UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ___________ to____________
COMMISSION FILE NUMBER 0-26915
LEXON, INC.
(Name of Small Business Issuer in its charter)
OKLAHOMA 73-1533326
- --------------------------------------- ----------------------------------------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
8908 SOUTH YALE AVENUE, SUITE 409
TULSA, OKLAHOMA 74137-3545
(Address of principal executive offices and Zip Code)
(918) 492-4125
(Registrant's telephone number, including area code)
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 __
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: There were 12,838,735 shares of
Common Stock, $0.001 par value, outstanding as of March 31, 2001.
1
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Balance Sheet at March 31, 2001 (Unaudited) .................................................... 3
Statements of Operations for the period from inception (December 16, 1997) to March 31, 2001
and for the three months ended March 31, 2001 and 2000 (unaudited).............................. 4
Statements of Cash Flows for the period from inception (December 16, 1997) to March 31, 2001
(Unaudited) and for the three months ended March 31, 2001 and 2000 (Unaudited).................. 5
Notes to Financial Statements (Unaudited)....................................................... 6
2
Lexon, Inc.
(A Development Stage Company)
Balance Sheets
March 31, 2001
(Unaudited)
ASSETS March 31, 2001
--------------
Current assets
Cash $1,096
Due from related parties 7,213
Prepaid expenses 1,563
--------------
Total current assets 9,872
--------------
Other assets
Licensed technology, net 203,778
Sponsored research, net 93,547
--------------
Total other assets 297,325
--------------
TOTAL ASSETS $307,197
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $98,961
Interest payable 15,294
Payable to DOCRO 350,000
Payable to North Shore University 27,054
Payable to University of Maryland 124,537
Related party payables 177,141
--------------
Total current liabilities 792,987
--------------
Shareholders' deficit
Preferred stock, $0.001 par value,
5,000,000 shares authorized; no shares
issued and outstanding at March 31, 2001 -
Common stock, $0.001 par value,
45,000,000 shares authorized;
12,838,735 shares issued and
outstanding at March 31, 2001 12,839
Common stock subscribed (750,000)
Paid in capital 8,475,164
Deficit accumulated during the development stage (8,223,793)
--------------
(485,790)
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $307,197
==============
The accompanying notes are an integral part of the financial statements
3
Lexon, Inc.
(A Development Stage Company)
Statements of Operations
From Inception (December 16, 1997) Through March 31, 2001 and For the
Three Months Ended March 31, 2001 and 2000
(Unaudited)
From inception
(December 16, Three Months Three Months
1997) through Ended Ended
March 31, 2001 March 31, 2001 March 31, 2000
-------------- -------------- --------------
Revenue $ - $ - $ -
Expenses
Research and development 1,443,172 55,124 76,504
General and administrative 6,371,298 173,120 361,866
-------------- -------------- --------------
Total operating expenses 7,814,470 228,244 438,370
-------------- -------------- --------------
Operating loss (7,814,470) (228,244) (438,370)
Interest expense 409,323 3,541 2,854
-------------- -------------- --------------
Net loss $ (8,223,793) $ (231,785) $ (441,224)
-------------- -------------- --------------
Weighted average shares outstanding 6,610,365 10,697,668 6,853,098
-------------- -------------- --------------
Loss per share $ (1.24) $ (0.02) $ (0.06)
-------------- -------------- --------------
The accompanying notes are an integral part of the financial statements
4
Lexon, Inc.
(A Development Stage Company)
Statements of Cash Flows
From Inception (December 16, 1997) through March 31, 2001 and For the
Three Months Ended March 31, 2001 and 2000
(Unaudited)
From inception
(December 16, Three Months Three Months
1997) through Ended Ended
March 31, 2001 March 31, 2001 March 31, 2000
-------------- -------------- --------------
Operating activities
Net loss $ (8,223,793) $ (231,785) $ (441,224)
Plus non-cash charges to earnings:
Amortization of license and sponsored research agreements 499,464 34,801 73,708
Value of common stock options granted to non-employees for services 1,299,218 - -
Amortization of Stock Options Issued to Non-employee Lenders 356,346 - -
Value of services contributed by employees 1,011,479 100,000 65,000
Value of stock issued for services 3,375,336 - 279,063
Change in working capital accounts:
Increase in prepaid expenses (1,563) (1,563) (12,968)
(Increase) decrease in other receivables (7,213) (681) 1,239
Increase in accounts payable and accrued liabilities 98,961 7,532 12,568
Increase (decrease) in interest payable 23,374 3,540 (4,967)
Increase in payable to DOCRO 350,000 - (27,054)
Increase (decrease) in payable to North Shore 27,054 - -
-------------- -------------- --------------
Total operating activities (1,191,337) (88,156) (54,635)
-------------- -------------- --------------
Financing activities
Loans from related parties 533,309 - 50,000
Repayment of loans from related parties (356,168) (11,568) (100,000)
Sale of common stock for cash:
To founders 5,000 - -
To third-party investors 1,471,727 100,000 -
Payment of issue costs (140,498) - -
To employees upon exercise of employee stock options 320,313 - 234,250
-------------- -------------- --------------
Total financing activities 1,833,683 88,432 184,250
-------------- -------------- --------------
Investing activities
Purchase of Cancer Diagnostics Inc. (170,000) - (50,000)
Purchase of exclusive licenses (160,000) - -
Payment of sponsored research contract (311,250) - -
-------------- -------------- --------------
Total investing activities (641,250) - (50,000)
-------------- -------------- --------------
Change in cash 1,096 276 79,615
Cash at beginning of period - 820 10,041
-------------- -------------- --------------
Cash at end of period $ 1,096 $ 1,096 $ 89,656
-------------- -------------- --------------
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ 29,470 $ 8,081 $ 1,544
-------------- -------------- --------------
Non-cash financing and investing activities:
Common stock issued in Gentest Merger $ 1,000 $ - $ -
Common stock issued to employees upon exercise
of their options 750,000
Common stock subscribed through promissory notes (750,000)
-------------- -------------- --------------
The accompanying notes are an integral part of the financial statements
5
Lexon, Inc.
