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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 (Fee Required)
For the fiscal year ended November 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 (No Fee Required)
For the transition period from ___________ to __________
Commission File Number 0-16354
EXTEN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1412493
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
9625 BLACK MOUNTAIN ROAD, SUITE 218
SAN DIEGO, CALIFORNIA 92126
(Address of principal executive offices)
(619) 578-9784
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
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 requirement for the past 90 days. YES __X__ NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K(229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ( )
State issuer's revenues for its most recent fiscal year. $6,654
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act). April 2,
1996
22,704,205 Shares at $0.10 = $2,270,420
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Documents Incorporated by Reference:
None
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EXTEN INDUSTRIES, INC.
FORM 10-KSB
INDEX
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PART I
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Item 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . 4
Background of the Company . . . . . . . . . . . . . . . . . . . 4
Factors Which May Affect Future Results . . . . . . . . . . . . 5
Business of Exten. . . . . . . . . . . . . . . . . . . . . . . 8
Business of Xenogenex, Inc. . . . . . . . . . . . . . . . . 9
Patents & Proprietary Technology . . . . . . . . . . . . . . 9
Government Regulations . . . . . . . . . . . . . . . . . . . 9
Therapeutic Products . . . . . . . . . . . . . . . . . . . .10
Agreements for SYBIOL Development. . . . . . . . . . . . . .10
St. Louis University Health Sciences Center. . . . . . . . 10
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . .11
Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . .12
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITIES STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . .13
PART II
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Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . .13
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations. . . . . . . . . . . . . . . . . . . . .14
Liquidity and Capital Resources . . . . . . . . . . .. . . . .16
Results of Operations - ADC. . . . . . . . . . . . . . . . . .16
Xenogenex, Inc.. . . . . . . . . . . . . . . . . . . . . . . .16
Item 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . .17
Item 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
PART III
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Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
REGISTRANT COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. . . . 17
Item 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 18
Non-Cash Compensation . . . . . . . . . . . . . . . . . . . . . . . 19
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 19
Stock Options Outstanding . . . . . . . . . . . . . . . . . . 22
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Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS20
Item 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . 23
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . 23
Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . 23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
List of Subsidiaries. . . . . . . . . . . . . . . . . . . . . 25
Index of Exhibits . . . . . . . . . . . . . . . . . . . . . . 25
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND OF THE COMPANY
Between 1985 and 1990 the Company provided merchant banking services for
small businesses. As compensation for these services the Company received both
cash and common stock in the companies. The Company distributed shares of stock
in some of these companies to its shareholders as dividends in kind. The
Company distributed stocks in Import International, Inc., Olympus Technology
Corporation, Inc., Multiphonics Corporation, Dionne, Inc., Sun Harbor Financial
Resources, Inc., U.S. Environmental, SDI Holdings, Inc. and Access HealthNet.
In October of 1990 the Company's Board of Directors decided on a major
change in the Company's business. Due to the difficulty of raising capital for
its small business merchant banking clients, the Company decided to change its
business emphasis to that of becoming a diversified company. The merchant
banking would be combined on a smaller scale with more substantial companies.
The Company's merchant banking experience would be primarily directed to the
acquisition of varied business for the Company.
In November 1990, the Company acquired all of the capital stock of ADC
Industries Corporation, Inc. ("ADC"), a precision product machining house
specializing in the custom manufacture of storage tank valves. The acquisition
of ADC was accounted for as a pooling of interest. On September 30, 1993, ADC
ceased operations. The Company sold its interests in ADC and on November 29,
1993 ADC filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code.
In September of 1991 the Company acquired all of the outstanding stock of
Xenogenex, Inc. ("Xenogenex"), formerly known as Ascot Close Research Institute,
Ltd. At that time Xenogenex was funding research on xenogeneic transplants with
a major West Coast medical center. Xenogenex had the rights to the commercial
development of the research work.
In 1992, the Company acquired the rights to a hydraulic control
technology with primary applications to computer control of hydraulic machine
tools and to the control of helicopter rotor blades. The machine control is
marketed under the name "Navigator 360"; the rotor control, in the early
conceptual stage, is named the "Smart Head". In 1992, the Navigator 360
technology was sold to a company of which Malcolm D. Campbell is an officer.
On February 24, 1992 Exten purchased all rights to the technology for an
innovative helicopter flight control system from the inventors. The concept,
which involves loop hydraulic control of blade pitch, is known as the "Smart
Head".
On May 19, 1992 Exten entered into a joint venture agreement with
Navmatic Corporation for development of the Smart Head. Navmatic Corporation,
which manufactures an unique electronic and mechanical interface for computer
numerical control of hydraulic machine tools, and which employs the Smart Head
inventors as consultants, has the technical ability and the business posture to
pursue development of the concept. The Company has no plans to develop this
technology. Under the joint venture agreement, a mechanical model to demonstrate
the feasibility of the basic hydraulic control mechanisms proposed has been
constructed and successfully operated.
In 1993, the Company divested itself of ADC Industries, Inc., leaving
development of the synthetic bio-liver ("SYBIOL") through its subsidiary
Xenogenex, Inc. as the Company's only proposed business.
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ITEM 1a. FACTORS WHICH MAY AFFECT FUTURE RESULTS
An investment in the Common Stock of the Company involves a high degree
of risk. In addition to the other information contained in this Form 10-KSB,
prospective investors should carefully consider the following risk factors:
1. SIGNIFICANT AND REPEATED LOSSES. During fiscal 1995, the Company's most
recent fiscal year, the Company's losses increased to ($3,076,538) from losses
of ($1,351,477) in fiscal 1994. In addition, during fiscal 1992, 1993, and 1994
the Company lost ($880,844), ($1,355,531), and ($1,351,477) respectively. The
Company faces all the risks inherent in a new business. The Company's Xenogenex
subsidiary, is without any record of earnings and sales. There is no
information at this time upon which to base an assumption that Xenogenex's
business plans will either materialize or prove successful. There can be no
assurance that any of the Company's business activities will result in any
operating revenues or profits. Investors should be aware that they may lose all
or substantially all of their investment.
2. QUALIFIED OPINION. The Company's certified public accountant issued a
qualified opinion on the Company's financial statements for the year ended
November 30, 1995 and the year ended November 30, 1994 and the year ended
November 30, 1995 with respect to uncertainties concerning the Company's ability
to continue as a going concern.
3. LACK OF REVENUES. The Company's only active business is the research and
development activities of its subsidiary, Xenogenex, Inc. from which the Company
generates little or no stream of revenues and there can be no assurance that the
Company will ever generate any revenues from Xenogenex, Inc. in the near future.
As a result, the Company may continue to incur losses and any investor who
purchases or acquires any shares of the Company's Common Stock will likely incur
further substantial dilution and loss in the value of their investment.
4. SIGNIFICANT AND INCREASING CURRENT LIABILITIES. As of November 30, 1995, the
Company had $743,629 in current debts and other obligations that are due and
payable on or before November 30, 1996. Included in the amounts due by November
30, 1996 is $333,000 due in settlement of certain claims awarded Union Bank,
$388,000 in loans payable in litigation, and the current portion of certain long
term debt of $387,987 together with other current liabilities. Further, as of
November 30, 1995, the Company had nearly 2.4 times as many current liabilities
as it had current assets. In the event that the Company is not able to generate
sufficient cash resources to pay these and other current liabilities on or
before their due date, the Company will likely incur substantial additional
costs and expenses and otherwise risk whatever claims creditors may assert
against the Company in connection with any default thereby. This may result in
an investor losing all or substantially all of their investment.
