Xpention Genetics - Recent Material Event
<![CDATA[Aggregate market value of the 33,825,458 shares of common voting stock held
by non-affiliates of the registrant as of August 31, 2007 was $845,636 based on
the bid price at September 7, 2007 of $.025 as reported by OTCBB.
Number of authorized outstanding shares of the registrant's $.001 par value
common stock, as of September 9, 2007: 59,975,833.
2
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
Item 8A. Controls and Procedures
Item 8B. Subsequent Events
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
PART IV
Item 13. Exhibits and Reports on Form 8-K
Item 14. Principal Accountant Fees and Services
SIGNATURES
CERTIFICATES
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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COMPANY HISTORY
The Company was incorporated in the State of Nevada, U.S.A., on September
5, 2002.
The Company has been in the exploration or development stage since its
formation and has not yet realized any revenues from its planned operations. It
is primarily engaged in the development of technology acquired under license for
detection of cancer tumors. The prior business plan of mineral exploration has
been abandoned.
The Company owns Xpention, Inc., a wholly owned subsidiary, which has
entered into the Patent and Technology License Agreement with The University of
Texas M.D. Anderson Cancer Center which granted Xpention the exclusive rights to
patented technology for the detection of cancer based on a tumor marker known as
p65 which has been demonstrated to show elevated levels in the blood of canine
and human cancer patients.
BACKGROUND
Cancers
Cancer is a group of diseases characterized by uncontrolled growth and
spread of abnormal cells. If the spread is not controlled, it can result in
death. Cancer is caused by both external factors (tobacco, chemicals, radiation,
and infectious organisms) and internal factors (inherited mutations, hormones,
immune conditions, and mutation that occur from metabolism). Causal factors may
act together or in sequence to initiate or promote cancer development.
About 1,300,000 new cases of cancer were diagnosed in 2003. This year about
550,000 Americans are expected to die of cancer, more than 1,500 people a day.
Cancer is now the number 1 leading cause of death in the U.S. exceeding even
heart disease in 2004. In the U.S., 1 out of every 4 deaths is attributable to
cancer.
The National Institutes of Health estimate overall costs for cancer in the
year 2002 at $171.6 billion. $60.9 billion for direct medical costs (total of
all health expenditures) and $15.5 billion for indirect morbidity costs (cost of
lost productivity due to premature death). An estimated 250,000 new cases of
breast cancer in women and 220,000 new cases of prostate cancer in men occurred
in 2003.
Companion Animal Cancers
There are 65 million pet dogs and nearly 78 million pet cats in the
United States, most of whom are considered part of the family. U.S. expenditure
on veterinary care for pets in 2004 has grown over previous years and is esti-
mated at $8.3 billion with an additional $7.9 billion in supplies and medicine
(APPMA 2003/2004 National Pet Owner's Survey). Companion animals are living
longer and healthier lives, but are also experiencing a higher frequency of
disease. Diagnosis of disease occurs more commonly in the late stages of life.
Cancer is the number one cause of natural death in senior dogs and cats and
accounts for nearly 50% of deaths each year. One of the most common forms of
canine cancer, lymphosarcoma, has an annual incidence of approximately 100,000
new cases. Dogs, in fact, experience approximately the same rate of cancer as
humans do, although the prevalence is slightly lower with cats. It is notable
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however, that of the other common geriatric veterinary diseases (e.g. congestive
heart failure, renal failure and diabetes mellitus), cancer is the most
treatable. Treatments include surgery, radiation and chemotherapy. Treatment
success is often a function of how progressed the cancer is at time of
diagnosis.
Given the frequency of these diseases and the lengths to which pet owners
will go to keep their animals healthy and happy into their senior years, the
availability of a simple screening tool and monitoring method that would detect
cancers would be extremely helpful for the future of veterinary medicine. This
test could be used as part of a senior wellness evaluation, or as part of
routine follow-up after detecting symptoms.
INITIAL STUDY OF P65
P65 is a promising marker for the early detection of malignant tumor
formation and a useful tool for monitoring therapy and remission. Levels of p65
also appear to have a direct correlation to tumor mass.
In an initial study performed, at The University of Texas, 67 dogs with
lymphosarcoma and 14 normal dogs were evaluated for p65 levels with the
following findings:
Sensitivity: 0.94
Specificity: 0.70
Predictive Value: 0.83
(elevated p65 & presence of cancer)
Diagnosis Methods
Current methods for diagnosis include costly imaging techniques and
invasive procedures. Evaluation of the success of therapy is accomplished by
using routine biochemistry and hematology testing, imaging and analysis of
symptoms. Early detection and treatment would provide the best odds of attaining
remission.
PLAN OF OPERATION
Through its subsidiary, the Company has the rights to a genetic marker in
the blood called, P65. P65 is a promising marker for the early detection of
malignant tumor formation and a useful tool for monitoring therapy and
remission. Levels of p65 also appear to have a direct correlation to tumor mass/
size. Initially, the Company intended to utilize its licensed technology to
develop an immunological test for the detection of cancer in canines. This
development stage of the test was anticipated to last approximately six to eight
months but has been substantially delayed. If development of the immunological
test is successful, the Company hopes to commercialize the test through
licensing the test to third parties for sale and distribution.
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P65 THERAPEUTIC VACCINE
If tests warrant, the company intends to pursue development of therapeutic
vaccines utilizing RNAi (interference RNA) technology. Any changes in the
genetic dynamic of P65 appear to steer cells toward abnormal growth resulting in
tumor development. The hallmark of P65 alter -ation is a pronounced increase in
the level of gene expression. Other oncogenes such as ERB2 are found to be
elevated primarily in breast cancer. It has been shown that once the level of
ERB2 goes back to normal, cancer growth slows down or disappears.
LICENSE TERMS
The license of Patent #5310653, #5411868, and 5,773,215 obtained by the
company from The University of Texas contains the following material terms:
The Board of Regents of The University of Texas System, an agency of the
State of Texas, through the University of Texas M.D. Anderson Cancer Center, a
component institution of The University of Texas System, hereby grants to
Xpention a royalty-bearing, exclusive license under inventions and discoveries
by patent rights or technology rights within the licensed field, to manufacture,
have manufactured, use, import, offer to sell and/or sell licensed products
within licensed territory for use within licensed field. It is subject to the
payment by Xpention to the University of Texas M.D. Anderson Cancer Center of
$50,000, the timely payment of all amounts due under any related sponsored
research agreement between University of Texas M.D. Anderson Cancer Center and
Xpention in effect during the agreement, and is further subject to the following
rights retained by Board of Regents and University of Texas M.D. Anderson Cancer
Center to:
(a) Publish the general scientific findings from research related to
the inventions and discoveries; and
(b) Use the inventions and discoveries for research, teaching,
patient care, and other educationally-related purposes.
EMPLOYEES
The Company is a development stage company and as of May 31, 2007 had one
salaried employee. Upon the completion of its reorganization the Company's
former officers resigned and President and Chief Executive Officer of Xpention
Inc., David Kittrell, became the President and CEO of Xpention Genetics in
February 2005. The Company expects to continue to use consultants, subcontract
labor, attorneys and accountants as necessary and may find a need to engage
additional full-time employees as necessary.