(A Development Stage Company)
Notes to Financial Statements
From Inception (December 16, 1997) through March 31, 2001 and For the
Three Months Ended March 31, 2001 and 2000
Note 1-- Organization and Summary of Significant Accounting Policies
Organization and Nature of Operations
Lexon, Inc. ("Lexon" or "the Company") is a development stage corporation that
acquires, develops, and markets emerging medical technologies. Lexon owns the
exclusive worldwide license to develop, manufacture, obtain FDA approval for,
and market a cancer screening test kit for detecting the Ebaf protein, which
allows for early, non-invasive screening for colon cancer and certain types of
ovarian and testicular cancers. The Company also owns, through Cancer
Diagnostics, Inc. ("CDI"), the exclusive worldwide license to the Telomerase
Assay, a blood screening test for lung cancer.
Development Stage Operations
The Company was incorporated on December 16, 1997, under the laws of the state
of Oklahoma. Since inception, the Company's primary focus has been raising
capital and developing the Ebaf blood screening process.
Income Taxes
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". Under the liability method, deferred taxes are
determined based on the differences between the financial statements and tax
bases of assets and liabilities at enacted tax rates in effect in the years in
which the differences are expected to reverse.
Compensation of Officers and Employees
The Company's sole officer and director and its other employees serve without
pay or other non-equity compensation. The fair value of these services is
estimated by management and is recognized as a capital contribution. For the
three months ended March 31, 2001 and 2000, and for the period from inception
(December 16, 1997) to March 31, 2001, the Company recorded $100,000, $65,000,
and $1,011,479, respectively, as a capital contribution by its sole officer and
director and its other employees.
Fair Market Value of Stock Issued for Services
The fair market value of stock issued as payment for services is equal to the
closing price of the Company's Common Stock on the date shares are granted or on
the date agreements for services are signed. On November 4, 1998, the Company's
Common Stock began trading on the OTC Bulletin Board under the symbol "LXXN".
Prior to trading, the Board of Directors determined the fair market value of
stock issued as payment for services.
Stock-based Compensation
The Company accounts for stock-based compensation arrangements in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and complies with the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under APB No. 25,
compensation expense is based on the difference, if any, on the date of grant,
between the fair value of the Company's stock and the exercise price. The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and the Emerging Issues Task Force Consensus in Issue
No. 96-18.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported revenues and expenses during the reporting
period. Actual results could differ from those estimates.
6
Research and Development ("R&D") Costs
The Company is amortizing the $311,250 paid pursuant to the Sponsored Research
Agreement for the Ebaf assay over two years, which is the life of the service
agreement. The $249,458 to be paid pursuant to the Sponsored Research Agreement
for the Telomerase assay acquired through the purchase of CDI is being amortized
over two years, which is the life of the service agreement (See Note 5). Any
other costs relating to the development of the Ebaf and Telomerase Assays are
expensed as incurred. Compensation cost associated with stock options granted to
Dr. Tabibzadeh, the inventor of the Ebaf Assay, is recorded by the Company as
R&D expense.
New Accounting Standards
The Company will adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" during the first quarter of 2001. Currently, the Company
does not engage in hedging activities or transactions involving derivatives.
Note 2-- Gentest Merger
On May 11, 1998, the Company entered into an Agreement and Plan of Merger with
Gentest, Inc., a Florida corporation, whereby the Company agreed to issue
1,000,000 shares of its Common Stock for all the issued and outstanding Common
Stock of Gentest, Inc. Gentest was formed in March 1998 for the purpose of
securing the License Agreement and Sponsored Research Agreement related to the
Ebaf Assay. Under the terms of the Agreement and Plan of Merger, the Company
issued to UTEK Corporation ("UTEK"), the sole shareholder of Gentest, 1,000,000
shares of Common Stock of Lexon. Gentest ceased to exist by reason of the
merger, and the assets and liabilities of Gentest, including those rights and
obligations associated with the exclusive License Agreement and the Sponsored
Research Agreement, became assets and liabilities of Lexon. The obligations of
Gentest were to pay $105,000 for the exclusive license, $311,250 to develop the
test kit and $55,000 for services rendered in connection with securing the
agreements. Lexon paid the obligations in full on July 8, 1998. The Gentest
merger was accounted for as a purchase. The purchase price of $1,000 was based
on the number of shares issued at par value of $0.001 per share.
Par value per share was used to value the purchase because all previous share
issuances, consisting solely of issuances to founders, were based on par value,
and there was no public market for the Company's stock. Gentest had only
recently been formed for the purpose of entering into the License and Sponsored
Research Agreements. The value assigned to the License and Sponsored Research
Agreements and the related obligations, were therefore based on Gentest's cost.
Since Gentest had no prior operations, no pro forma financial information is
presented.
The Gentest assets acquired and liabilities assumed are summarized as follows:
License Agreements $161,000
Sponsored Research Agreement 311,250
----------------
Total Cost of Assets Acquired 472,250
Obligations Assumed (471,250)
----------------
Purchase Cost $ 1,000
================
7
Note 3-- Exclusive License--Ebaf Assay
On July 8, 1998, the Company paid $100,000 to the University of South Florida
Research Foundation ("USFRF") and $5,000 to North Shore University Hospital
Research Foundation ("North Shore") for the exclusive worldwide license to
develop and market the cancer screening test kits. In addition, the Company paid
$55,000 to UTEK for services rendered in connection with securing the license
agreements. The exclusive license is being amortized over 17 years using the
straight-line method. At March 31, 2001, the amount of accumulated amortization
related to the Exclusive License was $26,044.
Note 4-- Sponsored Research Contract--Ebaf Assay
On July 8, 1998, the Company paid $311,250 to North Shore under the terms of a
Sponsored Research Agreement to develop the cancer screening test kits. The
contract specifies a 24-month development period with costs not to exceed
$311,250. The Sponsored Research Agreement is amortized over 2 years using the
straight-line method, with amortization costs recorded as research and
development expenses. At March 31, 2001, the asset was fully amortized.
Note 5-- Purchase of Cancer Diagnostics, Inc.
On January 29, 2000, Lexon purchased 100% of the Common Stock of CDI, a Florida
corporation, according to the terms of a Stock Purchase Agreement. By reason of
the stock purchase, CDI became a wholly-owned subsidiary of Lexon. CDI owns the
exclusive worldwide license to the Telomerase Assay, a patent-pending blood test
for lung cancer being developed at the University of Maryland, Baltimore
("UMB"). CDI is party to a two-year sponsored research agreement to fund the
development and commercialization of the Telomerase Assay for the ELISA format
at the University of Maryland, Baltimore.