5. NEED FOR ADDITIONAL FINANCING & LACK OF UNDERWRITING COMMITMENT. The
Company's management recognizes that the Company needs to obtain additional
external financing from the sale of the Company's debt, common stock, or
preferred stock in order to support the Company and otherwise meet the Company's
growing financial obligations. While the Company may attempt to obtain a
commitment from an underwriter for a private placement or public offering of the
Company's securities, there can be no guarantee that the Company will be
successful. If the Company is not successful, the Company may suffer additional
and continuing financial difficulties with consequent loss to any investor
acquiring the Company's common stock.
6. NEGATIVE WORKING CAPITAL & NEGATIVE CASH FLOW. As of November 30, 1995, the
Company had Total Current Liabilities of $743,629 and Total Current Assets of
$315,593 with the result that the Company had negative working capital of
($428,036) as Total Current Liabilities exceeded Total Current Assets by that
amount. While the Company's management seeks additional financing for the
Company to complete its business plan, there can be no assurance that the
Company will obtain any additional financing or, if it is obtained, that it can
be obtained on terms reasonable in view of the Company's current circumstances.
In addition, the Company has experienced negative cash flow for the 1992, 1993,
1994, and 1995 fiscal years.
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7. POTENTIAL DILUTION. Funding of the Company's proposed business plan will
result in substantial and on-going dilution of the Company's existing
stockholders. During 1995, the Company issued 16,189,748 additional shares of
its common stock in connection with its operations while incurring continuing
and ever-increasing financial losses. While there can be no guarantee that the
Company will be successful in raising additional capital, if the Company is
successful in obtaining any additional capital, existing stockholders will incur
substantial dilution.
8. DEFAULT ON INDEBTEDNESS. The Company is currently in default on its
repayment of a certain loan totalling $333,000 (as of November 30, 1995) (the
"Loan") with Union Bank and a former officer of the Company, Robert H.
Goldsmith, asserts that the Company has defaulted on approximately $388,000 in
promissory notes. While Union Bank has sued the Company and has aggressively
sought repayment of the Loan, together with interest, and fees due with the
result that Union Bank has obtained a judgement against the Company, the
Company's management has attempted, without success to negotiate an acceptable
payment program with Union Bank and there is no guarantee that the Company will
be able to pay the monies required to settle this matter. In addition, the
Company had over $994,480 in liabilities which included $743,629 in Total
Current Liabilities due and payable on or before November 30, 1996. In the
event that the Company is not able to generate additional cash from the sale of
the Company's securities or otherwise obtain funds on some other basis, the
Company will remain in default on its obligations and likely default on
obligations to other creditors with the result that any investor in the
Company's common stock will lose all or substantially all of their investment.
9. GOVERNMENT REGULATION AND PRODUCT APPROVALS. The Company's research,
testing, preclinical development, clinical trials, manufacturing, and marketing
of its proposed therapeutic products is subject to extensive and ever-changing
regulation by numerous governmental authorities in the United States and other
countries. Clinical trials, manufacturing, and marketing of products in the
U.S. will be subject to the rigorous testing and approval processes of the U.S.
Food and Drug Administration (the "FDA") and by comparable regulatory
authorities in foreign countries. The testing and regulatory approval process
will likely take several years and require the expenditure of substantial
resources. Any testing of the Company's proposed products may not support the
safety and efficacy of the Company's products. There can be no assurance that
the Company will gain any regulatory approvals for the Company's proposed
products or, if such approvals are obtained, that such approvals may be limited
and far narrower than those sought by the Company. To the extent that the above
information describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statutory and regulatory provisions
currently in effect. Any change in applicable law or regulation may have a
material effect on the business and prospect of the Company's subsidiary,
Xenogenex, Inc.
10. LACK OF INDEPENDENT EVALUATION OF TECHNOLOGY & COMMERCIAL VIABILITY. The
Company's current management does not possess any studies performed by an
independent third party which demonstrate that the synthetic bio-liver
technology has ever been rigorously evaluated. There can be no assurance that
this technology offers safe, efficacious, and cost-effective therapeutic
attributes relative to those provided by competing technologies or, if it does,
that the technology is commercially viable.
11. COSTS OF LITIGATION. The Company is likely to incur significant costs for
litigation in connection with a dispute with Robert H. Goldsmith, a past officer
and director and other litigation. While the Company seeks to resolve this
dispute on terms favorable to the Company, there can be no assurance that the
Company will be successful or that the costs incurred will not exceed any
benefits that the Company may derive from this litigation.
12. LIMITED MANAGEMENT. The Company currently has only one full time officer
and two full-time employees. The Company's limited cash flow and financial
resources do not allow the Company to increase or add to the Company's full time
management and there can be no guarantee that the Company's cash flow and
financial resources will increase in the near future. As a result, the Company
continues to rely upon consultants and others for a large part of its operations
and the research and development work conducted by its subsidiary, Xenogenex,
Inc.
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13. LACK OF DIVIDENDS. The Company has never paid any cash dividends on its
common stock. The Company's board of directors intends to retain profits, if
any, to finance the Company's business.
14. LIMITED MARKET FOR COMMON STOCK. The Company's Common Stock, traded on the
Electronic Bulletin Board (OTC), has experienced significant price fluctuations
and will likely remain highly volatile in the future. There can be no assurance
that a meaningful trading market for the Company's Common Stock will be
established, or, if established, that it can be maintained for any significant
period.
15. VALUATIONS & PRIOR ASSET ACQUISITIONS. The Company's current management has
determined that the values accorded certain assets acquired in prior years be
revalued to reflect lower carrying values in light of current market
circumstances. While management believes that current carrying values for these
assets more accurately reflect likely recovery values, there can be no assurance
that the Company will not later revalue the Company's assets further.
16. POSSIBLE RULE 144 STOCK SALES. As of November 30, 1995, the Company had a
substantial amount of shares of the Company's outstanding Common Stock as
"restricted securities" which may be sold only in compliance with Rule 144
adopted under the Securities Act of 1933 or other applicable exemptions from
registration. Rule 144 provides that a person holding restricted securities for
a period of two years may thereafter sell in brokerage transactions, an amount
not exceeding in any three month period the greater of either (i) 1% of the
Company's outstanding Common Stock, or (ii) the average weekly trading volume
during a period of four calendar weeks immediately preceding any sale. Persons
who are not affiliated with the Company and who have held their restricted
securities for at least three years are not subject to the volume limitation.
Possible or actual sales of the Company's Common Stock by present shareholders
under Rule 144 may have a depressive effect on the price of the Company's Common
Stock if any liquid trading market develops.
17. POSSIBLE STOCK SALES - REGULATION S & FORM S-8 REGISTRATION STATEMENT. The
Company has periodically issued shares to non-U.S. citizens under Regulation S.