RISK FACTORS
Need For Additional Financing. The Company has very limited funds, and such
funds may not be adequate to develop the Company's current business plan. The
ultimate success of the Company may depend upon its ability to raise additional
capital. If additional capital is needed, there is no assurance that funds will
be available from any source or, if available, that they can be obtained on
terms acceptable to the Company. If not available, the Company's operations will
be limited to those that can be financed with its modest capital.
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Regulation of Penny Stocks. The Company's securities will be subject to a
Securities and Exchange Commission rule that imposes special sales practice
requirements upon broker-dealers who sell such securities to persons other than
established customers or accredited investors. For purposes of the rule, the
phrase "accredited investors" means, in general terms, institutions with assets
in excess of $5,000,000, or individuals having a net worth in excess of
$1,000,000 or having an annual income that exceeds $200,000 (or that, when
combined with a spouse's income, exceeds $300,000). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of broker-deal-
ers to sell the Company's securities and also may affect the ability of
purchasers in this offering to sell their securities in any market that might
develop therefore.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act
of 1934, as amended. Because the securities of the Company may constitute "penny
stocks" within the meaning of the rules, the rules would apply to the Company
and to its securities. The rules may further affect the ability of owners of
Shares to sell the securities of the Company in any market that might develop
for them.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. The
Company's management is aware of the abuses that have occurred historically in
the penny stock market. Although the Company does not expect to be in a position
to dictate the behavior of the market or of broker-dealers who participate in
the market, management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to the
Company's securities.
Lack of Operating History. The Company was formed in 2002 and has had a
limited operating history. The acquisition of a subsidiary holding a license has
provided the Company with a new opportunity for business development which
carries continued special risks inherent in a new business opportunity. The
Company must be regarded as a new or start-up venture with all of the unforeseen
costs, expenses, problems, and difficulties to which such ventures are subject.
No Assurance of Success or Profitability. There is no assurance that the
Company will successfully commercialize its proprietary patented technology.
Even if the Company should successfully commercialize its proprietary patented
technology, there is no assurance that it will generate revenues or profits, or
that the market price of the Company's common stock will be increased thereby.
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Lack of Diversification. Because of the limited financial resources that
the Company has, it is unlikely that the Company will be able to diversify its
operations. The Company's probable inability to diversify its activities into
more than one area will subject the Company to economic fluctuations within a
particular business or industry and therefore increase the risks associated with
the Company's operations.
Dependence upon Management. The Company currently has only two individ-
uals who are serving as its officers and directors. The Company will be heavily
dependent upon their skills, talents, and abilities to implement its business
plan.
Indemnification of Officers and Directors. The Nevada Business Corporation
Act provides for the indemnification of its directors, officers, employees, and
agents, under certain circumstances, against attorney's fees and other expenses
incurred by them in any litigation to which they become a party arising from
their association with or activities on behalf of the Company. The Company will
also bear the expenses of such litigation for any of its directors, officers,
employees, or agents, upon such person's promise to repay the Company therefore
if it is ultimately determined that any such person shall not have been entitled
to indemnification. This indemnification policy could result in substantial
expenditures by the Company which it will be unable to recoup.
Director's Liability Limited. The Nevada Business Corporation Act excludes
personal liability of its directors to the Company and its stockholders for
monetary damages for breach of fiduciary duty except in certain specified
circumstances. Accordingly, the Company will have a much more limited right of
action against its directors than otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
Dependence upon Outside Advisors. To supplement the business experience of
its officers and directors, the Company employ's accountants, technical experts,
appraisers, attorneys, or other consultants or advisors. The selection of any
such advisors will be made by the Company's President without any input from
stockholders. Furthermore, it is anticipated that such persons may be engaged on
an "as needed" basis without a continuing fiduciary or other obligation to the
Company. In the event the President of the Company considers it necessary to
hire outside advisors, he may elect to hire persons who are affiliates, if they
are able to provide the required services.
Competition. The Company expects to be at a disadvantage when competing
with many firms that have substantially greater financial and management
resources and capabilities than the Company.
No Foreseeable Dividends. The Company has not paid dividends on its common
stock and does not anticipate paying such dividends in the foreseeable future.
Limited Public Market. There is only a limited public market for the
Company's common stock, and no assurance can be given that a market will
continue or that a shareholder ever will be able to liquidate his investment
without considerable delay, if at all. If a market should continue, the price
may be highly volatile. Factors such as those discussed in this "Risk Factors"
section may have a significant impact upon the market price of the securities
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offered hereby. Due to the low price of the securities, many brokerage firms may
not be willing to effect transactions in the securities. Even if a purchaser
finds a broker willing to effect a transaction in these securities, the
combination of brokerage commissions, state transfer taxes, if any, and any
other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of such securities as collateral for any
loans.
ITEM 2. DESCRIPTION OF PROPERTY
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Since February 2005 the Company has used office space provided by the
Company's officer. The Company does not pay rent for the use of this space. The
Company owns no real property.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not currently a party to any pending legal proceedings, nor
is its property subject to such proceedings as of September 9, 2007.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None in fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's common stock trades on the OTC:BB under the symbol "XPNG.OB"
The range of high, low and close trade quotations for the Company's common stock
by fiscal quarter within the last two fiscal years, as reported by the National
Quotation Bureau Incorporated, was as follows:
HIGH LOW
Year Ended May 31, 2006
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First Quarter $0.28 $0.28
Second Quarter $0.22 $0.15
Third Quarter $0.23 $0.21
Fourth Quarter $0.14 $0.13
Year Ended May 31, 2007
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First Quarter $0.06 $0.05
Second Quarter $0.03 $0.02
Third Quarter $0.03 $0.03
Fourth Quarter $0.04 $0.04
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The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
NUMBER OF HOLDERS
As of May 31, 2007, there were 110 record holders of the Company's common
stock, not counting shares held in "street name" in brokerage accounts which is
unknown. As of May 31, 2007, there were 59,975,833 shares of common stock
outstanding on record with the Company's stock transfer agent, Holladay Stock
Transfer, Inc.
DIVIDENDS
The Company has not declared or paid any cash dividends on its common stock
and does not anticipate paying dividends for the foreseeable future.
SALES OF UNREGISTERED SECURITIES
None
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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CAUTIONARY AND FORWARD LOOKING STATEMENTS
In addition to statements of historical fact, this Form 10-KSB contains
forward-looking statements. The presentation of future aspects of Xpention
Genetics, Inc. ("Xpention," the "Company" or "Issuer") found in these statements
is subject to a number of risks and uncertainties that could cause actual
results to differ materially from those reflected in such statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," or "could" or the negative variations thereof
or comparable terminology are intended to identify forward-looking statements.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause Xpention's actual results to be materially
different from any future results expressed or implied by Xpention in those
statements. Important facts that could prevent Xpention from achieving any
stated goals include, but are not limited to, the following:
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Some of these risks might include, but are not limited to, the following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital to continue or expand its business,
inability to raise additional capital or financing to
implement its business plans;
(e) failure to commercialize its technology or to make sales;
(f) rapid and significant changes in markets;
(g) litigation with or legal claims and allegations by outside
parties;
(h) insufficient revenues to cover operating costs.