Lexon purchased all of the outstanding Common Stock of CDI from CDI's sole
shareholder UTEK Corporation ("UTEK") for a total of $200,000. Lexon paid
$50,000 in cash and gave UTEK a secured promissory note for $150,000. The
secured promissory note bears interest at 10% per year and is payable in three
monthly installments of $50,000 each, due on April 30, May 31 and June 30, 2000.
The Company has paid $70,000 to UTEK to date. The interest rate increased to 12%
per year on any unpaid principal balance beginning June 30, 2000. To secure the
promissory note, Lexon pledged all of the shares of Common Stock of CDI pursuant
to a Pledge and Security Agreement. The shares were placed in escrow and will be
released upon payment in full of Lexon's obligation to UTEK. On March 27, 2001,
the Company issued to UTEK 236,000 shares of Lexon, Inc. Common Stock as payment
in full for the remaining principal of $30,000 and associated accrued interest
of $8,080 on the secured promissory note.
UTEK, a Florida corporation, is a technology merchant that specializes in the
transfer of technology from universities and government research facilities to
the private sector. UTEK has relationships with major universities and
government research facilities in the U.S. and in Europe. UTEK owns
approximately 1,236,000 shares (or about 9.6% of the outstanding shares) of
Lexon Common Stock.
Note 6-- Exclusive License--Telomerase Assay
Lexon owns the exclusive worldwide license to the Telomerase Assay through its
wholly-owned subsidiary CDI. In exchange for the license, CDI agreed to pay UMB
a royalty of 4% of Net Sales of products sold using the Telomerase Assay
technology. The exclusive license is being amortized over 15 years using the
straight-line method. At March 31, 2001, the amount of accumulated amortization
related to the exclusive license was $6,257.
8
Note 7-- Sponsored Research Contract--Telomerase Assay
On August 27, 1999, CDI agreed to pay UMB $249,458 to fund the development of
the Telomerase Assay for the ELISA format over a two year period beginning
January 4, 2000, and ending January 3, 2002. CDI paid $124,921 upon signing the
sponsored research agreement. The balance of $124,537 is due on or before
January 1, 2001. The Sponsored Research Agreement is being amortized over 2
years using the straight-line method, with amortization costs recorded as
research and development expenses. At March 31, 2001, the amount of accumulated
amortization related to the Sponsored Research Agreement was $155,911.
Note 8-- Notes Payable
During 1998, the Company borrowed $50,000 from an officer and $180,000 from a
shareholder. The Company executed notes payable which were due December 31,
1998, at an interest rate of 12% per year, which increased to 14% per year after
the due date. The notes payable and accrued interest were paid in full during
1999. On October 15, 1998, in connection with these notes, the Board granted
50,000 options to the officer and 180,000 options to the shareholder, each at an
exercise price of $1.20 per share. Because no trading market for the Common
Stock was yet established, the option exercise price of $1.20 per share was
determined by the Board based on the most recent offering price of $2.00 per
share less a 40% discount. The discount was determined to be appropriate as
stock issued when these options are exercised may be restricted.
The Company recorded no compensation cost for the options granted to the
officer. For the year ended December 31, 1998, the Company recorded $356,346 as
interest expense for the options granted to the shareholder based on an
estimated fair value of $1.98 per share. The fair value of $1.98 per share was
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions: exercise price of $1.20 per share, stock price of
$2.00 per share, risk-free interest rate of 6.0%, expected dividend yield of
0.0; expected life of ten years; and estimated volatility of 151%.
During 1998, the Company borrowed $1,377 from a related party. As of March 31,
2001, the balance on this loan was $1,377.
During 1999, the Company borrowed $118,250 from non-affiliated shareholders. The
Company executed notes payable, which were due December 31, 2000, at an interest
rate of 10% per year. Subsequent to December 31, 2000, these notes accrue
interest at a default rate of 16%. As of March 31, 2001, the balance on these
loans was $18,250.
During 2000, the Company borrowed $76,500 from its shareholders. The Company
executed notes payable, which were due December 31, 2000, at an interest rate of
10% per year. Subsequent to December 31, 2000, these notes began to accrue
interest at a default rate of 16%. As of March 31, 2001, the remaining balance
on these notes was $76,500
Note 9-- Commitments and Contingencies
Future Royalty Obligations Under Exclusive License Agreement--Ebaf Assay
In connection with the exclusive license agreement, the Company agreed to pay to
USFRF a royalty equal to the greater of (a) five percent (5%) of revenue from
the sale of products based on the concept for the diagnosis of selected
adenocarcinomas and any additions, extensions and improvements thereto or as a
minimum (b) zero (0) dollars for the first twenty four (24) months; $75,000 at
the end of year three (3); $100,000 at the end of year four (4); $125,000 at the
end of year five (5); $150,000 at the end of year six (6) and for each
successive year thereafter during the term of the exclusive license agreement.
The royalty obligation will expire after the longer of twenty (20) years or the
expiration of the last to expire patent that covers the licensed intellectual
property. The Company also agreed to pay to North Shore a royalty equal to
one-half percent (0.5%) of revenue from the sale of such products and ten
percent (10%) of any consideration received by the Company from granting
sublicenses. No minimum royalty payments are required under the License
Agreement with North Shore.
9
Future Royalty Obligations Under Exclusive License Agreement--Telomerase Assay
In exchange for the exclusive license agreement, CDI agreed to pay UMB a royalty
of 4% of Net Sales of products sold using the Telomerase Assay technology. The
license agreement provides for minimum annual royalties for the life of the
license agreement, which coincides with the life of the last to expire patent
covering the licensed technology. The minimum annual royalties range from $2,500
per year beginning in 2002 to a maximum of $4,000 per year beginning in 2006 and
continuing each year thereafter for the life of the license agreement. In
addition, the license agreement provides for royalties of 2% of Net Sales of
products sold by sublicensees of CDI and 50% of all consideration received by
CDI for up-front, milestone or other payments from sublicensees.
Future Obligations to North Shore University
On March 8, 1999, the Company agreed to fund an additional $81,162 to North
Shore in six equal installments of $13,257 each, payable on or before October 1,
1999, December 1, 1999, February 1, 2000, April 1, 2000, June 1, 2000 and August
1, 2000. At March 31, 2001, the balance on the Company's obligation is $27,054.