In addition, the Company has utilized the services of consultants and, in this
connection, the Company has issued shares of the Company's Common Stock and
registered these shares for sale on Form S-8. The shares issued under
Regulation S become freely-tradeable 41 days after issuance. The shares
registered on Form S-8 are immediately freely-tradeable. As a result, the
Company's issuance of shares pursuant to Regulation S and Form S-8 likely
depresses the market price of the Company's Common Stock. While the Company's
management intends to carefully evaluate the need to issue shares of the
Company's Common Stock on this basis, the Company's meager financial resources
will likely prevent the Company from limiting its use of Regulation S and Form
S-8, with the result that the market price of Company's Common Stock will likely
be depressed by the registration and sale of shares on an on-going basis.
18. RISKS OF LOW PRICED STOCKS. Trading in the Company's Common Stock is
limited. Consequently, a shareholder may find it more difficult to dispose of,
or to obtain accurate quotations as to the price of, the Company's securities.
In the absence of a security being quoted on NASDAQ, or the Company having
$2,000,000 in net tangible assets, trading in the Common Stock is covered by
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 for non-NASDAQ
and non-exchange listed securities.
Under such rules, broker/dealers who recommend such securities to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000
jointly with their spouse) must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are also exempt from this rule if the market price is
at least $5.00 per share, or for warrants, if the warrants have an exercise
price of at least $5.00 per share. The Securities Enforcement and Penny Stock
Reform Act of 1990 requires additional disclosure related to the market for
penny stocks and for trades in any stock defined as a penny stock.
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The Commission has recently adopted regulations under such Act which
define a penny stock to be any NASDAQ or non-NASDAQ equity security that has a
market price or exercise price of less than $5.00 per share and allow for the
enforcement against violators of the proposed rules.
In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
Commission explaining important concepts involving a penny stock market, the
nature of such market, terms used in such market, the broker/dealer's duties to
the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies in
case of fraud or abuse in the sale.
Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities, and, if the broker/dealer is the sole market-maker, the
broker/dealer must disclose this fact and its control over the market.
Monthly statements must be sent disclosing recent price information for
the penny stock held in the account and information on the limited market in
penny stocks. While many NASDAQ stocks are covered by the proposed definition
of penny stock, transactions in NASDAQ stock are exempt from all but the sole
market-maker provision for (i) issuers who have $2,000,000 in tangible assets
($5,000,000 if the issuer has not been in continuous operation for three years),
(ii) transactions in which the customer is an institutional accredited investor
and (iii) transactions that are not recommended by the broker/dealer. In
addition, transactions in a NASDAQ security directly with the NASDAQ market-
maker for such securities, are subject only to the sole market-maker disclosure,
and the disclosure with regard to commissions to be paid to the broker/dealer
and the registered representatives.
Finally, all NASDAQ securities are exempt if NASDAQ raised its
requirements for continued listing so that any issuer with less than $2,000,000
in net tangible assets or stockholder's equity would be subject to delisting.
These criteria are more stringent than the proposed increase in NASDAQ's
maintenance requirements. The Company's securities are subject to the above
rules on penny stocks and the market liquidity for the Company's securities
could be SEVERELY AFFECTED by limiting the ability of broker/dealers to sell the
Company's securities.
BUSINESS OF EXTEN
The Company's only active business is the proposed research and
development activities of its subsidiary, Xenogenex, Inc.
XENOGENEX, INC.
BUSINESS OF XENOGENEX, INC.
Xenogenex, Inc. ("Xenogenex") was incorporated in California on July 30,
1991 for the purpose of funding biotech research. On September 11, 1991 the
Company signed a research contract with Cedars-Sinai Medical Center in Los
Angeles, California. The research contract was for the genetic manipulation of
human to pig target antigens and xenogeneic transplants. Xenogeneic transplants
involve the use of donor organs from species other than humans. The major
objective of the research was to discover a way to transplant organs (heart,
liver, lung and kidney) from a pig into a human.
In March of 1993 Xenogenex received all the rights to a synthetic bio-
liver ("SYBIOL") developed for Xenogenex under contract with Cedars-Sinai
Medical Center. A patent application is presently pending on the process
utilized by the SYBIOL device and the Company has applied for trademark
protection for the SYBIOL tradename.
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On August 31, 1995, the Company entered into a license agreement (the
"GMI License") with GroupMed International, Inc. ("GMI"). Under the terms of
the GMI License, the Company granted GMI the exclusive right and license to
manufacture, market, and sell the technology and patents held by Xenogenex in
Mexico, Central America, and South America. Subsequently, the Company
terminated the GMI License due to lack of consideration.
In addition to the other information contained in this Form 10-KSB,
prospective investors should carefully consider the following risk factors:
1. PATENTS AND PROPRIETARY TECHNOLOGY. Any proprietary protection of
Xenogenex's technologies that the Company can obtain and maintain will be
important to its proposed business. The Company has exchanged its U.S. patent
application for a P.C.T. filing and has filed a patent application in China.
The patent positions of bio-pharmaceutical and biotechnology firms, as well as
academic and other research institutions, are uncertain and involve complex
legal and factual questions. Accordingly, no firm predictions can be made
regarding the bio-pharmaceutical and biotechnology patents or whether the
Company will have the financial resources to aggressively protect its rights.
2. INTENSE COMPETITION. Competition in Xenogenex's field from other
biotechnology and pharmaceutical companies and from research and academic
institutions is intense and is expected to increase. Competitors or potential
competitors of the Company have filed applications for, or have been issued,
certain patents, and may obtain additional patents and proprietary rights,
relating to technologies competitive with those of the Company. Accordingly,
there can be no assurance that the Company's patent applications will result in
patents being issued or that, if issued, such patents will provide protection
against competitive technology that circumvents such patents or will be held
valid by a court of competent jurisdiction; nor can there be any assurance that
others will not obtain patents that the Company would need to license or
circumvent. Furthermore, there can be no assurance that licenses that might be
required for the Company's processes or products would be available on
reasonable terms, if at all. Xenogenex also intends to rely upon unpatented
trade secrets, know-how and continuing technological innovation to develop and
maintain its competitive position. No assurance can be given that others will
not independently develop substantially equivalent proprietary information and
technology, or otherwise gain access to Xenogenex's trade secrets or disclose
such technology, or that Xenogenex can meaningfully protect its rights to its
unpatented trade secrets.
3. GOVERNMENT REGULATION. Xenogenex's present and proposed activities are
subject to regulation by numerous governmental authorities in the United States
and other countries. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions currently in effect. Any
change in applicable law or regulation may have a material effect on the
business and prospects of Xenogenex.
4. THERAPEUTIC PRODUCTS. Xenogenex's products will be subject to regulation in
the U.S. by the Food and Drug Administration ("FDA") and by comparable
regulatory authorities in foreign jurisdictions. The products produced will be
classified as "biologics" regulated under the Public Health Service Act and the
Federal Food, Drug and Cosmetic Act. Development of a therapeutic product for
human use is a multi-step process. First, animal or in vitro testing must
establish the potential safety and efficacy of the experimental product in a
given disease. Once the product has been found to be reasonably safe and
potentially efficacious in animals, suggesting that human testing would be
appropriate, an Investigational New Drug ("IND") application is submitted to the
FDA. FDA approval is necessary before commencing clinical investigations. That
approval may, in some circumstances, involve substantial delays.
