SECURITIES AND EXCHANGE COMMISSION
eXegenics Inc.
1250 Pittsford-Victor RoadBuilding 200, Suite 280Pittsford, New York 14534(Address of Principal Executive Offices)(585) 218-4368
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): Yes [ ] No [X]
As of November 9, 2004, the registrant had 16,227,914 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
See Notes to Financial Statements.
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eXegenics Inc.NOTES TO FINANCIAL STATEMENTS – (Continued)September 30, 2004(Unaudited)
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The Company has adopted the provisions of SFAS 148, Accounting for Stock-Based Compensation-Transition and Disclosure which requires 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 reporting results. The Black-Scholes option valuation model was developed for use in estimating the fair market value of traded option shares that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair market value estimates, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair market value of our stock options.
(7) Related party transaction
In 2004, the company entered into a lease agreement for office space with RFG Associates, a financial services organization, an entity in which John A. Paganelli, chairman of the Company is an equity owner. The lease provides for a monthly payment of $625 and is cancelable by either party upon one month’s notice.
(8) Subsequent Event
On July 26, 2004 the Company received official notification from The NASDAQ Stock Market that it was not in compliance with the minimum $1.00 closing bid price per share requirement as set forth in NASD Marketplace Rule 4310(c)(4). Our common stock was, therefore, subject to delisting from The NASDAQ SmallCap Market effective August 4, 2004. We requested a hearing before the NASDAQ Listing Qualifications Panel to review the NASDAQ staff determination. As set forth in NASD Marketplace Rule 4820, this request stayed any delisting action pending issuance of a written determination by the NASDAQ Listing Qualifications Panel.
On August 9, 2004, NASDAQ notified the Company that the delisting has been stayed pending an oral hearing to be held before a NASDAQ Listing Qualifications Panel on September 9, 2004. Effective on the open of trading on October 14, 2004, the Company’s securities were delisted from the Nasdaq Small Cap Stock Market.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
In this section, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to “we,” “us,” “our,” and “ours” refer to eXegenics Inc.
The following discussion should be read in conjunction with, and is qualified in its entirety by, the Financial Statements and the Notes thereto included in this report. This report contains certain forward-looking statements as that term is defined in the Private Securities Litigation Reform of 1995. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. When used in this report the words “anticipate,” “believe,” “estimate,” “expect” and similar expressions as they relate to our management or us are intended to identify such forward-looking statements. Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Historical operating results are not necessarily indicative of the trends in operating results for any future period.
We have historically operated as a drug discovery company, exploiting new enabling technologies to advance and shorten the new drug development cycle. Drug discovery is the first phase of an eight to 12 year cycle, from inception to FDA approval, typically needed to bring a new drug to market. Employing new technologies is a high-risk venture. Our Company was unsuccessful at advancing research programs. All research programs have been terminated. We are currently engaged in identifying new potential business opportunities.
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to investments, intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize deferred tax assets in the future in excess of its net recorded amount, an adjustment to the net deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the net deferred tax asset would be charged to income in the period such determination was made.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
Revenue
There were no revenues for the three months ended September 30, 2004 and 2003.
Research and Development Expenses
There were no research and development expenses incurred for the three months ended September 30, 2004 and 2003, respectively.
General and Administrative Expenses
We incurred general and administrative expenses of $399,000 and $1,441,000 for the three months ended September 30, 2004 and 2003, respectively, a decrease of $1,042,000 or 72%. The decrease is mainly attributable to the completion of the Company’s wind-down of its drug discovery operations as well as cost containment as it relates to legal, merger and acquisition expenditures. Specifically, salaries and wages decreased $141,000, professional consulting fees decreased
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$192,000, legal expenses decreased $592,000, investor relations decreased $81,000 and amortization of the director and officer insurance premium increased $65,000 for the three months ended September 30, 2004 as compared to the same period in 2003.
Expenses Related to Strategic Redirection
Expenses related to strategic redirection, net of recoveries, were $114,000 for the quarter ended September 30, 2003. We incurred $133,000 in expenses from operations terminated during the three months ended September 30, 2003, which included $108,000 for terminated employees, a charge of $20,000 for writing down laboratory equipment to its estimated resale value, and $5,000 for other expenses related to terminated scientific programs. This amount was offset by the reimbursement of $19,000 of research and development costs from BMS. Approximately, $249,000 in accrued expenses remained to be paid at September 30, 2003. No additional expenses were recorded during the three months ended September 30, 2004.
All liabilities related to the Company’s strategic redirection were recorded by December 31, 2003. Cash payments of $23,000 were charged against previously accrued restructuring expenses during the quarter ended September 30, 2004. Approximately, $15,000 remains to be paid at September 30, 2004.
Interest Income
Interest income was $31,000 and $30,000 for the three months ended September 30, 2004 and 2003, respectively. The decrease was due primarily to lower principal balances in 2004.
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Net Loss
We incurred a net loss attributable to common shareholders of $368,000 and $1,525,000 for the three months ended September 30, 2004 and 2003, respectively. Net loss per common share was $.02 and $.10 for the three months ending September 30, 2004 and 2003, respectively.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
There were no revenues for the nine months ended September 30, 2004. Revenues of $13,000 for the nine months ended September 30, 2003 were attributable to license and research and development payments from our agreement with Aventis, which was subsequently terminated.
There were no research and development expenses incurred for the nine months ended September 30, 2004. Research and development expenses were $154,000 for the nine months ended September 30, 2003. The decrease in research and development expenses for the nine months ended September 30, 2004 as compared to the same period in 2003 was attributable to the termination of all remaining research programs in connection with the Company’s wind-down of its drug discovery operations.