Statutory Rights of the National Institutes of Health ("NIH")
The Patent & Trademark Act (Public Law 96-517), also known as the Bayh-Dole Act
created a uniform patent policy among Federal agencies that fund research.
Bayh-Dole enables small businesses and non-profit organizations, including
universities, to retain title to materials and products they invent with Federal
funding. In return, the U.S. government retains a nonexclusive right to make or
use the invention for government purposes. Dr. Tabibzadeh's research was funded
in part with grants from the National Institutes of Health. If the U.S.
government decided to make or use Dr. Tabibzadeh's invention for government
purposes, then it would not be obligated to pay license fees or royalties. In
addition, the U.S. government is protected from lawsuits and infringement
claims.
Foreign Patent Protection
The U.S. patent covering the Ebaf Assay does not extend to foreign countries and
the Company does not presently have any foreign patent protection for its
product.
Leases
The Company's executive office is leased from a third party under the terms of a
lease agreement that expires March 31, 2002. The office is shared with other
companies controlled by the officers and directors of the Company. During the
three months ended March 31, 2001 and 2000, the Company recorded $2,250 and
$2,400, respectively, for rent expense. The minimum annual lease payments
pursuant to the lease agreement and the Company's estimated share are scheduled
as follows:
For the Periods Ended Minimum Annual Lease Company's Estimated
December 31 Payments Share
- ------------------------ ------------------------ ---------------------
2001 $45,587 $9,090
2002 11,462 2,280
Swartz Investment Agreement
The Company entered into an investment agreement on May 19, 2000, with Swartz
Private Equity, LLC to raise up to $30 million through a series of sales of
Lexon's Common Stock ("the Investment Banking Agreement"). The dollar amount of
each sale is limited by the Company's Common Stock's trading volume, and a
minimum period of time must elapse between each sale. Each sale will be to
Swartz. In turn, Swartz will either sell Lexon's stock in the open market, place
Lexon's stock through negotiated transactions with other investors, or hold
Lexon's stock in their own portfolio.
If Lexon has not put at least $1,000,000 of Common Stock to Swartz during any
six calendar month period following the effective date of the Agreement, then
Lexon shall pay a non-usage fee of $100,000 less 10% of the aggregate put dollar
amount put to Swartz during the period.
Lexon may terminate its right to initiate puts or terminate the Investment
Banking Agreement at any time by providing Swartz with notice of such intention
to terminate; however, any such termination will not affect any other rights or
obligations Lexon has concerning the Investment Banking Agreement or any related
agreement.
10
Should Lexon terminate the Investment Banking Agreement prior to initiating puts
in the amount of $2,000,000 during the 36 month period of the Investment Banking
Agreement, the Company may be required to pay a Non-Usage fee of a maximum of
$200,000.
DOCRO Services Agreement
On June 21, 2000 and August 2, 2000, the Company entered into two consulting
agreements with Diagnostic Oncology CRO, Inc. ("DOCRO"), a company engaged in
providing technology assessment, technology development, and laboratory and
clinical trial services to medical device developers, to conduct a technology
assessment and development program for Lexon's Ebaf and Telomerase tumor marker
technologies. For these services, Lexon agreed to pay DOCRO $1,495,000 and
$1,858,900, respectively, which will be paid upon achievement by DOCRO of
specific milestones in the operation. As of March 31, 2001, the Company had
recorded a payable to DOCRO under the agreements of $350,000.
Employment Agreements
On January 3, 2001, the Company entered into written employment agreements with
Lexon's sole officer and director, and certain employees. The terms of their
respective employment agreements are the same, except that the agreement for
Lexon's sole officer and director states he will not compete with Lexon, Inc.
for one-year after he resigns voluntarily or is terminated for cause. If he is
terminated without cause or if he resigns because a change of control has
occurred, then the non-compete clause of his employment agreement will not be
applicable.
The term of each employment agreement is for one year, ending January 3, 2002
with an automatic and continuous renewal for consecutive two year periods. Each
agreement can be ended either by the Company or by the employee upon 30 days'
written notice. Each agreement provides for an annual salary of at least
$100,000 with an annual salary increase equal to no less than the percentage
increase in the Consumer Price Index during the previous calendar year. Each
employee's salary will be accrued by the Company and paid in whole or in part as
cash is available. If an employee resigns or is terminated for any reason, his
or her accrued and unpaid salary plus severance pay ranging from three (3)
months to twenty-four (24) months, depending on the circumstances of his or her
departure, will be due and payable within 30 days of his or her resignation or
termination. Under each employment agreement, the Company provides certain
fringe benefits, including, but not limited to, participation in pension plans,
profit-sharing plans, employee stock ownership plans, stock appreciation rights,
hospitalization and health insurance, disability and life insurance, paid
vacation and sick leave. Lexon, Inc. will reimburse each employee for any
reasonable and necessary business expenses, including travel and entertainment
expenses that are necessary to carry out his or her duties. Each employee has
the right to participate in other businesses as long as those businesses do not
compete with Lexon, Inc. and so long as the employee devotes the necessary
working time, as determined in his or her sole discretion, to Lexon's business
activities. The Company will indemnify each employee for all legal expenses and
liabilities incurred with any proceeding involving the employee by reason of his
or her being an officer, director, employee or agent of the Company. The Company
will pay reasonable attorney fees and expenses as incurred in the event that, in
the employee's sole judgment, he or she needs to retain counsel or otherwise
expend personal funds for his or her defense. If there is a change in control,
each employee has the right to resign. A change in control is defined as a
change in the majority of Directors within any twelve month period without 2/3
approval of the shares outstanding and entitled to vote, or a merger where less
than 50 percent of the outstanding common stock survives and a majority of the
Board of Directors remains, or the sale of substantially all of the Company's
assets, or if any other person or group acquires more than 50 percent of the
voting capital.
Note 10-- Common Stock and Paid in Capital
During the year ended December 31, 1998, the following Common Stock transactions
occurred:
o Under the terms of an offering dated April 1, 1998, the Company sold
5,000,000 shares of its Common Stock to the founders at par value for
$5,000 cash.
o On July 8, 1998, the Company issued 1,000,000 shares of its Common Stock in
connection with the Gentest merger.