There is no assurance that the Company will be profitable, the Company may not
be able to successfully develop, manage or market its products and services, the
Company may not be able to attract or retain qualified executives and technology
personnel, the Company's products and services may become obsolete, government
regulation may hinder the Company's business, additional dilution in outstanding
stock ownership may be incurred due to the issuance of more shares, warrants and
stock options, or the exercise of warrants and stock options, and other risks
inherent in the Company's businesses.
The Company undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-QSB and any Current Reports on Form
8-K filed by the Company.
Management believes the summary data and audit presented herein is a fair
presentation of the Company's results of operations for the periods presented.
Due to inherent uncertainties in the Company's primary business focus of genetic
research these historical results may not necessarily be indicative of results
to be expected for any future period. As such, future results of the Company may
differ significantly from previous periods.
IMPACT OF REVERSE TAKEOVER ACCOUNTING ON THE FINANCIAL PRESENTATION
Xpention Genetics, Inc. represents the result of a merger between Bayview
Corporation ("Bayview"), a public company, and Xpention, Inc., a private
company. During March 2005, Bayview issued 14,300,000 shares of its common stock
to the sole shareholder of Xpention, Inc. in exchange for all of the issued and
outstanding common shares of Xpention, Inc. pursuant to an Agreement and Plan of
Reorganization (the "Merger"). In addition, concurrent with the exchange of
shares, Bayview changed its name to Xpention Genetics, Inc.
For accounting purposes, this acquisition of Xpention, Inc. by Bayview, a
non-operating entity, represents a reverse acquisition under which Xpention, Inc
is recognized as the accounting acquirer. In substance, the Merger was recorded
as a capital transaction by the issuance of 42,542,500 shares of common stock by
the Company for all of the issued and outstanding common shares of Bayview. No
goodwill or other intangible assets were recorded and the historical financial
statements as of and prior to the acquisition date represent the operations of
Xpention, Inc.
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Introduction
During the fiscal year ended May 31, 2007, the Company continued its research
activities for the development of an immunological canine cancer detection test
as well as a molecular assay for detection of cancer in both canines and humans,
all of which are being conducted by third parties on behalf of the company.
The Company is presently seeking additional debt and equity financing to provide
sufficient funds for payment of amounts due under research contracts as well as
accrued but unpaid professional fees and administrative expenses and to fund
ongoing research and operations.
Management does not believe that the Company's current capital resources will be
sufficient to fund its operating activity and other capital resource demands
during fiscal year 2008. The Company's ability to continue as a going concern is
contingent upon its ability to obtain capital through the sale of equity or
issuance of debt, joint venture or sale of its assets, and ultimately attaining
profitable operations.
Liquidity and Capital Resources
During 2007, we received cash proceeds from three different fundings. Proceeds
of $8,000 were received in October as a result of a new loan from The Regency
Group, LLC. The note payable bears interest at 5% and is due on October 9, 2007
(or earlier if other financing of $500,000 is received.). In January, 2007, we
borrowed $30,000 in the form of convertible debentures that bear interest at 8%
and are due on January 8, 2008. The debt is convertible into common stock at a
rate of $0.01 per share. In May, 2007, we completed a private placement of
2,250,000 shares for cash proceeds of $75,000.
We used the $113,000 proceeds from our financing activities to fund our research
and operating expenses.
We have never received revenue from our operations. We have historically relied
on equity and debt financings to continue funding our capital resource
requirements. We experienced net losses for the years ended May 31, 2007 and
2006 of $(205,721) and $(976,204), respectively. We do not believe that we are a
candidate for conventional debt financing and we have not made arrangements to
borrow funds under a working capital line of credit. We will be dependent on
additional financing to continue our research and development efforts.
As of May 31, 2007, our working capital deficit of $(471,175) was comprised of
current assets of $24,707 and current liabilities of $495,882. This represents a
decline in working capital of $107,321 compared to the deficit of $(363,854) at
fiscal year end May 31, 2006.
Net cash used in operating activities was $107,522 during 2007, compared to
$396,193 during 2006. As more fully explained in our results of operations, our
cash usage decreased in 2007 because the terms of the research and development
contracts with our research partners required us to make most of the research
payments during FY 2006. The work was performed during 2006 and 2007 and we are
currently evaluating the results of that work. In the event that we are
successful in transferring the technology from the academic phase to the
commercial phase, we expect to incur substantial future costs.
Results of Operations - Year Ended May 31, 2007 Compared to Year Ended May 31,
2006
During the year ended May 31, 2007, we reported a net loss of $(205,721), or
$(0.00) per share, compared to a net loss of $(976,204), or $(0.02) per share,
for 2006. In neither year did we report any revenue. We expect to incur losses
until such time, if ever, as we begin generating revenue from operations.
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We are considered a development stage company for accounting purposes, since we
have not received any revenue from operations. We are unable to predict with any
degree of accuracy when that classification will change.
Operating costs and expenses were $191,105 in 2007 compared to $971,204 in 2006,
a decrease of $780,099 or 80%. Research and development costs were $36,665 in
2007 and $822,871 in 2006, a decrease of $786,206, or 96%. Research and
development costs decreased because our research contracts required us to fund
most of the work during 2006. Included in expenses for 2006 is stock based
compensation of $369,000, representing the value of 450,000 shares of common
stock issued to a research consultant. The consulting arrangement was not
repeated in 2007. We had two research contracts with Genethera that required
total payments of $360,000. Most of the contract costs ($340,000) were recorded
during 2006. We paid $250,000 of the payments required under the contracts and
recorded accounts payable of $110,000 to Genethera as of May 31, 2007. We also
had research agreements with The University of Texas Health Science Center at
San Antonio and Colorado State University requiring total payments of $96,850,
most of which ($80,185) was expensed during 2006. The research institutions
continued their work in FY 2007 and continue to assist us in the technology
transfer phase. During FY 2008, we entered into a contract to validate the
research results and technology transfer of the current assay. The two phase
project requires a commitment of $4,500 for Phase I and $15,500 for Phase II.
General and administrative expenses increased slightly in 2007 compared to 2006.
Total general and administrative expense was $154,440 in 2007 and $148,333 in
2006, an increase of $6,107, or 4%. The main component of the increase was our
legal and accounting expense, which increased from $25,778 in 2006 to $32,549 in
2007. These costs primarily represent the work required to prepare and audit our
historical financial information which was restated to reflect the business
combination between Xpention, Inc. and Bayview Corporation as a reverse merger.
We had previously accounted for the transaction as a forward merger.
