terminated by the Company other than for Cause (as
defined in Section 10.4 hereof) as a result of Consultant’s death or
Permanent Disability (as defined in Section 10.2 hereof), or if Consultant
terminates his employment for Good Reason (as defined in Section 10.1 (b)
hereof) prior to the Expiration Date, Consultant shall receive or commence
receiving as soon as practicable in accordance with the terms of this
Agreement: |
|
(i) |
a
severance payment (the “Severance Payment”), which amount shall be paid in
a cash lump sum within ten (10) days of the date of termination, in an
amount equal to the aggregate amount of the Consultant's Base Compensation
for the then remaining term of this
Agreement; |
|
(ii) |
immediate
vesting of all unvested stock options and the extension of the exercise
period of such options to the later of the longest period permitted by the
Company’s stock option plans or ten years following the Termination
Date; |
|
(iii) |
payment
in respect of compensation earned but not yet paid (the “Compensation
Payment”) which amount shall be paid in a cash lump sum within ten (10)
days of the date of termination; and |
|
(b) |
For
purposes of this Agreement, “Good Reason” shall mean any of the following
(without Consultant’s express prior written
consent): |
|
(i) |
Any
material breach by Company of any provision of this Agreement, including
any material reduction by Company of Consultant’s duties or
responsibilities (except in connection with the termination of
Consultant’s employment for Cause, as a result of Permanent Disability, as
a result of Consultant's death or by Consultant other than for Good
Reason); |
|
(ii) |
A
reduction by the Company in Consultant’s Base Compensation or any failure
of the Company to reimburse Consultant for material expenses described in
Section 5.1 or provide the services described in Section 5.2 of this
Agreement; |
|
(iii) |
The
failure by the Company to obtain the specific assumption of this Agreement
by any successor or assign of Company as provided for in Section 11
hereof; or |
|
(iv) |
Upon
a Change of Control of Company (as such term is hereinafter
defined). |
10.2 Permanent
Disability. If
Consultant becomes totally and permanently disabled (as defined in the Company’s
disability benefit plan applicable to senior executive officers as in effect on
the date thereof) (“Permanent Disability”), Company or Consultant may terminate
this Agreement on written notice thereof, and Consultant shall receive or
commence receiving, as soon as practicable:
|
(i) |
amounts
payable pursuant to the terms of the disability insurance policy or
similar arrangement which Company maintains for the Consultant, if any,
during the term hereof; |
|
(ii) |
the
Compensation Payment which shall be paid to Consultant as a cash lump sum
within 30 days of such termination; and |
|
(iii) |
immediate
vesting of all unvested stock options. |
10.3 Death. In
the event of Consultant’s death during the term of his employment hereunder,
Consultant's estate or designated beneficiaries shall receive or commence
receiving, as soon as practicable in accordance with the terms of this
Agreement:
|
(i) |
compensation
equal to one year’s Base Compensation which shall be paid within 30 days
of such termination; |
|
(ii) |
any
death benefits provided under the Consultant benefit programs, plans and
practices in which the Consultant has an interest, in accordance with
their respective terms; |
|
(iii) |
the
Compensation Payment which shall be paid to Consultant’s estate as a cash
lump sum within 30 days of such termination;
and |
|
(iv) |
such
other payments under applicable plans or programs to which Consultant's
estate or designated beneficiaries are entitled pursuant to the terms of
such plans or programs. |
10.4
Voluntary
Termination by Consultant: Discharge for Cause.