11
o On May 18, 1998, Lexon commenced its Rule 504 private offering at $2.00 per
share. This price was determined by the Board of Directors. There were
125,205 shares of Common Stock sold to third-party investors for $250,410
in cash. The $2.00 offering was terminated on July 31, 1998, when Lexon's
15c211 application was filed with the NASD. The Company's Common Stock
began trading on November 4, 1998, at $2.50 per share. On November 6, 1998,
Lexon commenced a Rule 504 private offering at $3.00 per share, which price
was greater than the closing price of the Company's Common Stock on
November 6, 1998 (the date of the offering memorandum). There were 39,416
shares of Common Stock sold to third-party investors for $118,248 in cash.
The Company incurred expenses of $48,287 in connection with the offerings.
On January 18, 1999, the Company terminated the $3.00 offering and
commenced an offering at $1.50 per share, which was equal to the closing
price of the Company's Common Stock on January 19, 1999. Although there
were no obligations to do so, the Board determined that the investors who
paid cash in the $2.00 and $3.00 private offerings should be treated as if
they had purchased their shares at $1.50 per share. Accordingly, the
Company issued an additional 81,151 shares to those investors (41,735
shares to the $2.00 investors and 39,416 shares to the $3.00 investors).
The issuance of the additional shares was treated as a capital transaction,
with no effect on shareholders' equity.
o During 1998, the Company issued 33,541 shares of its Common Stock at $2.00
per share for services rendered in connection with the Offering. The $2.00
per share value was determined by the Board of Directors based on the most
recent offering price of $2.00 per share.
During the year ended December 31, 1999, the following Common Stock transactions
occurred:
o The Company sold 385,700 shares of its Common Stock to third party
investors for $557,550 in cash.
o The Company issued a total of 89,500 shares of Common Stock for services
rendered by outside consultants. The shares were valued based on the
closing price of the Company's Common Stock on the date the services were
rendered or agreements were signed. Of the shares issued, 80,000 were
issued at $2.50 per share to a consultant to develop and market an Internet
web site and to prepare and distribute via e-mail a detailed profile report
on the Company. An additional 7,500 shares were issued at $2.34 per share
to a public relations specialist in connection with the Company's colon
cancer awareness activities. The remaining 2,000 shares were issued at
$4.875 per share for legal services.
o The Company issued 55,000 shares of Common Stock to an employee who
exercised stock options at $1.5625 per share. The Company received $85,938
in cash. The exercise price was equal to the closing price of the Company's
Common Stock on the date the options were granted.
During the year ended December 31, 2000, the following Common Stock transactions
occurred:
o The Company issued 150,000 shares of its Common Stock pursuant to the
exercise of employee stock options, for which the Company received $234,375
in cash. The employees exercised their options at $1.5625 per share. The
exercise price was equal to the closing price of the Company's Common Stock
on the date the options were granted.
o The Company issued a total of 293,222 shares of Common Stock for services
rendered by outside consultants. The shares were valued based on the
closing price of the Company's Common Stock on the date the services were
rendered or agreements were signed. Of the shares issued, 190,000 were
issued at $.9375 per share to consultants for services rendered in
connection with accounting and legal services; 65,000 shares were issued at
$.9375 per share for general business consulting services; and 22,222
shares were issued at $1.125 per share to a consultant to develop and
maintain an Internet web site for the Company.
o The Company issued a total of 1,000,000 shares of Common Stock for services
rendered by outside consultants. The shares were valued based on the
closing price of the Company's Common Stock on the date the services were
rendered or agreements were signed. Of the shares issued, 600,000 were
issued at $.84 per share for general business consulting services, and
400,000 shares were issued at $.84 per share pursuant to an investor
relations agreement.
12
o The Company sold 250,000 restricted shares of stock to a third-party
investor in conjunction with a consulting agreement signed on May 23, 2000.
The purchase price for the shares was $.001 and the stock is restricted for
a period of 10 months. The $554,250 difference between the purchase price
of the stock and the fair market value of the stock on the date of purchase
was recorded as a general and administrative expense on the income
statement.
o In connection with the issuance of stock for services, the Company recorded
$1,895,237, $1,673,562 and $221,675, respectively, as G&A expense for the
period from inception (December 16, 1997) through December 31, 2000, and
for the years ended December 31, 2000 and 1999.
o The Company placed 700,000 shares of stock in escrow for a third party
investor pursuant to an investment banking agreement signed on May 19,
2000. As of December 31, 2000, 260,160 and 52,365 shares had been purchased
through puts. The sales prices for the shares was $0.75 and $.40
respectively, which were the sales prices calculated using the formulas
outlined in the Investment Banking Agreement. Total proceeds from sales of
stock under the Investment Banking Agreement are $216,066.
During the three months ended March 31, 2001, the following Common Stock
transactions occurred:
o On February 23, 2001, the employees of Lexon exercised options to purchase
3,000,000 shares of common stock at an exercise price of $0.25 per share.
Each person gave the Company an unsecured promissory note. The total of
these notes amounted to $750,000. The notes are due February 23, 2008 and
accrue interest at a rate of 8% per year.
o On December 31, 2000, we began an Offering Regulation D, Rule 506 offering
to sell up to 4,000,000 Units at a price of $0.25 per Unit. Each Unit
consists of one share of Common Stock and one Common Stock purchase warrant
exercisable at $0.50 per share that expires on December 31, 2005. Pursuant
to the terms of this Offering, we had the following transactions:
During January 2001, we sold 200,000 Units to one accredited investor
and received $50,000 in cash.
During February 2001, we sold 200,000 Units to two accredited
investors and received $50,000 in cash.
Lexon is authorized to issue 45,000,000 Shares of Common Stock, par value $0.001
per share, of which 12,838,735 shares were outstanding as of March 31, 2001.
Lexon is also authorized to issue 5,000,000 Shares of Preferred Stock, par value
$0.001 per share, of which there are no shares presently outstanding. There is
no present intent to issue any Preferred Stock.
Voting Rights
Holders of shares of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders. Shares of Common Stock do not
have cumulative voting rights, which means that the holders of a majority of the
shareholder votes eligible to vote and voting for the election of the Board of
Directors can elect all members of the Board of Directors. Holders of a majority
of the issued and outstanding shares of Common Stock may take action by written
consent without a meeting.