Our stock compensation expense decreased by $366,600, from $369,000 in 2006
(included in research and development expenses) to $2,400 in 2007 (included in
general and administrative expenses). During 2007, we issued 100,000 restricted
shares of common stock valued at $0.024 per share to a director as partial
compensation for his service to the Board of Directors. During 2006, we issued
450,000 shares of stock to a consultant for general scientific research
assistance. The shares were valued at $0.82.
Interest expense increased to $14,616 in 2007 compared to $5,000 in 2006, an
increase of $9,616, or 192%. Included in interest expense in 2007 is the
amortization of debt discount in the amount of $8,400 related to the beneficial
conversion feature of the convertible debentures issued during 2007. The total
discount of $21,000 allocated to the conversion privilege will be amortized over
the one year life of the debentures.
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During the fiscal year ended May 31, 2007, the Company continued its research
activities for the development of an immunological canine cancer detection test
as well as a molecular assay for detection of cancer in both canines and humans,
all of which are being conducted by third parties on behalf of the company.
The Company is presently seeking bridge financing to provide sufficient funds
for payment of amounts due under research contracts as well as accrued but
unpaid professional fees and administrative expenses until such time as
additional stock can be sold to provide permanent capital to fund ongoing
research and operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Please refer to pages F-1 through F-15.
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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None
ITEM 8A. CONTROLS AND PROCEEDURES
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The Company carried out an evaluation, under the supervision and with the
participation of the Company's President and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the
period included in this report. Based upon such evaluation, such officers have
concluded that the Company's disclosure controls and procedures are effective in
alerting them, on a timely basis, to material information relating to the
Company require to be included in this Form 10-KSB.
There have been no significant changes to the Company's internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially effect, the Company's internal controls over financial reporting
during the most recent quarterly period.
ITEM 8B. SUBSEQUENT EVENTS
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On June 9, 2007, the Company entered into an Assay Revalidation/Redevelopment
Proposal with Future Focus. Phase I of the project calls for third party
validation of the research results presented in the final report from UTHSCSA
and technology transfer of the current assay with Phase II covering assay
reformatting and sample analysis. The Company will pay $4,500 plus expenses for
Phase I of the project and maximum of $15,500 for Phase II.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
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WITH SECTION 16(a)
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The following table lists the executive offices and directors of the
Company as of May 31, 2007:
NAME Age POSITION HELD TENURE
David Kittrell 56 President, CEO, CFO, Director Since February 2005
The director named above will serve until the next annual meeting of the
Company's stockholders. Thereafter, directors will be elected for one-year terms
at the annual stockholders' meeting. Officers will hold their positions at the
pleasure of the board of directors, absent any employment agreement, except that
David Kittrell has a five year employment agreement (from November 1, 2004) at
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$8,000 per month. There is a bonus of $96,000 due if and when the Company earns
$1 million net profit. The contract provides for a severance payment of two
times annual salary for termination other than cause. There is no arrangement or
understanding between the directors and officers of the Company and any other
person pursuant to which any director or officer was or is to be selected as a
director or officer.
The directors of the Company will devote such time to the Company's affairs
on an "as needed" basis, but less than 20 hours per month. As a result, the
actual amount of time which they will devote to the Company's affairs is unknown
and is likely to vary substantially from month to month.
BIOGRAPHICAL INFORMATION
DAVID KITTRELL, President
Mr. Kittrell received his B.A. in Economics from Davidson College in North
Carolina in 1974. He received his Master of Arts in Economics from the
University of Miami in 1978. Mr. Kittrell held various positions with SunTrust
Bank in Florida, including, Management Associate, Credit Department; Vice
President, International Division; Vice President and Manager, Real Estate
Administration Department; Vice President, Commercial Real Estate Finance Depart
-ment; Senior Vice President, Special Assets Group; Senior Vice President and
Manager, Real Estate Finance; and Executive Vice President and Chief Credit
Officer, Credit Administration Division (1978-1997). From 1999 to 2001, he was a
Broker Associate with Coldwell Banker Residential Brokerage in Colorado. Since
2001, Mr. Kittrell has been a Managing Broker with Coldwell Banker Residential
Brokerage in Colorado.
DR. ZBIGNIEW WALASZEK, Chief Scientific Officer, Chairman of the Scientific
Advisory Committee
Dr. Walaszek received his Ph.D. in Bio-Organic Chemistry at Silesia
Technical University and received postgraduate training at Ohio State
University. Dr. Walaszek recently received an appointment to the faculty of The
University of Texas Health Science Center in San Antonio Texas as Associate
Professor in the Department of Pharmacology. Dr. Walaszek was a member of the
team of researchers which discovered the relationship between P65 and the
presence of cancerous tumors. The work performed by Dr. Walaszek and his
colleagues led to the issuance of three patents, owned by The University of
Texas MD Anderson Cancer Center.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and certain persons who own more than 10% of a registered class of
the Company's equity securities (collectively, "Reporting Persons"), to file
reports of ownership and changes in ownership ("Section 16 Reports") with the
Securities and Exchange Commission (the "SEC"). Reporting Persons are required
by the SEC to furnish the Company with copies of all Section 16 Reports they
file. The Company is reviewing Section 16a to determine if any reporting
compliance was missed.
Based solely on its review of the copies of such Section 16 Reports
received by it, or written representations received from certain Reporting
Persons, no persons were required to file forms pursuant to Section 16(a):
failed to file although there appears to have been no late filing.
15
ITEM 10. EXECUTIVE COMPENSATION
-------------------------------
DIRECTOR COMPENSATION
Directors received no cash compensation for their service to the Company as
directors, but can be reimbursed for expenses actually incurred in connection
with attending meetings of the Board of Directors.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF DIRECTORS
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Name Annual Meeting Fees Consulting Number of Number of
Retainer ($) Fees/Other Fees Shares (#) Securities
Fees ($) ($) Underlying
Options SARS (#)
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
Director, David Kittrell $0 $0 $0 0 0
------------------------------------ -------------- -------------- ----------------- ---------------- -------------------
</TABLE>
EXECUTIVE OFFICER COMPENSATION
David Kittrell, director, will serve until the next annual meeting of the
Company's stockholders. Thereafter, directors will be elected for one-year terms
at the annual stockholders' meeting. Officers will hold their positions at the
pleasure of the board of directors, absent any employment agreement, except that
David Kittrell has a five year employment agreement (from November 1, 2004) at
$8,000 per month. There is a bonus of $96,000 due if and when the Company earns
$1 million net profit. The contract provides for a severance payment of two
times annual salary for termination other than cause. There is no arrangement or
understanding between the directors and officers of the Company and any other
person pursuant to which any director or officer was or is to be selected as a
director or officer.
The following table and notes set forth the annual cash compensation paid
to officers of the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Name & Principal Position Fiscal Annual Annual Bonus Awards Other Restricted Securities
Year Salary ($) ($) Annual Stock Award(s) Underlying
Compensation ($) ($) Options/ SARS
(#)
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
David Kittrell, President 2006 $96,000 0 0 0 0
2007 $96,000 0 0 0 0
--------------------------- --------- ------------ --------------- -------------------- ---------------- ----------------
</TABLE>
Option/SAR Grants Table (None)
16
Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR value
(None)
Long Term Incentive Plans - Awards in Last Fiscal Year
(None)
WARRANTS
The following table sets forth information with respect to options to
purchase common stock of the Company granted during fiscal year ended May 31,
2007.