The Company shall have the right to terminate this Agreement for Cause (as
hereinafter defined). In the event that Consultant’s employment is terminated by
Company for Cause, as hereinafter defined, or by Consultant other than for Good
Reason or other than as a result of the Consultant’s Permanent Disability or
death, prior to the Termination Date, Consultant shall be entitled only to
receive, as a cash lump sum within 30 days of such termination the Compensation
Payment. As used herein, the term “Cause” shall be limited to (i) willful
malfeasance or willful misconduct by Consultant in connection with the services
to the Company in a matter of material importance to the conduct of the
Company's affairs which has a material adverse affect on the business of the
Company, (ii) willful continuing refusal by Consultant to perform his duties
hereunder as reasonably directed by the Board of Directors after notice of any
such refusal to perform such
duties
or such reasonable direction was given to Consultant by the Board of Directors,
or (iii) the conviction of Consultant for commission of a felony. For purposes
of this subsection, no act or failure to act on the Consultant’s part shall be
considered “willful” unless done, or omitted to be done, by the Consultant not
in good faith and without reasonable belief that his action or omission was in
the best interest of the Company. Termination of this Agreement pursuant to this
Section 10.4 shall be made by delivery to Consultant of a copy of a resolution
duly adopted by the affirmative vote of all of the members of the Board of
Directors called and held for such purpose (after 30 days prior written notice
to Consultant and reasonable opportunity for Consultant to be heard before the
Board of Directors prior to such vote), finding that in the good faith business
judgment of such Board of Directors, Consultant was guilty of conduct set forth
in any of clauses (i) through (iii) above and specifying the particulars
thereof.
11.
Assignment:
This
Agreement shall be binding upon and inure to the benefit of the heirs and
representatives of Consultant and the assigns and successors of Company, but
neither this Agreement nor any rights or obligations hereunder shall be
assignable or otherwise subject to hypothecation by Consultant (except by will
or by operation of the laws of intestate succession or by Consultant notifying
the Company that cash payment be made to an affiliated investment partnership in
which Consultant is a control person) or by Company, except that Company may
assign this Agreement to any successor (whether by merger, purchase or
otherwise) to all or substantially all of the stock, assets or businesses of
Company, if such successor expressly agrees to assume the obligations of Company
hereunder.
12.
Change
In Control:
12.1
Definition. For
purposes of this Agreement, a “Change in Control” shall be deemed to have
occurred if (i) there shall be consummated (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of the Company’s Common Stock would be converted
into cash, securities or other property, other than a merger of the Company in
which the holders of the Company’s Common Stock immediately prior to the merger
have substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (B) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company, or (ii) the
stockholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company, or (iii) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the
“Exchange Act”)), other than the Company or any executive benefit plan sponsored
by the Company, or such person on the Effective Date hereof is a 20% or more
beneficial owner, shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of securities of the Company representing 20% or
more of the combined voting power of the Company’s then outstanding securities
ordinarily (and apart from rights accruing in special circumstances) having the
right to vote in the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise, or
(iv) at any time during a period of two consecutive years, individuals who at
the beginning of such period, constituted the Board of Directors of the Company
shall cease for any reason to constitute at least a majority thereof, unless the
election or the nomination for election by the
Company’s
stockholders of each new director during such two-year period was approved by a
vote of at least two-thirds of the directors then still in office, who were
directors at the beginning of such two-year period.
12.2
Rights
and Obligations. If
a Change in Control of the Company shall have occurred while the Consultant is
director of the Company, the Consultant shall be entitled to the compensation
provided in Section 10.1 of this Agreement upon the subsequent termination of
this Agreement by either the Company, or the Consultant within two years of the
date upon which the Change in Control shall have occurred, unless such
termination is a result of (i) the Consultant’s death; (ii) the Consultant’s
Disability; (iii) the Consultant’s Retirement; or (iv) the Consultant’s
termination for Cause.
7.