Dividend Rights
Holders of record of shares of Common Stock are entitled to receive dividends
when and if declared by the Board of Directors. To date, Lexon has not paid cash
dividends on its Common Stock. Holders of Common Stock are entitled to receive
such dividends as may be declared and paid from time to time by the Board of
Directors out of funds legally available therefor. Lexon intends to retain any
earnings for the operation and expansion of its business and does not anticipate
paying cash dividends in the foreseeable future. Any future determination as to
the payment of cash dividends will depend upon future earnings, results of
operations, capital requirements, Lexon's financial condition and such other
factors as the Board of Directors may consider.
13
Liquidation Rights
Upon any liquidation, dissolution or winding up of Lexon, holders of shares of
Common Stock are entitled to receive pro rata all of the assets of Lexon
available for distribution to shareholders after liabilities are paid and
distributions are made to the holders of Lexon's Preferred Stock, if any.
Preemptive Rights
Holders of Common Stock do not have any preemptive rights to subscribe for or to
purchase any stock, obligations or other securities of Lexon.
Note 11 Stock Options
Employee Stock Options
On August 15, 1998, the Board of Directors and shareholders approved the
adoption of the Lexon Option Plan, pursuant to which 3,000,000 shares of Common
Stock were reserved. Stock options granted under the Plan expire ten years from
the date of grant.
On October 15, 1998, the Board granted 50,000 options to an officer at an
exercise price of $1.20 per share in connection with a loan made by the officer
to the Company. The Company recorded no compensation cost for the options
granted to the officer.
On March 4, 1999, the Board granted 1,692,500 options to purchase Common Stock
at an exercise price of $1.5625 per share to employees of the Company. The
exercise price was equal to the closing price of the Company's Common Stock on
the date of grant. No compensation cost was recorded.
On August 7, 2000, the Board granted 1,250,000 options to purchase Common Stock
at an exercise price of $.84 per share to employees of the Company. The exercise
price was equal to the closing price of the Company's Common Stock on the date
of grant. No compensation cost was recorded.
On January 2, 2001, the Board cancelled 2,487,500 options previously issued to
the Company's employees pursuant to the Lexon, Inc., 1998 Incentive Stock Option
Plan dated August 15, 1998.
On January 5, 2001, the Board granted 3,000,000 options to purchase Common Stock
at an exercise price of $.25 per share to employees of the Company. The exercise
price was equal to the closing price of the Company's Common Stock on the date
of grant. No compensation cost was recorded. All of these options were exercised
during the first quarter of 2001 (see Note 10).
SFAS 123 provides an alternative method of determining compensation cost for
employee stock options, which alternative method may be adopted at the option of
the Company. Had compensation cost for the options granted to employees been
determined consistent with SFAS 123, the Company's net loss for the year ended
March 31, 2001, would have been increased and EPS would have been reduced to the
following pro forma amounts:
From Inception
Through
March 31, 2001
Net loss:
As reported $(8,223,793)
Pro forma (8,670,193)
Basic and diluted EPS:
As reported $ (1.24)
Pro forma (1.31)
Compensation cost was based on an estimated fair value of $.24 per share, which
was calculated using the Black-Scholes option pricing model with the following
assumptions: exercise price of $.25 per share; stock price of $.25 per share;
risk-free interest rate of 6.0%; expected dividend yield of 0.0; expected life
of ten years; and estimated volatility of 126%.
14
Non-Employee Options
On October 15, 1998, the Board granted 300,000 options to a consultant at an
exercise price of $1.20 per share. In exchange for the options, the consultant
provided the Company financial and investment consulting services for a one-year
period. During 1998 the Company recorded $593,910 as a prepaid consulting
expense and an increase to paid in capital. The Company amortized the prepaid
expense over a 12-month period, which was the life of the agreement.
Amortization expense included in general and administrative expense was $494,925
in 1999 and $98,985 in 1998.
Also on October 15, 1998, the Board granted 50,000 options at an exercise price
of $1.20 per share to the inventor of the Ebaf screening process. The Company
recorded the compensation cost of $98,985 as research and development expense on
the date the options were granted.
On October 15, 1998, the Board also granted 180,000 options to a shareholder at
an exercise price of $1.20 per share in connection with a loan made by the
shareholder to the Company. The Company recorded compensation cost of $356,346
as interest expense on the date the options were granted.
Compensation cost for the October 15, 1998, options was based on an estimated
fair value of $1.98 per share, which was calculated using the Black-Scholes
option pricing model with the following assumptions: exercise price of $1.20 per
share; stock price of $2.00 per share; risk-free interest rate of 6.0%; expected
dividend yield of 0.0; expected life of ten years; and estimated volatility of
151%.
On November 1, 1998, the Company entered into an agreement with an investor
relations firm whereby the Board granted the firm options to purchase up to
1,000,000 shares of Common Stock over a two-year period. Amounts and exercise
prices are as follows:
Number of Exercise Price
Vesting Period Options Per Share
- ------------------------------------------ ---------------- ----------------
January 1, 1999 to March 31, 1999 45,000 $1.20
April 1, 1999 to June 30, 1999 70,000 $1.50
July 1, 1999 to September 30, 1999 95,000 $1.75
October 1, 1999 to December 31, 1999 120,000 $2.00
January 1, 2000 to March 31, 2000 135,000 $2.25
April 1, 2000 to June 30, 2000 160,000 $2.50
July 1, 2000 to September 30, 2000 175,000 $2.75
October 1, 2000 to December 31, 2000 200,000 $3.00
----------------
Total 1,000,000
----------------
The options are eligible to vest on a quarterly basis, subject to the
achievement of certain market conditions surrounding the Company's stock. If the
vesting conditions are not met, the options eligible for vesting are forfeited.
Compensation cost will be recorded for the options when and if they become
vested. Only vested options are exercisable. All vested options are exercisable
until October 27, 2008. On June 30, 1999, 70,000 options exercisable at $1.50
per share became vested. To determine compensation cost, the 70,000 vested
options were valued at $3.26 per share based on the Black-Scholes option pricing
model and the Company recorded $228,200 as general and administrative expense.
The following assumptions for the Black-Scholes option pricing model were used:
exercise price of $1.50 per share, market price on vesting date of $3.375, risk-
free interest rate of 5.87%, expected dividend yield of 0.0; expected life of
ten years; and estimated volatility of 117%. During the year ended December 31,
1999, 260,000 options at exercise prices ranging from $1.20 to $2.00 per share
were forfeited. During the nine months ended September 30, 2000, the remaining
670,000 options at exercise prices ranging from $2.50 to $3.00 per share were
forfeited.