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Clinical investigations typically involve three phases. Phase I is
conducted to evaluate the safety of the experimental product in humans, and if
possible, to gain early evidence of effectiveness. Phase I studies also
evaluate various routes, dosages and schedules of product administration. The
demonstration of therapeutic benefit is not required in order to complete Phase
I successfully. If acceptable product safety is demonstrated, the Phase II
studies are initiated. The Phase II trials are designed to evaluate the
effectiveness of the product in the treatment of a given disease and, typically,
are well-controlled, closely monitored studies in a relatively small number of
patients.
The optimal routes and schedules of administration are determined in
these studies. As Phase II trials are successfully completed, Phase III studies
will be commenced. Phase III studies are expanded, controlled and uncontrolled
trials which are intended to gather additional information about safety and
efficacy in order to evaluate the overall risk/benefit relationship of the
experimental product and provide an adequate basis for physician labeling.
These studies also may compare the safety and efficacy of the experimental
device with currently available products. It is not possible to estimate the
time in which Phase I, II and III studies will be completed with respect to a
given product, although the time period is often as long as several years.
Following the successful completion of these clinical investigations, the
preclinical and clinical evidence that has been accumulated is submitted to the
FDA as part of a product license application ("PLA"). Approval of the PLA or
IND is necessary before a company may market the product. The approval process
can be very lengthy and depends upon the time it takes to review the submitted
data and the FDA's comments on the application and the time required to provide
satisfactory answers or additional clinical data when requested.
In addition to the regulatory framework for product approvals, the
Company is and may be subject to regulation under state and federal law,
including requirements regarding occupational safety, laboratory practices, the
use, handling and disposition of radioactive materials, environmental protection
and hazardous substance control, and may be subject to other present and
possible future local state, federal and foreign regulation, including future
regulation of the biotechnology field.
AGREEMENTS FOR SYBIOL DEVELOPMENT
ST. LOUIS UNIVERSITY HEALTH SCIENCES CENTER
Xenogenex, entered into a sponsored research agreement with the St. Louis
University Health Sciences Center to direct and document the research and
development of its synthetic bio-liver, SYBIOL, into a clinical system.
Dr. Li was the Director of the Surgical Research Institute at St. Louis
University and an internationally renowned expert in liver cell biology,
toxicology and drug metabolism. Prior to joining SLU, he headed the Liver
Biology Department at Monsanto Company in St. Louis. Dr. Li also served as
Chief Scientific Officer of Xenogenex. St. Louis University Health Sciences
Center is known for its excellence in providing medical care and medical
research, especially in organ transplantation and artificial internal organ
research. The medical center is one of the few institutions with a research
institute dedicated to surgical research.
On November 30, 1995, the Company terminated its agreement with the St.
Louis University Health Sciences Center and Dr. Albert Li and currently the
Company is seeking the return of all documents and laboratory equipment. During
the period of the sponsored research agreement, the Company spent approximately
$452,000 on research and laboratory equipment.
10
<PAGE>
CHINA JOINT VENTURE
The Company and a Hong Kong business group have formed a Hong Kong
corporation, TECA International, Ltd., under a joint venture agreement. TECA,
which is 18.60% owned by the Company, is required to provide funding for the
next five years. TECA is licensed to produce and sell Xenogenex's synthetic
bio-liver in Asia, Australia and New Zealand.
TECA has arranged, through a joint venture, for the manufacturing and
distribution SYBIOL in China. A SYBIOL unit has been shipped to Number 301
Military Hospital in Beijing, China. The Company is not able to predict whether
the venture in China will generate any revenues for the Company or whether it
will be commercially viable. And although the Company believes the incidence of
liver disease in Asia is far greater than in the United States, the Company has
not conducted or received any third party research or evaluation of this market
and there can be no assurance that the Company will gain any commercially
profitable opportunities at any time in the near future.
Overall, the Company intends to continue to re-evaluate the SYBIOL
technology, the commercial viability of the SYBIOL technology, and the financial
feasibility of further investment in SYBIOL.
COMPETITION
Xenogenex is engaged in businesses characterized by extensive research
efforts, rapid technological change, and intense competition. Competition can
be expected to increase as technological advances are made and commercial
applications broaden. The industries in which Xenogenex seeks to compete are
characterized by substantial competition involving biotechnology and major bio-
pharmaceutical, chemical and biological testing companies. Many of Xenogenex's
existing and potential competitors have substantially greater financial,
research and development, clinical, regulatory, marketing and production
resources than those of Xenogenex and may be better equipped than Xenogenex to
develop, manufacture and market competitive therapeutic products or testing
services. These companies may develop and introduce products and services
competitive with, superior to, or less costly than those of Xenogenex, thereby
rendering some of Xenogenex's technologies and products and services under
development less competitive or obsolete.
EMPLOYEES
EXTEN. As of May 10, 1996, Exten had two employees.
XENOGENEX. Xenogenex has no employees. The Company is managed by its
officers and directors. The work of Xenogenex is carried out by contracts with
third parties.
GENERAL. All of the above companies consider their relations with their
employees to be excellent and none are subject to any union contracts.
ITEM 2. DESCRIPTION OF PROPERTY
EXTEN
LEASE. Exten leases approximately 1,711 square feet of space, at $500
per month, in a modern office building. Exten's lease ends in August 31, 1997.
Exten feels the space is adequate for the foreseeable future.
ARIZONA. On February 28, 1992 the Company exchanged 170,000 shares of
common stock and 170 shares of preferred stock, convertible into 170,000 shares
of common stock, for real estate in Arizona comprised of 240 buildable lots
approximately 70 miles south of the Grand Canyon. This property is pledged to
secure a $250,000 loan to Xenogenex, Inc., a subsidiary of the Company. In 1994
the Company sold four of these lots to pay property taxes. As a result and as
of November 30, 1995, the Company owned 236 of these lots.
11
<PAGE>
The Company is seeking to sell the Arizona property as part of an
agreement with its creditors. However, there can be no assurance that the
Company will successfully settle its creditors' claims or, if it is successful,
that any settlement will be achieved on terms that are reasonable in light of
the Company's current circumstances.
XENOGENEX
Xenogenex is provided offices and clerical services by its parent Exten and
does not have separate offices. Xenogenex believes that this arrangement will
be sufficient during the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
As of May 10, 1996, there were no pending legal proceedings involving the
Company which, in the opinion of management, after discussion with legal
counsel, were of a material nature except the following.
1. Union Bank Litigation
(1) Los Angeles County Superior Court, State of California
(2) August 12, 1992
(3) Union Bank as plaintiff. Exten Industries, Inc. as a defendant.
(4) Lawsuit to enforce a loan guarantee executed by Exten for a loan
to its subsidiary ADC Industries, Inc.
(5) Relief Sought: Monetary payment. Judgement entered against
Exten Industries, Inc. on February 23, 1994 in the amount of
$300,000. There are four other guarantors on this loan. The
Company intends to aggressively pursue equitable indemnification
from these parties. On July 20, 1994, the Company entered into
a settlement with Union Bank that allows the Company to pay
Union Bank $150,000 in full by November 30, 1995. If the
Company does not pay $150,000 to Union Bank by February 2, 1996,
then Union Bank is entitled to pursue the Company for the full
$300,000 plus interest and other costs from the date of the
February 23, 1994 judgement.
2. Goldsmith Litigation with Exten
(1) San Diego County Superior Court, State of California.
(2) January 24, 1995.