<TABLE>
<CAPTION>
Non-Qualified Options
--------------------- ---------------------- ----------------- -------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Name Date Issued Number Issued Exercise Expiration Date Consideration
Price
--------------------- ---------------------- ----------------- -------------- --------------------- ---------------------
None
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR value
<S> <C> <C> <C> <C>
Name Shares Acquired Value Realized Number of Securities Value of Unexercised
on Exercise (#) ($) Underlying Unexercised In the Money
Option/SARs at FY-End (#) Options/SARs at
Exercisable / Unexercisable FY-End ($)
Exercisable /
Unexercisable
--------------------------------------------------------------------------------------------------------
None
</TABLE>
No other compensation not described above was paid or distributed during
the last fiscal year to the executive officers of the Company. There are no
compensatory plans or arrangements, with respect to any executive office of the
Company, which result or will result from the resignation, retirement or any
other termination of such individual's employment with the Company or from a
change in control of the Company or a change in the individual's
responsibilities following a change in control.
17
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------
The following table sets forth, as of the date of this Report, the number
of shares of common stock owned of record and beneficially by executive
officers, directors and persons who hold 5.0% or more of the outstanding common
stock of the Company as of September 9, 2006. Also included are the shares held
by all executive officers and directors as a group.
SHAREHOLDERS/ NUMBER OF SHARES OWNERSHIP
BENEFICIAL OWNERS PERCENTAGE
---------------------------------------------------------------------------
David Kittrell 14,300,000 23.8
10965 Elizabeth Drive
Conifer, CO 80433
Zbigniew Walaszek 100,000 .2
1600 Pierce Street
Denver, CO 80214
James Coutris 11,750,375 19.6
1210 Bassett Road
Westlake, OH 44145
All directors and executive
officers as a group (2 persons) 14,400,000 24.0
Each principal shareholder has sole investment power and sole voting power
over the shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
-------------------------------------------------------------
None
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
The following documents are filed as part of this report:
1. Reports on Form 8-K:
8-K filed 8/15/07
2. Exhibits:
31 Sarbanes-Oxley Certification
32 Sarbanes-Oxley Certification
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-----------------------------------------------
The Company's Board acts as the audit committee and had no "pre-approval
policies and procedures" in effect for the auditors' engagement for the audit
year 2007 and 2006.
All audit work was performed by the auditors' full time employees.
Stark Winter Schenkein & Co., LLP ("Stark") is the Company's principal
auditing accountant firm. The Company's Board of Directors has considered
whether the provision of the audit services is compatible with maintaining
Stark's independence.
18
AUDIT FEES 2007:
Stark billed the Company for the following professional services:
approximately $9,600 for the audit and $7,350 for the review of the interim
financial statements included in quarterly reports on Form 10-QSB for the
periods ended February 28, 2007 and $2,250 for review of SEC comments.
ALL OTHER FEES
Stark billed the Company for no other services, including preparation of
the tax returns for the Company for 2006, during the fiscal year ended May 31,
2007.
INDEX
Form 10-KSB
Regulation Consecutive
S-K Number Exhibit Page Number
3.1 Articles of Incorporation Incorporated by reference
to Registration Statement
Form 10SB12G #333-107179
3.2 Bylaws Incorporated by Reference
to Registration Statement
Form 10SB12G #333-107179
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Xpention Genetics, Inc.
We have audited the accompanying balance sheet of Xpention Genetics, Inc. (a
development stage company) as of May 31, 2007, and the related statements of
operations, stockholders' (deficit), and cash flows for the years ended May 31,
2007 and 2006, and for the period from October 13, 2004, (inception) to May 31,
2007. 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Xpention Genetics, Inc. (a
development stage company) as of May 31, 2007, and the results of its
operations, and its cash flows for the years ended May 31, 2007 and 2006, and
for the period from October 13, 2004, (inception) to May 31, 2007, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has working capital and stockholders' deficits. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Stark Winter Schenkein & Co., LLP
Denver, Colorado
August 22, 2007
F-1
<TABLE>
<CAPTION>
XPENTION GENETICS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
As of May 31, 2007
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 24,707
---------------------
Total assets $ 24,707
=====================
LIABILITIES
Current liabilities
Accounts payable, trade $ 113,115
Accrued compensation 248,000
Accrued interest 9,367
Note payable, related party 108,000
Convertible debt, net of discount 17,400
---------------------
Total current liabilities 495,882
---------------------
STOCKHOLDERS' (DEFICIT)
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
none issued or outstanding -
Common stock, $0.001 par value, 100,000,000 shares authorized,
59,975,833 shares issued and outstanding 59,976
Additional paid-in capital 807,524
(Deficit) accumulated during the development stage (1,338,675)
---------------------
Total stockholders' (deficit) (471,175)
---------------------
Total liabilities and stockholders' (deficit) $ 24,707
=====================
The accompanying footnotes are an integral part of these consolidated financial statements.
F-2
</TABLE>
<TABLE>
<CAPTION>
XPENTION GENETICS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended May 31, 2007 AND 2006,
and for the period from Inception (October 13, 2004) to May 31, 2007
October 13, 2004
(Inception) to
2007 2006 May 31, 2007
--------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Revenues $ - $ - - $ - -
--------------------- ---------------------- ----------------------
Expenses
Research and development 36,665 822,871 909,536
General and administrative 154,440 148,333 406,372
--------------------- ---------------------- ----------------------
Total expenses 191,105 971,204 1,315,908
--------------------- ---------------------- ----------------------
Operating (loss) (191,105) (971,204) (1,315,908)
--------------------- ---------------------- ----------------------
Other (expense)
Interest expense (6,216) (5,000) (14,367)
Amortization of debt discount (8,400) - (8,400)
--------------------- ---------------------- ----------------------
Total other (expense) (14,616) (5,000) (22,767)
--------------------- ---------------------- ----------------------
Net (loss) $ (205,721) $ (976,204) $ (1,338,675)
===================== ====================== ======================
Basic and diluted:
(Loss) per share $ (0.00) $ (0.02) $ (0.03)
===================== ====================== ======================
Weighted average shares outstanding 57,852,408 57,577,614 50,592,816
===================== ====================== ======================
The accompanying footnotes are an integral part of these consolidated financial statements.