On March 4, 1999, the Board granted 250,000 options to purchase Common Stock at
an exercise price of $1.5625 per share to Dr. Tabibzadeh, inventor of the Ebaf
Assay screening process. The exercise price was equal to the closing price of
the Common Stock on the date of grant. The options were valued at $1.49 per
share based on the Black-Scholes option-pricing model and the Company recorded
$372,500 as research and development expense. The following assumptions for the
Black-Scholes option pricing model were used:
15
exercise price of $1.5625, market price of $1.5265, risk- free interest rate of
5.87%, expected dividend yield of 0.0; expected life of ten years; and estimated
volatility of 117%.
On March 28, 2000, the Board granted 484,809 warrants to purchase Common Stock
to Swartz Institutional Finance ("Swartz") pursuant to the Equity Line Letter of
Agreement signed on that day. 280,000 warrants have an exercise price of $2.062
per share. The exercise price was equal to the lowest closing price for 5
trading days prior to the date of execution of all Closing Documents on May 19,
2000. The warrants were valued at $1.575 per share based on the Black-Scholes
option pricing model, and the Company recorded $441,000 as a deferred cost of
capital, to be charged against the capital received from each put transaction
with Swartz. The following assumptions for the Black-Scholes option pricing
model were used: exercise price of $2.062, market price of $2.625, risk-free
interest rate of 8.00%, expected dividend yield of 0.0, expected life of one
year, and estimate volatility of 142%. Subsequent to signing the banking
agreement, Lexon filed an S-8 registration statement registering additional
outstanding shares. An additional 204,809 warrants were issued to Swartz to
comply with the terms of the Investment Banking Agreement which states that
Swartz is entitled to own warrants equal to 10% of the total outstanding shares.
The warrants have an initial exercise price of $.68 per share. If the date of
exercise is more than six months after the date of issuance, the exercise price
shall be reset according to the terms outlined in the Warrant Agreement. The
warrants issued to Swartz were valued at $1.19 per share based on the S-8 filing
and a deferred cost of capital was recorded for $243,723. This amount is being
charged against the capital received from each put transaction with Swartz. As
of March 31, 2001, $4,922 had been charged against paid in capital.
On May 23, 2000, the Board granted 500,000 warrants to purchase Common Stock at
an exercise price of $1.625 per share to Goodbody International, Inc. for
consulting services and guidance on any matters relating to investor relations,
financial relations, stock enhancement and public relations and to CEO
responsibilities, including any financing mergers, acquisitions, contract
negotiations and the possible sale of the Company. The term of the agreement is
three years and is being amortized using the straight-line method. The exercise
price was equal to the closing price of the Common Stock on May 10, 2000. The
warrants were valued at $2.0595 per share based on the Black-Scholes option
pricing model and the Company recorded $114,422 as consulting expense and
$915,328 as prepaid consulting expense. The following assumptions for the
Black-Scholes option pricing model were used: exercise price of $1.625, market
price of $2.218, risk-free interest rate of 8.00%, expected dividend yield of
0.0, expected life of five years, and estimated volatility of 146%.
On September 29, 2000, the Board granted 26,016 warrants to purchase Common
Stock at an exercise price of $.825 per share to Swartz in conjunction with the
first put pursuant to the Investment Banking Agreement.
On November 3, 2000, the Board granted 5,237 warrants to purchase Common Stock
at an exercise price of $.4818 per share to Swartz in conjunction with the
second put pursuant to the Investment Banking Agreement
Due to the uncertainty surrounding the Company's ability to raise significant
amounts of capital, effective December 31, 2000, the costs associated with
issuing warrants to Swartz and Goodbody are charged to general and
administrative expenses
A summary of the status of the Company's stock options at March 31, 2001, and
changes during the three months then ended is presented below:
March 31, 2001
-------------------------------------
Weighted Average
Shares Exercise Price
----------------- -------------------
Employees
Outstanding, beginning of period 2,487,500 $1.20
Granted 3,000,000 0.25
Exercised (3,000,000) 0.25
Canceled (2,487,500) 1.20
----------------- -------------------
Outstanding, March 31, 2001 -- $ --
----------------- -------------------
Exercisable, March 31, 2001 -- $ --
----------------- -------------------
Weighted average fair
value of options granted $0.25
-----------------
16
March 31, 2001
-------------------------------------
Weighted Average
Shares Exercise Price
----------------- -------------------
Non-employees
Outstanding, beginning of period 1,866,062 $1.44
Granted or Vested -- --
Exercised -- --
Forfeited -- --
----------------- -------------------
Outstanding, March 31, 2001 1,866,062 $1.44
----------------- -------------------
Exercisable, March 31, 2001 1,866,062 $1.44
----------------- -------------------
Weighted average fair
value of options granted $1.71
-----------------
The following table summarizes information about fixed stock options outstanding
at March 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------ ------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of exercise Outstanding Contractual Exercise Exercisable Exercise Price
prices at 03/31/01 Life Price at 03/31/01
---------------------- -------------- -------------- ------------ -------------- ---------------
Non-employees
$0.4818-$2.062 1,866,062 5.72 years $1.44 1,866,062 $1.44
Note 12-- Income Taxes
The components of deferred income tax are as follows:
Inception Inception
(December 16, (December 16,
1997) to March 1997) to March
31, 2001 31, 2000
---------------- -----------------
Net operating loss $1,226,064 $ 368,644
Stock-based compensation 581,742 562,892
Valuation allowance (1,807,806) (931,536)
---------------- -----------------
Net deferred tax asset $ --- $ ---
---------------- -----------------
From inception to March 31, 2001, the Company had a net operating tax loss
carryforward of approximately $3,606,072, which expires 2019 and 2020, and
temporary differences related to stock-based compensation of $1,895,237. A
valuation allowance fully offsets the benefit of the net operating loss, since
the Company does not meet the "more probable than not" criteria of FASB 109.
17
Note 13-- Earnings per Share
Basic and Diluted EPS Computation: March 31, 2001 March 31, 2000
---------------- ---------------
Net loss applicable to Common Stockholders $(231,785) $(441,224)
---------------- ---------------
Weighted average shares outstanding 10,697,668 6,853,089
---------------- ---------------
Basic and Diluted EPS $ (0.02) $ (0.06)
---------------- ---------------
For the three months ended March 31, 2001 and 2000, all options were excluded
from the EPS calculation, as their effect was anti-dilutive.