(3) Robert H. Goldsmith, former President of Exten Industries, Inc.
as plaintiff. Exten Industries, Inc., as defendant.
(4) Lawsuit for breach of employment contract, fraud and enforcement
of security agreement.
(5) Relief Sought: Damages, Declaration of rights and obligations,
punitive damages, and costs of suit. The Company disputes the
facts and has filed a cross-complaint for conversion, fraud, and
breach of fiduciary responsibility.
3. Goldsmith Litigation with Xenogenex
(1) San Diego County Superior Court, State of California.
(2) January 24, 1995.
(3) Robert H. Goldsmith, former President of Exten Industries, Inc.
as plaintiff. Xenogenex, Inc. as defendant.
(4) Lawsuit for breach of promissory note.
(5) Relief Sought: Damages and specific performance. The Company
disputes the facts and has filed a cross-complaint against Mr.
Goldsmith for fraud and conversion.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No meeting of the Company's shareholders was held in 1995.
PART III
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock was traded on the Philadelphia Stock
Exchange ("Exchange") from May 5, 1989 to June 14, 1994. From June 14, 1994 to
the present, the Company's Common Stock has traded OTC (Electronic Bulletin
Board).
At the Annual Meeting of Shareholders held on July 11, 1990 the
shareholders approved a reverse split of the Common Stock. The shareholders
voted to exchange 7 old shares for 1 new share. The reverse split was effective
midnight, August 31, 1990. The Company had a subsequent reverse split of 1 for
2 effective August 10, 1991, and a 1 for 10 reverse split effective November 30,
1992.
The table below shows the closing sales prices for Exten Common Stock
as reported by the Exchange. All prices have been adjusted to reflect a 1 for 7
reverse split of Exten's outstanding Common Stock on August 31, 1990 and the 1
for 2 reverse split on August 10, 1991 and the 1 for 10 reverse split on
November 30, 1992.
Prices are not adjusted for six percent (6%) stock dividends for
shareholders of record November 30, 1991 and November 30, 1992.
Calendar Year ended December 31, High Low
------ -----
1993
First Quarter . . . . . . . . . . . . . . . . . 6.00 3.50
Second Quarter. . . . . . . . . . . . . . . . . 3.75 1.125
Third Quarter . . . . . . . . . . . . . . . . . 2.00 .938
Fourth Quarter . . . . . . . . . . . . . . . . 1.56 .75
1994
First Quarter . . . . . . . . . . . . . . . . . 1.56 .75
Second Quarter. . . . . . . . . . . . . . . . . 1.19 .375
Third Quarter . . . . . . . . . . . . . . . . . .44 .0625
Fourth Quarter. . . . . . . . . . . . . . . . . .31 .1875
1995
First Quarter . . . . . . . . . . . . . . . . . .33 .07
Second Quarter. . . . . . . . . . . . . . . . . .27 .15
Third Quarter . . . . . . . . . . . . . . . . . .25 .09
Fourth Quarter. . . . . . . . . . . . . . . . . .18 .07
No cash dividends have been paid on Exten Common Stock and no change
of this policy is under consideration by the Board of Directors.
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<PAGE>
The payment of cash dividends in the future will be determined by the Board
of Directors in light of conditions then existing, including the Company's
earnings, financial requirements, and condition, opportunities for reinvesting
earnings, business conditions, and other factors. The number of shareholders of
record of Common Stock on November 30, 1995 was approximately 1,032.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
During the latter part of 1990 the Company revised its business plan and
began its conversion from a merchant banker into a diversified company. In
November of 1990 the Company acquired ADC Industries, Inc. a manufacturer of
valves for storage tanks. In June of 1991 the Company acquired a 21% interest
in Pacific International Indemnity, Ltd., on off-shore surplus line writer
("Pacific"). This transaction was rescinded in March 1992. During September of
1991 the Company acquired Xenogenex, Inc., a bio-medical research and
development company. In 1992, the Company acquired hydraulic technology
applicable to machine and helicopter rotor control. In 1992, the Company
divested itself of the machine control technology. In 1993, the Company
divested itself of its helicopter technology and sold its subsidiary, ADC
Industries. The Company intends to focus its resources on further research and
development efforts to be conducted within its subsidiary, Xenogenex.
RESULTS OF OPERATIONS
FISCAL 1995 VERSUS FISCAL 1994
During the year ending November 30, 1995 ("Fiscal 1995") the Company
recorded total revenues of $6,654 primarily from rental revenues on certain real
estate compared to $90,594 in revenues earned during the fiscal year ending
November 30, 1994 ("Fiscal 1994"). Fiscal 1994's revenues were composed of
$63,483 in royalties,, $25,123 in rents in rental revenues from real estate, and
$1,988 in sales revenue.
During Fiscal 1995, the Company incurred $609,579 in Consulting Fees which
were incurred primarily due to the Company's continued use and reliance on
professional services from outside the Company.
In Fiscal 1995, the Company also incurred $1,043,543 in General and
Administrative Expenses. This increased by nearly 59% in Fiscal 1994's level of
$656,628 primarily due to increased administrative and consulting expenses.
Fiscal 1995 research and development costs declined by nearly 49% from
$140,755 in Fiscal 1994 to $72,058 while depreciation expenses was $21,064 in
Fiscal 1995 compared to $22,596 in Fiscal 1994. The decline in research and
development costs during Fiscal 1995 reflected the Company's limited financial
resources.
As a result, Total Operating Expenses in Fiscal 1995 were $1,746,244
compared to Total Operating Expenses of $1,403,671 in Fiscal 1994. This
resulted in the Company recording a Loss from Continuing Operations of
($1,739,590) in Fiscal 1995 compared to a Loss from Continuing Operations of
($1,313,077) in Fiscal 1994.
For Fiscal 1995, the Company recorded a gain of $49,348 in connection with a
liquidation of certain indebtedness compared to a similar gain of $83,027 in
Fiscal 1994. Interest Expense declined by over 33% from $33,798 in Fiscal 1994
to $22,438 in Fiscal 1995.
The Company's Fiscal 1995 operations were greatly impacted by certain Other
Income and Expenses. In Fiscal 1995, the Company's management re-evaluated the
carrying value of the Company's real estate in Arizona given declining market
trends in the market area and changing land use in surrounding real estate
market adjoining the real estate parcels held by the Company. The Company plans
to sell the Arizona real estate in connection with a contemplated settlement
agreement with the Company's creditors. On this basis, the Company reduced the
carrying value of the real estate from $1,617,667 to $354,000.
14
<PAGE>
In addition, the Company reduced the carrying value of certain shares of
GroupMed International, Inc. ("GMI") it received from GMI to reflect the limited
liquidity and the current market value of the GMI stock it received in payment
under a licensing agreement with GMI.
The Company also determined that the wrap notes and associated equity
purchased during 1992 have an undeterminable value. The Company established a
valuation allowance of $356,741 for the entire amounts relative to the wrap
notes receivable and payable balances associated with the wrap notes in the
amount of $356,741 for the year ended November 30, 1995. This increase for
reserves of $356,741 has been reflected within general and administrative
expenses for Fiscal 1995.
The Company also reduced the carrying value of its prior investment in
helicopter control technology from $187,500 at the close of Fiscal 1994 to $0 at
the close of Fiscal 1995. The Company has no plans to develop this technology.