F-3
</TABLE>
<TABLE>
<CAPTION>
XPENTION GENETICS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) for
the period from Inception (October 13, 2004) to May 31, 2007
(Deficit)
Accumulated
Number of Par Value of Additional During the
Common Common Paid in Development
Shares Shares Capital Stage Total
----------------- ----------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
October 13, 2004 (Inception) - $ - $ - $ - $ -
Stock issued for cash at inception 14,300,000 14,300 (14,200) - 100
Recapitalization, Bayview merger 42,542,500 42,543 (42,543) - -
Net (loss) - - - (156,750) (156,750)
------------------------------------------------------------------------------------------
Balance, May 31, 2005 56,842,500 56,843 (56,743) (156,750) (156,650)
Common stock issued for cash 333,333 333 399,667 - 400,000
Common stock issued for services 450,000 450 368,550 - 369,000
Net (loss) - - - (976,204) (976,204)
------------------------------------------------------------------------------------------
Balance, May 31, 2006 57,625,833 57,626 711,474 (1,132,954) (363,854)
Common stock issued for services 100,000 100 2,300 - 2,400
Beneficial conversion on debt - - 21,000 - 21,000
Common stock issued for cash 2,250,000 2,250 72,750 - 75,000
Net (loss) - - - (205,721) (205,721)
------------------------------------------------------------------------------------------
Balance, May 31, 2007 59,975,833 $ 59,976 $ 807,524 $(1,338,675) $ (471,175)
==========================================================================================
The accompanying footnotes are an integral part of these consolidated financial statements.
F-4
</TABLE>
<TABLE>
<CAPTION>
XPENTION GENETICS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended May 31, 2007 and 2006,
and for the period from inception (October 13, 2004) to May 31, 2007
October 13, 2004
(Inception) to
2007 2006 May 31, 2007
----------------- ------------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (205,721) $ (976,204) $ (1,338,675)
----------------- ------------------ -------------------
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Stock based compensation 2,400 369,000 371,400
Amortization of debt discount 8,400 - 8,400
Changes in operating assets and liabilities:
Accounts payable and accrued expenses 87,399 211,011 370,482
----------------- ------------------ -------------------
Total adjustments 98,199 580,011 750,282
----------------- ------------------ -------------------
Cash flows (used in) operating activities (107,522) (396,193) (588,393)
----------------- ------------------ -------------------
Cash flows from investing activities:
Capital expenditures - - -
----------------- ------------------ -------------------
Cash flows (used in) investing activities - - -
----------------- ------------------ -------------------
Cash flows from financing activities:
Proceeds from note payable 8,000 - 108,000
Proceeds from convertible debt 30,000 - 30,000
Proceeds from issuance of common stock 75,000 400,000 475,100
-------------------------------------------------------------
Cash flows provided by financing activities 113,000 400,000 613,100
-------------------------------------------------------------
Net increase in cash and equivalents 5,478 3,807 24,707
Cash and cash equivalents, beginning of period 19,229 15,422 -
-------------------------------------------------------------
Cash and cash equivalents, end of period $ 24,707 $ 19,229 $ 24,707
=============================================================
Supplemental cash flow information:
Income taxes paid $ - $ - $ -
=============================================================
Interest paid (returned) $ (1,493) $ 6,493 $ 5,000
=============================================================
The accompanying footnotes are an integral part of these consolidated financial statements.
F-5
</TABLE>
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Xpention Genetics, Inc. (the Company) is a Nevada corporation that resulted from
the business combination between Xpention, Inc. and Bayview Corporation that
occurred in March, 2005. For accounting purposes, the date of inception for the
Company is October 13, 2004, the date that Xpention, Inc. was incorporated. The
Company has been in the development stage since its formation and has not yet
realized any revenues from its planned operations. It is engaged in the
biotechnology industry to develop both immunological and molecular tests for
cancer detection in animals and humans as well as therapeutic vaccines and other
treatment methods for both canine and human cancers. The Company has chosen May
31 as its fiscal year-end.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Xpention, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. On a periodic basis, management reviews those estimates, including
those related to allowances for doubtful accounts, loss contingencies for
litigation, income taxes, and projection of future cash flows used to assess the
recoverability of long-lived assets.
Accounting Reclassifications
Accounting reclassifications were made to the comparative financial information
presented for prior years so that it would conform to the financial presentation
used in fiscal year 2007. The reclassifications had no impact on "net loss" or
"accumulated deficit".
F-6
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
Cash and Cash Equivalents
For purposes of balance sheet classification and the statements of cash flows,
the Company considers cash in banks, deposits in transit, and all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Net (Loss) Per Common Share
The Company follows SFAS 128, "Earnings Per Share". Basic earnings (loss) per
common share calculations are determined by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings (loss) per common share calculations are determined by dividing
net income (loss) by the weighted average number of common shares and dilutive
common share equivalents outstanding. During the periods when they are
anti-dilutive, common stock equivalents, if any, are not considered in the
computation.
Research and Development
Research and development costs are charged to operations when incurred and are
included in operating expenses.
Beneficial Conversion Feature of Debt
In accordance with Emerging Issues Task Force ("EITF") No. 98-5 "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios" ("EITF 98-5"), and EITF No. 00-27 "Application of
Issue No. 98-5 to Certain Convertible Instruments" ("EITF 00-27"), the Company
recognizes the value of conversion rights attached to convertible debt
instruments. These rights give the holders the ability to convert the debt
instruments into shares of common stock at a price per share that was less than
the trading price to the public on the day the loan was made to the Company. The
beneficial value is calculated based on the market price of the stock at the
commitment date in excess of the conversion rate of the debt and is recorded as
a discount to the related debt and an addition to additional paid in capital.
The discount is amortized and recorded as interest expense over the life of the
related debt.
Revenue Recognition
Revenue from product sales will be recognized when delivery has occurred,
persuasive evidence of an agreement exists, the vendor fee is fixed or
determinable, and no further obligation exists and collectability is probable.
Generally, this will be when title passes on the date of shipment. Cost of
products sold consists of the cost of raw materials and labor related to the
F-7
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
corresponding sales transaction. When a right of return exists, the Company
defers revenues until the right of return expires. Revenue from services will be
recognized when then service is completed.
Fair Value Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of May 31, 2007. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts payable and accrued expenses, note payable and convertible debt. Fair
values are assumed to approximate carrying values for these financial
instruments because they are short term in nature, or are receivable or payable
on demand.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying amount of long lived assets to
determine whether current events or circumstances warrant adjustments to such
carrying amounts. If an impairment adjustment is deemed necessary, such loss is
measured by the amount that the carrying value of such assets exceeds their fair
value. Considerable management judgment is necessary to estimate the fair value
of assets; accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of their financial
statement carrying amount or fair value less costs to sell.
Segment Information
The Company follows Statement of Financial Accounting Standards (SFAS) 131,
"Disclosure about Segments of an Enterprise and Related Information". Certain
information is disclosed, per SFAS 131, based on the way management organizes
financial information for making operating decisions and assessing performance.
The Company currently operates in one business segment and will evaluate
additional segment disclosure requirements if it expands operations.
Stock-based Compensation
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable.
F-8
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
Effective March 1, 2006, the Company implemented the provisions of SFAS 123(R),
"Share Based Payment," requiring the Company to provide compensation costs for
the Company's stock option plans determined in accordance with the fair value
based method prescribed in SFAS 123, as revised. The Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes
option-pricing model and provides for expense recognition over the service
period, if any, of the stock option.