We incurred general and administrative expenses of $1,728,000 and $3,759,000 for the nine months ended September 30, 2004 and 2003, respectively, a decrease of $2,031,000 or 54%. The decrease is mainly attributable to the completion of the Company’s wind-down of its drug discovery operations as well as cost containment as it relates to legal, merger and acquisition expenditures. Specifically, salaries and wages decreased $315,000, professional consulting fees decreased $377,000, legal expenses decreased $1,210,000, investor relations decreased $296,000 and amortization of the director and officer insurance premium increased $270,000 for the nine months ended September 30, 2004 as compared to the same period in 2003.
Expenses related to strategic redirection, net of recoveries, were $561,000 for the nine months ended September 30, 2003. We incurred $845,000 in expenses from operations terminated during the nine months ended September 30, 2003, which included $419,000 for terminated employees, a charge of $170,000 for writing down laboratory equipment to its estimated resale value, and $48,000 for other expenses related to terminated scientific programs. This amount was offset by the reimbursement of $284,000 of research and development costs from BMS. Approximately, $249,000 in accrued expenses remained to be paid at September 30, 2003. No additional expenses were recorded during the nine months ended September 30, 2004.
All liabilities related to the Company’s strategic redirection were recorded by December 31, 2003. Cash payments of $178,000 and $511,000 were charged against previously accrued restructuring expenses during the nine months ended September 30, 2004 and 2003, respectively. Approximately, $15,000 remains to be paid at September 30, 2004.
Interest income was $90,000 and $154,000 for the nine months ended September 30, 2004 and 2003, respectively. The decrease was due primarily to lower principal balances in 2004.
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We incurred a net loss attributable to common shareholders of $1,861,000 and $4,338,000 for the nine months ended September 30, 2004 and 2003, respectively. Net loss per common share was $.12 and $.28 for the nine months ending September 30, 2004 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had cash and cash equivalents of approximately $9,213,000, inclusive of restricted cash. Since our inception, we have financed our operations from debt and equity financings as well as fees received from licensing and research and development agreements. During the nine months ended September 30, 2004, net cash used in operating activities was $1,286,000. In addition, during the nine months ended September 30, 2004, we received cash from financing activities of $192,000 related to the exercise of stock options.
The wind-down of operations was completed in the first half of 2004. We forecast our cash usage to be approximately $100,000-125,000 per month, assuming that we make no new investments or engage in the operation of a new business. Our future capital needs are uncertain. The Company may or may not need additional financing in the future to fund operations, a determination to be made when the Company implements its new business strategy. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to financial market risk, including changes in interest rates, relates primarily to our marketable security investments. We generally place our marketable security investments in high credit quality instruments, primarily U.S. government obligations. We do not believe that a 100 basis point increase or decrease in interest rates would significantly impact our business. We do not have any derivative instruments. We operate only in the United States and all sales have been made in U.S. dollars. We do not have any material exposure to changes in foreign currency exchange rates.
Item 4. Controls and Procedures
An evaluation was carried out by the Company’s sole officer, who is President, Chief Executive and Chief Financial Officer, of the effectiveness of the Company’s “Disclosure Controls and Procedures”. He has concluded that, given our limited operation, our Disclosure Controls and Procedures were effective. As such term is used above, the Company’s Controls and Procedures are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls and Procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its sole officer as appropriate to allow timely decisions regarding required disclosure.
Further, there were no significant changes in the internal controls or in other factors that could significantly affect these controls during the fiscal quarter covered by this report.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any litigation in any court, and management is not aware of any contemplated proceeding by any governmental authority or individual against us except as described below.
Weiss Litigation. As reported in the Company’s previous quarterly report, The M&B Weiss Family Limited Partnership of 1996 filed a lawsuit in the Delaware Court of Chancery, purportedly as a class action on behalf of all other similarly situated stockholders of the Company, against the Company, as a nominal defendant, and former directors: Joseph M. Davie, Robert J. Easton, Ronald L. Goode and Walter Lovenberg, (collectively referred to as the “Individual Defendants”), and purportedly as a derivative action on behalf of the Company against the Individual Defendants (the “Weiss Litigation”). The suit does not seek damages from the Company but rather from the Individual Defendants. We cannot predict at this point the length of time that the Weiss Litigation will be ongoing or the liability, if any, which may arise there from. The Company will defend itself vigorously against this claim. The Individual Defendants have filed a Motion to Dismiss the action and the Plaintiff’s have filed papers in opposition to such motion. The Plaintiff’s discovery request has been stayed while the Court is considering the Individual Defendant’s Motion to Dismiss.
Labidi Proceeding. As reported in the Company’s previous quarterly report the Company is a defendant in a federal court lawsuit brought against the Company in the United States District Court for the Northern District of Texas by a former employee. At this point, no formal discovery has occurred in this lawsuit. We believe we have meritorious defenses with respect to these allegations, all of which we intend to pursue vigorously.
Item 2. Unregistered Sales of Equity Securities and use of Proceeds
None.
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
On June 29, 2004, a special meeting of shareholders was called to consider and act upon a proposal to authorize the Company’s board of directors in its discretion to amend the Company’s amended certificate of incorporation to effect a one-for-two reverse stock split of the Company’s common stock. The special meeting was adjourned until July 8, 2004 as a quorum was not obtained.
On July 8, 2004, the special meeting of shareholders to consider the proposal for a one-for-two reverse stock split was cancelled and the proposal considered defeated as a quorum was again not obtained.
Item 5. Other Information
On August 9, 2004, the Company was notified by NASDAQ that the delisting has been stayed pending an oral hearing to be held before a NASDAQ Listing Qualifications Panel on September 9, 2004. Effective on the open of trading on October 14, 2004, the Company’s securities were delisted from the Nasdaq Small Cap Stock Market.
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Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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EXHIBIT INDEX
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