The Company also reduced the value of a timeshare investment from $9,000 at the
close of Fiscal 1994 to $0 at the close of Fiscal 1995.
As a result of these re-evaluations of the carrying value of the Company's
investments, the Company recorded an aggregate Loss on Disposition of Assets of
$1,514,167 during Fiscal 1995 compared to a Loss on Disposition of Assets of
$63,359 in Fiscal 1994. The Company also recorded a $60,000 gain from the sale
of the License to GMI.
Other Income and Expenses resulted in the Company recording $1,336,148 in
Total Other Expenses (net of other income) in Fiscal 1995 from Fiscal 1994's
Total Other Expenses (net of other income) of $37,600.
As a result, the Company recorded a Loss Before Income Taxes of $3,075,738
in Fiscal 1995 or an increase of nearly 128% from the Loss Before Income Taxes
of $1,350,677 recorded during Fiscal 1994. This resulted in the Company
recording a Net Loss of ($3,076,538) in Fiscal 1995 compared to a Net Loss of
($1,351,477) in Fiscal 1994 with Fiscal 1995 total Losses Per Share of Common
(computed with Common Stock Equivalents and fully diluted) of ($0.20) compared
to ($0.23) for the same period during Fiscal 1994.
FISCAL 1994 VERSUS FISCAL 1993
During the fiscal year ending November 30, 1994 ("Fiscal 1994"), the Company
recorded revenues of $90,594 compared to $76,414 in revenues for the fiscal year
ending November 30, 1993 ("Fiscal 1993"). Nearly all of Fiscal 1994's revenues
were due to the Company's receipt of $62,313 from an officer of the Company who
repaid short swing profits on the purchase and sale of the Company's Common
Stock and the Company's receipt of $25,123 in rental revenues from the Company's
real estate holdings.
During Fiscal 1994 the Company also incurred $606,288 in consulting fees
which represented an increase of about 41% from $429,522 in consulting fees
during Fiscal 1993. During both Fiscal 1993 and 1994, the Company selectively
paid consulting fees in cash and in shares of the Company's Common Stock (with
the latter frequently registered on a Form S-8 Registration Statement to enable
the payee to sell and transfer the shares in the open market). The increase in
Consulting Fees arose primarily out of the increased need for consulting
services to the Company and its subsidiary, Xenogenex, Inc. during the year.
In comparison, the Company reported 20.77% decline in General and
Administrative Expenses during Fiscal 1994 as these costs decreased to $656,628
compared to $828,736 during Fiscal 1993. The decline in General and
Administrative expenses was largely due to a reduction in of legal expenses and
professional fees as the Company reduced legal and professional expenses by
$242,373. For Fiscal 1994, these General and Administrative Expenses included
$263,154 in legal expenses, $63,152 in directors' and officers' liability
insurance premiums, $87,321 in salaries and wages, $24,908 in public relations
costs, $22,906 in travel expenses, $22,596 in depreciation, $18,058 in
accounting expenses, and payroll taxes of $11,748.
15
<PAGE>
However, the Company also incurred $140,755 in Research and Development
expenses in fiscal 1994 whereas the Company did not incur any Research and
Development Expenses in fiscal 1993.
With a 41% increase in Consulting Fees, a 20.77% decline in General and
Administrative Expenses, and $140,755 in Research and Development expenses, the
Company recorded a 8.12% increase in Total Operating Expenses as the Company
incurred $1,403,671 in Total Operating Expenses during Fiscal 1994 compared to
$1,298,258 in Total Operating Expenses in Fiscal 1993.
As a result, the Company recorded a Loss from Continuing Operations of
($1,313,077) in Fiscal 1994 compared to a loss of ($1,221,844) in Fiscal 1993.
In addition, the Company also recorded Other Income and Expenses for both
Fiscal 1994 and 1993. For Fiscal 1994 the Company recorded $83,027 in debt
forgiveness income, $33,798 in Interest expenses (net of Interest Income),
$17,000 in bad debt expenses, and $63,359 in losses on the sale of certain
shares of Princeton Electronics stock and the sale of certain parcels of real
estate in Arizona. By comparison for Fiscal 1993, the Company did not record
any income from debt relief, $11,431 in interest income (net of interest
expense), $60,451 in bad debt expenses, and $38,929 in losses on disposition of
assets. As a result, the Total Other Expenses showed a 57.25% decline from
$87,949 in Total Other Expenses for Fiscal 1993 to $37,600 in Total Other
Expenses for Fiscal 1994.
The Company's Loss From Continuing Operations Before Income Taxes declined
by 3.12% from a loss of ($1,309,793) in Fiscal 1993 to a loss of ($1,350,677) in
Fiscal 1994.
In addition and for Fiscal 1993, the Company recorded a Loss from
Discontinued Operations of ($197,722) as the Company discontinued operations of
its then subsidiary, ADC Industries Corporation ("ADC"). Subsequently the
Company sold ADC to EFM Venture Group, Inc., an entity owned by Edward F. Myers,
then an officer and director of the Company, for $1,000 and thereby recognized a
gain of $152,784. The Company had no comparable transactions in Fiscal 1994.
This resulted in the Company recording a Net Loss of ($1,351,477) in Fiscal
1994 compared to a Net Loss of ($1,355,531) in Fiscal 1993 with Fiscal 1993
total Losses Per Share of Common (computed with Common Stock Equivalents and
fully diluted) of ($0.35) compared to ($0.23) for the same period during Fiscal
1994.
LIQUIDITY AND CAPITAL RESOURCES - THE COMPANY
Several steps have been taken by the Company to reduce its liabilities,
reduce cash requirements, and raise capital. The Company has been negotiating
with the bank and its vendor creditors to settle its liabilities. Exten is also
negotiating with investment bankers for raising of additional capital. The
Company is also considering merger with other entities. No assurances can be
given that any such activity will prove successful. The Company will require
substantial working capital to continued synthetic bio-liver development of
Xenogenex, Inc. and there can be no guarantee that the Company will be
successful in obtaining any such needed financing.
During Fiscal 1995, the Company took steps to control expenses and is
attempting to reduce and negotiate outstanding indebtedness.
During Fiscal 1994, the Company disposed of four real estate parcels (out of
240 then owned) in a subdivision known as the Grand Canyon Subdivision in
Coconino County, Arizona. The sale was undertaken to satisfy outstanding
property taxes. While this resulted in the Company recording a $28,333 loss on
these sales, the action served to conserve the Company's cash and liquid
resources.
The Company has also continued to pay salaries, consulting fees, and in some
cases, legal fees through the issuance of the Company's Common Stock with the
subsequent registration of the shares so issued on Form S-8. The Company has
been forced to take these steps to conserve the Company's cash and liquid
resources.
16
<PAGE>
RESULTS OF OPERATIONS - ADC
During 1993 the operations of ADC Industries Corporation ("ADC") were wound
up and the assets of ADC were sold by Union Bank to satisfy a portion of a loan
with that bank. Subsequently, ADC was sold and later filed for bankruptcy under
Chapter 7.
XENOGENEX, INC.
Xenogenex is in the development stage and produces no revenue. However,
Xenogenex incurred consulting and administrative costs in the last fiscal.
Xenogenex will require substantial additional capital to continue its
development of the synthetic bio-liver.