Prior to March 1, 2006, the Company applied the provisions of SFAS 123,
"Accounting for Stock-Based Compensation," which allowed companies to continue
to follow the intrinsic value method set forth in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") but disclose
the pro forma effects on net income (loss) had the fair value of the options
been expensed.
Recent Pronouncements
The FASB has issued FSP EITF 00-19-2. This FSP states that the contingent
obligation to make future payments or other transfers of consideration under a
registration payment arrangement, issued as a separate agreement or included as
a part of a financial instrument or other agreement, should be separately
recognized and measured in accordance with SFAS 5. Also, a financial instrument
subject to a registration payment arrangement should be accounted for in
accordance with other applicable GAAP without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. Management is currently determining the effect of this statement on
financial reporting.
In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. The provisions of SFAS 157 are effective for the
Company's fiscal year beginning June 1, 2008. Management is currently
determining the effect of this statement on financial reporting
In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes" (FIN 48). This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 requires that the Company recognize in its financial statements the impact of
a tax position if that position is more likely that not of being sustained upon
examination based on the technical merits of the position. This interpretation
also includes guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The provisions of FIN
48 are effective June 1, 2007 with the cumulative effect reported as an
F-9
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
adjustment to the opening balance of retained earnings for the fiscal year.
Management is currently determining the effect of this interpretation on
financial reporting.
NOTE 2. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern.
The Company is in its development stage and has not yet generated revenues from
operations. It has experienced losses from operations as a result of its
investment necessary to achieve its operating plan, which is long-range in
nature. For the year ended May 31, 2007, the Company incurred a net loss of
$205,721, and has incurred a cumulative net loss since inception of $1,338,675.
At May 31, 2007, the Company had a working capital (deficit) and stockholders'
(deficit) of $471,175. These conditions raise substantial doubt about the
ability of the Company to continue as a going concern.
Management does not believe that the Company's current capital resources will be
sufficient to fund its operating activity and other capital resource demands
during fiscal year 2008. The Company's ability to continue as a going concern is
contingent upon its ability to obtain capital through the sale of equity or
issuance of debt, joint venture or sale of its assets, and ultimately attaining
profitable operations.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
NOTE 3. BASIS OF PRESENTATION AND BUSINESS COMBINATION
Xpention Genetics, Inc. represents the result of a merger between Bayview
Corporation ("Bayview"), a public company, and Xpention, Inc., a private
company. During March 2005, Bayview issued 14,300,000 shares of its common stock
to the sole shareholder of Xpention, Inc. in exchange for all of the issued and
outstanding common shares of Xpention, Inc. pursuant to an Agreement and Plan of
Reorganization (the "Merger"). In addition, concurrent with the exchange of
shares, Bayview changed its name to Xpention Genetics, Inc.
F-10
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
For accounting purposes, this acquisition of Xpention, Inc. by Bayview, a
non-operating entity, represents a reverse acquisition under which Xpention, Inc
is recognized as the accounting acquirer. In substance, the Merger was recorded
as a capital transaction by the issuance of 42,542,500 shares of common stock by
the Company for all of the issued and outstanding common shares of Bayview. No
goodwill or other intangible assets were recorded and the historical financial
statements as of and prior to the acquisition date represent the operations of
Xpention, Inc.
Xpention, Inc. (a wholly-owned subsidiary of the Company) was incorporated in
the State of Colorado on October 13, 2004. Since its inception, Xpention, Inc.
has participated in the biotechnology industry to develop both immunological and
molecular tests for cancer detection in animals and humans as well as
therapeutic vaccines and other treatment methods for both canine and human
cancers.
Bayview was incorporated in the State of Nevada, on September 5, 2002. From
inception until February 28, 2005, Bayview was primarily engaged in the
acquisition and exploration of mining properties, but had ceased operations by
February 28, 2005. As of the date of the Merger, Bayview had no assets and no
operations and has been treated as the acquired company for accounting purposes.
NOTE 4. NOTE PAYABLE, RELATED PARTY
In November 2004, an unrelated third party lent the Company $100,000 to pay
operating expenses pursuant to a note. This note is due on the earlier of (i)
the Company successfully receiving financing in excess of $1,000,000; or (ii)
December 31, 2006. The due date was subsequently extended to October 1, 2007.
During 2006, the note was acquired by The Regency Group, LLC and additional
funds totaling $8,000 were advanced under the terms of a bridge loan which is
payable on October 9, 2007 or earlier date if financing of $500,000 is obtained.
Interest on both notes accrues at the rate of 5% per annum and aggregated $5,256
during the year ended May 31, 2007. Certain owners of The Regency Group LLC are
also stockholders of the Company.
NOTE 5. CONVERTIBLE DEBT
Effective January 5, 2007, the Company issued convertible debentures in the
aggregate principal amount of $30,000. The debentures bear interest at 8% per
annum and are due on January 5, 2008. The debenture holders may convert the
F-11
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
principal and accrued interest into the Company's common stock at a rate of
$0.01 per share. A convertible debenture in the amount of $15,000 is held by The
Regency Group LLC, an entity affiliated through common ownership interests.
In accordance with EITFs No. 98-5 and No. 00-27, the Company is required to
recognize the value of conversion rights attached to the convertible debentures.
These rights give the holders the ability to convert the convertible debentures
into shares of common stock at a price of $0.01 per share which was less than
the quoted market value of the common stock on January 5, 2007 of $0.017 per
share. For accounting purposes, the Company allocated $21,000 to the value of
the beneficial conversion feature based on its intrinsic value and recorded that
amount as a debt discount and an addition to paid in capital. The debt discount
will be amortized as interest expense over the one year life of the debentures.
For the year ended May 31, 2007, the Company recorded $8,400 of amortization
expense related to the debentures.
At May 31, 2007, the balance of the convertible debt is as follows:
Convertible debt $ 30,000
Less debt discount (21,000)
----------
Subtotal 9,000
Amortization 8,400
-----------
Total $ 17,400
==========
NOTE 6. STOCKHOLDERS' (DEFICIT)
Preferred Stock The Company has authorized 10,000,000 shares of preferred stock
with a par value of $0.001. These shares may be issued in series with such
rights and preferences as may be determined by the Board of Directors. Since
inception, the Company has not issued any preferred shares.
Common Stock The Company has authorized 100,000,000 shares of $0.001 par value
common stock. In May 2005 the Board of Directors approved a 13 for 1 forward
stock split. All share and per share amounts presented in these financial
statements have been adjusted to include the effect of this split.
F-12
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
At inception (October 13, 2004), Xpention, Inc. issued 13,000 shares to its
founder for cash of $100. In conjunction with the business combination between
Xpention, Inc. and Bayview Corporation in March, 2005, Bayview issued 14,300,000
shares of its common stock in exchange for the 13,000 previously outstanding
shares of Xpention. For accounting purposes, this business combination is
treated as a reverse acquisition of Bayview, and the consolidated company's
statement of stockholders' equity was restated to reflect the issuance of
14,300,000 shares at inception. Furthermore, the previously outstanding shares
of Bayview (42,542,500) are treated as issued on March 18, 2005 as part of the
recapitalization of the Company. Immediately after the business combination,
there were 56,842,500 shares of common stock outstanding.