Note 14-- Uncertainties
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company is in the early stages of
development and has not established sources of revenues sufficient to fund the
development of business and pay operating expenses, resulting in a net loss of
$231,785 for the three months ended March 31, 2001. Management intends to
provide the necessary development and operating capital through sales of its
Common Stock and increasing revenues by gaining FDA approval for the Ebaf Assay
test kit and marketing the test kit to laboratories, research institutions,
hospitals, clinics, doctors and other medical professionals throughout the
world. The ability of the Company to continue as a going concern during the next
year depends on the successful completion of the Company's efforts to raise
capital and gain FDA approval. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
Note 15-- Subsequent Events
The Company is currently negotiating the resolution of a dispute with Swartz
Private Equity, LLC over a $100,000 non-usage fee related to the Investment
Agreement dated May 19, 2000 (see Note 9). No legal action is pending or
threatened and both parties are working to resolve the matter.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this report which are not historical facts
are forward looking statements, including the information provided with respect
to future business opportunities, expected financing sources and related
matters. These forward looking statements are based on current expectations,
estimates, assumptions and beliefs of management, and words such as "expects",
"anticipates", "intends", "believes", "estimates", and similar expressions are
intended to identify such forward looking statements. Since this information is
based on current expectations that involve risks and uncertainties, actual
results could differ materially from those expressed in the forward looking
statements. We assume no obligation to update any forward-looking statements or
reason why actual results might differ.
Plan of Operation Over the Next Twelve Months
We have no operating history prior to December 16, 1997. We have no
revenues from the sale of products to date and have funded our activities
through the sale of our common stock and through loans by our shareholders.
During the next twelve months, we must raise approximately $4,500,000 to
complete the development of the Ebaf Assay and the Telomerase Assay and to
gather the preclinical data for the FDA. If we are successful in raising the
capital required, we estimate that it will take approximately 10 months to
complete the development of the Ebaf Assay and to gather its preclinical data
and we estimate that it will take approximately 14 months to complete the
development of the Telomerase Assay and to gather its preclinical data. It is
our understanding that preclinical data will be used to determine the extent of
the clinical trial. The clinical trial is necessary to obtain FDA approval. If
the preclinical data is acceptable to DOCRO and us, then we will meet with the
FDA to determine the extent of a clinical trial. We estimate that a clinical
trial for the Ebaf Assay will last approximately 8-12 months and will cost us
$8-$10 million. We estimate that a clinical trial for the Telomerase Assay will
last approximately 8-12 months and will cost us $8-$10 million.
Cash Requirements
During the next twelve months, we will require approximately $4,500,000. Of
this amount, $1,495,000 is required by our agreement with DOCRO to develop the
Ebaf Assay and to gather the preclinical data for the FDA, $1,859,000 is
required by our agreement with DOCRO to develop the Telomerase Assay and to
gather the preclinical data for the FDA, $124,527 is required by our sponsored
research agreement with UMB, $400,000 is our estimate of the cost for Dr.
Tabibzadeh's continued scientific investigation of ebaf for one year and
$600,000 is our estimate of the operating expenses of the Company for one year.
There is no assurance that the $4,500,000 will be available to us on acceptable
terms when we needed it. Any additional capital may involve substantial dilution
to the interests of our existing shareholders.
Product Development and Research Plan for the Next Twelve Months
Ebaf Assay
----------
If we are successful in raising the $1,495,000 required, DOCRO will
complete the development of the Ebaf Assay and will then gather the preclinical
data for the FDA. We estimate the development and data gathering process will
take about 10 months. Our agreement with DOCRO states that DOCRO will assess the
current technical and clinical performance of the existing ebaf reagents as
provided by Dr. Tabibzadeh. DOCRO must then develop purified ebaf antigens for
all four known forms of ebaf protein expressed in human tissue. Next, DOCRO will
raise a variety of monoclonal antibodies and polyclonal antibodies to these
various antigens to determine if any ebaf protein is overexpressed in the
tissue, blood, other fluids of people diagnosed with colorectal cancer when
compared to similar specimens from apparently healthy, normal people and to
specimens from people diagnosed with other malignant or non-malignant diseases.
If an ebaf protein is determined by DOCRO to be overexpressed in malignant
disease and not in non-malignant disease or apparently healthy normals and we
agree, DOCRO will then develop an enzyme immunoassay for such ebaf protein to
confirm the results in the blood or other fluid specimens of a statistically
significant number of patients (maximum of 400).
19
Telomerase Assay
----------------
If we are successful in raising the $1,859,000 required, DOCRO will
complete the development of the Telomerase Assay and will gather the preclinical
data for the FDA. We estimate the development and data gathering process will
take about 14 months. Our agreement with DOCRO states that DOCRO will assess the
current technical and clinical performance of the existing telomerase reagents
as provided by Dr. Highsmith, then for DOCRO to develop or obtain purified
telomerase antigens (including various peptides and, if possible, native and
recombinant protein, for known forms of the telomerase protein/nucleic acid
complex) expressed in humans. DOCRO will then raise or obtain a variety of
monoclonal antibodies and polyclonal antibodies to these various antigens to
determine if any telomerase antigen is overexpressed in the tissue, blood, other
body fluids, and other specimen matrices from humans diagnosed with lung or
other cancers when compared to similar specimens from apparently healthy, normal
humans and from a variety of humans diagnosed with other non-malignant diseases.
Further, if a telomerase antigen is determined by DOCRO to be overexpressed in
malignant disease and not in non-malignant disease or apparently healthy normals
and Lexon agrees, DOCRO shall develop an enzyme immunoassay for such a
telomerase antigen to confirm the results in the blood or other fluid specimen
matrix of a statistically significant number (maximum of 400) of patients.
Expected Purchase or Sale of Plant and Significant Equipment
None.
Expected Significant Changes in Number of Employees.
None.
20
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Our notes to the financial statements for the three months ended March 31,
2001 contain details about our sales of common stock during the period. The
financial statements for the three months ended March 31, 2001 and the
accompanying notes are incorporated herein by reference. For each sale of common
stock during the first quarter ended March 31, 2001, we relied upon an exemption
from registration pursuant to Regulation D, Rule 506 and Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
None
21
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LEXON, INC.
/s/ GIFFORD M. MABIE
--------------------
President
Date: May 15, 2001
22