ITEM 7. FINANCIAL STATEMENTS
The full text of the Company's audited financial statements for the fiscal
year ended November 30, 1995 begins on page 26 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Within the 24-month period prior to November 30, 1995, there has not been a
change of accountants or a reported disagreement with accountants on any matter
of accounting principles or practices or financial statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Directors and Executive Officers of the Company were as of May 10, 1996:
Name Age Position Date Elected
---- --- -------- ------------
W. Gerald Newmin 58 President, CEO, Chairman
Secretary & Director 12-01-95
William R. Hoelscher 59 Vice President & Director 10-25-94
Larry Bedard 51 Director 12-08-95
W. GERALD NEWMIN was retained as a consultant to the
Board of Directors of the Company in June 1995. As an accommodation to the
Board, Mr. Newmin was elected Acting Secretary of the Corporation on July 13,
1995, and had signature authority on checks in the absence of an officer or
director. On December 1, 1995, Mr. Newmin was elected Chairman, Chief Executive
Officer, and President of the Company. Mr. Newmin is a principal of Newmin
Associates, specializing in mergers and acquisitions and the operational
management of troubled companies. Mr. Newmin currently serves on the Board of
Directors and is an investor in four companies, one of which, SYS, is a
publicly-traded (OTC) on the Electronic Bulletin Board.
17
<PAGE>
Mr. Newmin is currently Chairman of the Board of the International Forum of
Corporate Directors, a non-profit organization which promotes corporate
governance, and which is composed of over 100 Board members from companies in
San Diego and all over California. From 1991 to present. Mr. Newmin has been a
consultant, investor, and a director of Greene International West, Inc., an
industrial manufacturing company located in Oceanside, California. From 1993 to
present, Mr. Newmin has been an investor and director of Occu-Med, Inc., a
managed healthcare company located in Denver, Colorado. Since 1994, Mr. Newmin
has been an investor and director of SYS, a defense systems company in San
Diego, California. From 1984 to 1987, Mr. Newmin was President of HealthAmerica
Corporation, which was the nation's largest publicly-held HMO management company
at the time. From 1977 to 1984,, Mr. Newmin was President of International
Silver Company,a diversified multi-national manufacturing company which he
restructured. From 1973 to 1977, Mr. Newmin was Vice President and Western
Regional Director for American Medicorp, Inc. In this capacity, he was
responsible for the management of 23 acute care hospitals located throughout the
Western United States. From 1962 to 1973, Mr. Newmin was employed by Whittaker
Corporation. Mr. Newmin was instrumental in Whittaker's entry into both the
United States and International healthcare markets. At Whittaker, Mr. Newmin
held various senior executive positions, including those of Chief Executive
Officer of Whittaker's Production Steel Company, Whittaker Textiles Corporation,
Bertram Yacht Corporation, Narmco Materials Corporation, and Anson Automotive
Corporation. Mr. Newmin holds a Bachelor's degree in Accounting from Michigan
State University.
WILLIAM R. HOELSCHER was elected a Director on October
25, 1994. From August 1984 to the present, Mr. Hoelscher has been the owner of
Hoelscher Engineering ("HEC"). HEC provides technical support to U.S. Elevator,
other elevator companies, and consulting services to legal counsel in connection
elevator litigation matters. Mr. Hoelscher also is part-time consultant to
Cubic Corp and provides training seminars for Cubic's U.S. Elevator division in
connection with elevator design. From July 1991 to the present, Mr. Hoelscher
has been President of ETC Corp, a company involved in developing ideas and
inventions. From August 1984 to July 1991, Mr. Hoelscher was Vice President,
Secretary, and Treasurer of Tec-Matic Corp. - a company involved in building
computer interface equipment for hydraulic milling machinery; and Mr. Hoelscher
was also President of Photovoltaic Energy Development, Inc. - a company involved
in the development of power inverters and other accessories for use in the
conversion of solar and other natural energy. During this period Mr. Hoelscher
was also President of Hypec Corp. - a company involved in the design and
development of a thermal to electrical energy conversion unit. In July 1984 Mr.
Hoelscher retired as Director of Research and Development at U.S. Elevator Corp.
Mr. Hoelscher holds a B.S. Degree in Physics from San Diego State University
(1959).
MR. LARRY BEDARD was elected a Director on December 8,
1995. From November 1992 to the present Mr. Bedard has been President and CEO
of La Roca International, a merchant banking firm. From June 1987 to October
1992, Mr. Bedard was a self-employed entrepreneur engaged in personal
entrepreneurial activities. From 1985 to May 1987 Mr. Bedard was Chairman,
Director, and Partner of Pacific International Securities of Vancouver, British
Columbia. From 1982 to 1985, Mr. Bedard was Senior Vice President and Director
of Corporate Finance and Partner of Dominick & Dominick of Toronto, Ontario.
Mr. Bedard studied at the University of Alberta.
As per item 405 of SEC Regulation SB it should be noted
that during the fiscal year ended November 30, 1995, the Company has no record
of the timely filing of Statements of Changes in Beneficial Ownership of
Securities forms (Form 3 and Form 4) on one or more occasions by the following:
none.
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ITEM 10. EXECUTIVE COMPENSATION
During fiscal 1995, the Company paid the following
compensation to the Company's Officers and Directors:
CASH COMPENSATION:
Fiscal 1995
-----------
W. Gerald Newmin $0
William R. Hoelscher $0
Larry Bedard $0
STOCK COMPENSATION:
Officer Date of Issue Number of Shares
- ------- ------------- ----------------
William R. Hoelscher 08-17-96 36,000
W. Gerald Newmin, President 07-12-95(1) 486,000
(1.) Date of initial issuance.
STOCK OPTION COMPENSATION
In addition to the cash and stock compensation reported above, the Company's
Board of Directors voted to issue options to purchase shares of the Company's
Common Stock (par value $0.01) to the following Officers and Directors of the
Company in lieu of cash compensation during fiscal 1995:
<TABLE>
<CAPTION>
No. of Shares
Name of Officer/Director Under Option Exercise Price Expiration Date
- ------------------------ ---------------- -------------- ---------------
<S> <C> <C> <C>
Arnold Hunsberger, Former Director 400,000 $0.10 11-13-00
Arnold Hunsberger, Former Director 400,000 $0.06 07-24-98
William R. Hoelscher, Director 400,000 $0.10 11-13-00
William R. Hoelscher, Director 400,000 $0.06 07-24-98
</TABLE>
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
As of May 10, 1996, the Company's Directors, Officers and over 5%
shareholders held beneficially the following shares of Common Stock or of
beneficial interest. Numbers of shares have been adjusted for 1:7 reverse split
effective August 31, 1990 and the reverse split of 1:2 August 10, 1991 and a
reverse split of 1:10 on November 30, 1992.
Common %
Name Title Shares Class1
- --------------------------------------------------------------------------------
W. Gerald Newmin(2) President, CEO,
Chairman & Secretary 586,000 2.50%
William R. Hoelscher Director & Treasurer 972,000 4.14%(3)
Larry Bedard Director 0 0%
All Officers and
Directors as a Group _________ _____
(3 persons) 1,558,000 6.64%
____________________
Footnotes:
(1) Based on 23,462,205 shares of the Company's Common Stock outstanding as of
November 30, 1995 and stock option shares currently executable by officers,
directors, and affiliates within 60 days of May 10, 1996 without including the
effect of any other stock options.