On June 15, 2005, the Company entered into a Subscription Agreement with a
private investor for the sale of 333,333 shares of restricted common stock for
cash at a price of $400,000 or $1.20 per share.
On June 28, 2005, the Company entered into a Consulting Agreement with Dr.
Thomas Slaga for general scientific research assistance. The agreement continued
through May 31, 2006. The Company granted Dr. Slaga 450,000 shares of restricted
common stock as compensation for such services. The shares were valued at
$369,000, their fair market value on the date it was agreed they would be
issued.
On November 15, 2006, the Company authorized and issued an award of 100,000
shares of common stock to its chief scientific officer as stock compensation for
his service as an officer and director. The services were valued at $2,400, the
fair market value of the stock issued.
On May 3, 2007, the Company entered into a Subscription Agreement with a private
investor for the sale of 2,250,000 shares of restricted common stock for cash at
a price of $75,000 or $0.0333 per share
NOTE 7. INCOME TAXES
The Company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes", which requires use of the liability method. SFAS 109 provides that
deferred tax assets and liabilities are recorded based on the differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes, referred to as temporary differences. Deferred tax
F-13
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
assets and liabilities at the end of each period are determined using the
currently enacted tax rates applied to taxable income in the periods in which
the deferred tax assets and liabilities are expected to be settled or realized.
Reconciliation of the Federal statutory income tax rate of 34% to the effective
rate is as follows:
Federal statutory income tax rate 34 %
Valuation allowance (34)%
----
- %
====
The estimated tax effects of temporary differences and net operating losses that
give rise to significant portions of deferred tax assets and liabilities
consisted of the following:
Deferred tax assets:
Net operating loss carryforwards $ 234,000
Less valuation allowance (234,000)
--------
Net deferred tax asset $ -
========
At this time, the Company is unable to determine if it will be able to benefit
from its deferred tax asset. There are limitations on the utilization of net
operating loss carryforwards, including a requirement that losses be offset
against future taxable income, if any. In addition, there are limitations
imposed by certain transactions which are deemed to be ownership changes.
Accordingly, a valuation allowance has been established for the entire deferred
tax asset. The change in the valuation allowance was approximately $36,000
during 2007.
At May 31, 2007, the Company has tax loss carryforwards approximating $689,000
that expire at various dates through 2027.
NOTE 8. COMMITMENTS
Effective November 1, 2004, the Company entered into a five year employment
agreement with its President that provides for compensation of $8,000 per month
plus a bonus of $96,000 if and when the Company earns $1,000,000 net profit. The
F-14
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
Company has been unable to make cash payments to the officer and, accordingly,
has accrued a liability for the amounts due. As of May 31, 2007, the accrued and
unpaid compensation due to the officer was $248,000.
On February 17, 2005, the Company's wholly-owned subsidiary, Xpention, Inc.,
entered into a License and Technology Licensing Agreement with the University of
Texas M.D. Anderson Cancer Center (UTMDACC) to commercialize technology
developed for cancer detection in animals and humans. The Company paid $50,000
for the license which was expensed during the year ended May 31, 2005. The
Agreement calls for a 5.5% royalty to be paid to UTMDACC on the sale of products
utilizing the licensed technology. In addition, payments of $50,000 each are due
upon the first sales to both the veterinary market and human market. The
Agreement expires in February 2020.
On May 28, 2005, the Company entered into a Research Agreement with Genethera
Inc. for research activities for the development of the p65 molecular assay for
canines. The one-year agreement expired on May 28, 2006, and required payments
to Genethera Inc. of $20,000 per month. On July 28, 2005, the Company entered
into a similar Research Agreement with Genethera Inc. for research activities
for the development of the p65 molecular assay for humans. The one-year
agreement expired on July 28, 2006, and required payments to Genethera Inc. of
$10,000 per month. The aggregate commitment to Genethera was $360,000, of which
$250,000 has been paid. As of May 31, 2007, the remaining balance due to
Genethera Inc. was $110,000, all of which is reflected in the accompanying
balance sheet as accounts payable.
On July 21, 2005, the Company entered into a Research Agreement with Colorado
State University for research activities in connection with the development of
the p65 immunological test for canines in which CSU will provide canine blood
and tissue specimens for use in clinical trials. The agreement required payments
to CSU totaling $17,520, all of which have been paid.
On November 2, 2005, the Company amended its Research Agreement with Colorado
State University. The amendment calls for CSU to collect additional blood
samples for use by the Company in development of a canine cancer detection test
and extends the agreement to November 1, 2006. The agreement required additional
payments to Colorado State University totaling $15,330, all of which have been
paid. CSU did not provide all the samples originally specified in the agreement,
and has agreed to continue providing samples after the termination of the
contract term.
On December 1, 2005, the Company entered into a Research Agreement with The
University of Texas Health Science Center at San Antonio ("UTHSCSA") whereby
UTHSCSA agreed to perform research activities for development of an
F-15
XPENTION GENETICS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
May 31, 2007
immunological test for canines. This agreement replaces the Research Agreement
the Company entered into with AMC Cancer Research Center in May 2005 which has
been relinquished by AMC. The agreement with UTHSCSA will permit the Company to
continue its collaboration with Dr. Margaret Hanausek who accepted a faculty
position at UTHSCSA. The Company has paid $64,000 to UTHSCSA for work performed
pursuant to the Agreement. In May 2007, the Company received final research
results from The University of Texas Health Science Center at San Antonio under
its Research Agreement dated December 1, 2005.
On October 11, 2006, the Company entered into a Corporate Development Consulting
Services Agreement with Innovision Ltd. Innovision shall assist the Company
primarily in raising capital as well as other corporate services including
targeting possible acquisitions, identifying potential marketing alliances and
strategic planning and operational support as requested by the Company.
Compensation to Innovision is performance based and consists of commissions paid
on capital funding either in cash or in the form of the Company's stock. As of
August 22, 2007, the Company has not entered into any agreements for debt or
equity financing with sources introduced by Innovision and is not obligated to
make any payments under the Agreement.
NOTE 9. SUBSEQUENT EVENTS
In May 2007, the Company received final research results from The University of
Texas Health Science Center at San Antonio under its Research Agreement dated
December 1, 2005.
On June 9, 2007, the Company entered into an Assay Revalidation/Redevelopment
Proposal with Future Focus. Phase I of the project calls for third party
validation of the research results presented in the final report from UTHSCSA
and technology transfer of the current assay with Phase II covering assay
reformatting and sample analysis. The Company will pay $4,500 plus expenses for
Phase I of the project and maximum of $15,500 for Phase II.
F-16
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: August 27, 2007
XPENTION GENETICS, INC.
By: /s/ David Kittrell
---------------------------------
David Kittrell
President
DIRECTORS:
By: /s/ David Kittrell
--------------------------------
By: /s/ Zbigniew Walaszek
--------------------------------
20
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