Indemnification:
Consultant,
as such and as a Director of the Company, shall be indemnified by the Company
against all liability incurred by the Consultant in connection with any
proceeding, including, but not necessarily limited to, the amount of any
judgment obtained against Consultant, the amount of any settlement entered into
by the Consultant and any claimant with the approval of the Company, attorneys’
fees, actually and necessarily incurred by him in connection with the defense of
any action, suit, investigation or proceeding or similar legal activity,
regardless of whether criminal, civil, administrative or investigative in nature
(“Claim”), to which he is made a party or is otherwise subject to, by reason of
his being or having been a director, officer, agent or employee of the Company,
to the full extent permitted by applicable law and the Certificate of
Incorporation of the Company.. Such right of indemnification will not be deemed
exclusive of any other rights to which Consultant may be entitled under
Company’s Certificate of Incorporation or By-laws, as in effect from time to
time, any agreement or otherwise.
14.
Miscellaneous:
a.
This
Agreement between the Company and Consultant constitutes the entire agreement
and understanding of the parties hereto, and supersedes any and all previous
agreements and understandings, whether oral or written, between the parties with
respect to the matters set forth herein.
b.
Any
notice or communication permitted or required hereunder shall be in writing and
shall be deemed sufficiently given if hand-delivered or sent (i) postage prepaid
by registered mail, return receipt requested, or (ii) by facsimile, to the
respective parties as set forth below, or to such other address as either party
may notify the other in writing.
If
to the Company,
to:
Xenomics,
Inc.
420
Lexington Avenue, Suite 1701
New
York, NY 10170
Attention:
V. Randall White, CEO
If
to Consultant,
to:
Gabriel
M. Cerrone
c/o
Panetta Partners Ltd.
1275
First Avenue, Suite 296
New
York, New York 10021
Attention:
Gabriele M. Cerrone, Managing Partner
With
a required copy to:
Sommer
& Schneider LLP
595
Stewart Avenue, Suite 710
Garden
City, NY 11530
Attention:
Herb Sommer, Partner
c.
This
Agreement may be executed in any number of counterparts, each of whom together
shall constitute one and the same original document.
d.
This
Agreement may not be changed orally, but only by an agreement in writing signed
by the party against whom any waiver, change, amendment, modification or
discharge is sought.
e.
The
invalidity of all or any part of any provision of this Agreement shall not
render invalid the remainder of this Agreement or the remainder of such
provision. If any provision of this Agreement is so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
f.
This
Agreement shall be governed by and construed in accordance with the law of the
State of New York without giving effect to the principles of conflicts of law
thereof. The parties hereto each hereby submits herself or itself for the sole
purpose of this Agreement and any controversy arising hereunder to the exclusive
jurisdiction of the state courts in the State of New York.
g.
Any
amounts due hereunder to Consultant which remain unpaid after their due date,
shall bear interest from the due date until paid at a rate of the prime rate (in
effect on the date thereof for Citibank).
h.
The
Company’s obligations to make payments under Section 10 and 12 shall survive
termination or expiration of this Agreement.
i.
Consultant
shall not be required to mitigate damages or the amount of any payment provided
for under this Agreement by seeking other employment or otherwise after the
termination of this Agreement.
IN
WITNESS WHEREOF,
the parties hereto have caused this Agreement to be duly executed, as of the
date first above written.
|
|
|
|
CONSULTANT |
|
|
|
|
/s/
Gabriele M. Cerrone |
|
|
|
Gabriele
M. Cerrone |
|
|
|
|
XENOMICS,
INC. |
|
|
|
|
By: |
/s/
V. Randy White |
|
|
|
Name: V. Randall White
Title:
Chief Executive Officer |
10
Subsidiary of the Registrant
EXHIBIT
21.1
SUBSIDIARY
OF THE REGISTRANT
Xenomics,
a California corporation
Consent of Independent Registered Public Accounting Firm
EXHIBIT
23.2
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated April 8, 2005, relating to the consolidated financial statements of
Xenomics, Inc., which is contained in this Registration Statement.
We
also consent to the reference to our firm under the caption “Experts” in this
Registration Statement.
|
|
|
|
|
/s/
Lazar Levine & Felix LLP |
|
|
|
LAZAR
LEVINE & FELIX LLP |
New
York, New York
July
28, 2005