(2) Includes shares held by Newmin & Associates, an entity owned by W. Gerald
Newmin, the Company's President, CEO, Chairman and Secretary.
(3) Includes 800,000 shares underlying 800,000 options granted William
Hoelscher.
STOCK OPTIONS OUTSTANDING:1
Amount of Exercise Expiration
Name Position Stock Option Price Date
- ---- -------- ------------ --------- ----------
Malcolm D. Campbell Past CFO, Secretary 300,000 $0.50 08/26/03
Arnold Hunsberger Former Director 400,000 $0.10 11/13/00
Arnold Hunsberger Former Director 400,000 $0.06 07/24/98
William R. Hoelscher Director 400,000 $0.10 11/13/00
William Hoelscher Director 400,000 $0.06 07/24/98
- --------------------
1. Does not include options granted to other holders, totalling an additional
2,090,000 shares at exercise prices ranging from $0.10 to $0.50 per share.
All of the options expire on the date shown, and there is no provision in
the grant for any extension of the exercise period beyond the expiration date
shown above.
20
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All share numbers in this section have been adjusted for the 1 for 7 reverse
split effective August 31, 1990 and the 1 for 2 reverse split effective August
10, 1991 and the 1:10 reverse split effective November 30, 1992.
On February 24, 1992 the Company purchased certain helicopter technology from
ETC Corporation for 50,000 shares of the Company's common stock (See
"Business"). Mr. Arnold Hunsberger, who became a Company director on November
25, 1992 is an owner of ETC Corporation. The shares were valued at $5.00 per
share.
On February 28, 1992, the Company exchanged 170,000 shares of common stock
and 170 shares of preferred stock, convertible into 170,000 shares of common
stock, for real estate in Arizona comprised of 240 buildable lots. The Company
purchased the land from entities controlled by Mr. Louis Redondo. On April 30,
1992 Mr. Redondo became a member of the Company's Board of Directors. The shares
were valued at an aggregate of $1,700,000.
The Company's Board of Directors on May 19, 1992 voted to issue to members of
the Board of Directors options to purchase a total of 431,036 shares at $0.10
per share. These options may be exercised at any time prior to May 19, 1997.
On July 29, 1992 the Board of Directors voted to issue options to members of
the Board to purchase a total of 3,600 shares of Xenogenex owned by the Company.
The options are valid for five years from the time that Xenogenex is first
publicly traded. The option price to be fifty percent (50%) of the initial
public offering price. The Company valued these options at $0.75 per share.
On July 30, 1992 the Company sold 106,000 shares of common stock for $1.30
per share to St. Louis Fire and Marine. St. Louis Fire and Marine signed a note
for $130,000 payable at $15,000 per month starting November 24, 1992. St. Louis
Fire and Marine is controlled by Louis Redondo a past Company director.
On September 25, 1992 the Board of Directors voted to transfer a total of
125,000 shares of Xenogenex stock owned by the Company to members of the
Company's Board of Directors as additional compensation. These shares were
valued at $0.49 per share.
On January 12, 1993 the Board of Directors issued 25,000 shares of the
Company's common stock to Carmine J. Bua, Esq., for legal services valued at
$100,000.
On March 8, 1993 the Board issued to Malcolm D. Campbell, its president
50,000 shares of its common stock in lieu of salary. The shares were valued at
$0.50 per share.
On April 20, 1993 the Board issued to Carmine J. Bua, Esq. 5,000 shares of
its common stock for legal services. The shares were valued at $3.00 per share.
In May 7, 1993 the Company issued to Carmine J. Bua, Esq., 50,000 shares of
common stock for legal services. The shares were valued at $1.75 per share.
On May 24, 1993 the Board issued to Malcolm D. Campbell, its president,
50,000 shares of common stock in lieu of salary. The shares were valued at
$1.75 per share.
On August 26, 1993 Exten's Board of Directors awarded an option to its
president, Malcolm D. Campbell, for 300,000 common shares exercisable at $0.50
until August 26, 1998.
On August 26, 1993 the Board issued to Carmine J. Bua, Esq., its then vice
president, 100,000 shares of common stock for legal services. The shares were
valued at $0.75 per share.
21
<PAGE>
On September 23, 1993 the Board issued to Carmine J. Bua, Esq., its then vice
president, 563,000 of the Company's common stock for legal services. The shares
were valued at $0.50 per share.
On January 4, 1994, the Company's Board of Directors approved a loan of
$250,000 to the Company's subsidiary, Xenogenex, Inc. by the Company's then
President and CEO, Robert H. Goldsmith through the R. H. Goldsmith Living Trust.
The Board also approved a Consulting Agreement with Goldsmith providing for the
issuance of 288,333 shares of the Company's Common Stock for consulting
services. These shares were valued at $0.875 per share with 144,167 shares to
be issued on January 1, 1996 and 144,166 to be issued on January 1, 1997. All
of these shares were valued at $0.875 per share.
On March 1, 1994, the Company's Board of Directors approved the issuance of:
(i.) 94,476 shares of the Company's common stock to Malcolm D. Campbell, then an
officer and director of the Company, in lieu of payment of $62,000 in cash
salary payments; and (ii.) 38,095 shares of the Company's Common Stock to Robert
H. Goldsmith, the Company's then President, in lieu of cash salary payments.
All of these shares were valued at $0.65 per share.
On June 14, 1994, the Company's Board of Directors authorized the issuance of
160,000 shares of the Company's Common Stock to Carmine J. Bua, Esq., then an
officer of the Company in exchange for legal services. The legal services were
valued at $80,000.
On July 29, 1994, the Company's Board of Directors authorized the issuance of
10,000 shares of the Company's Common Stock to Arnold Hunsberger, then an
officer and Director of the Company and 6,667 shares of the Company's Common
Stock to Ken Krul, then a Director of the Company. The shares issued to Mr.
Hunsberger were valued at $1,250 and the shares issued to Mr. Krul were valued
at $8,333.
On October 25, 1994, the Company's Board of Directors approved an employment
agreement with the Company's then President, Kevin G. Smith. Under the terms of
the agreement, Mr. Smith receives 40,000 shares of the Company's Common Stock
for each month of his employment for a period of up to twelve months from and
after November 1, 1994. In addition, the Company also granted Mr. Smith the
right to receive 250,000 Shares of the Company's common stock upon the Company's
acceptance of the first three months of Mr. Smith's employment from November 1,
1994 and an additional 250,000 shares of the Company's Common Stock for an
additional three months of employment from March 1, 1995. The Company is
obligated to register (on Form S-8) all shares issued to Mr. Smith so as to
ensure that the shares are freely-tradeable. All of the shares issued to Mr.
Smith are valued at $0.10 per share.
On January 10, 1995, the Company's Board of Directors voted to: (i.) issue
500,000 shares of the Company's Common Stock to Kevin G. Smith, the Company's
then President, in exchange for services rendered to the Company; and (ii.)
710,000 shares of the Company's Common Stock to Margaret Rawlinson for
consulting services rendered. All of these shares were valued at $0.10 per
share and the Company registered Mr. Smith's Shares on Form S-8 and Ms.
Rawlinson's shares pursuant to Regulation S. In addition, the Company's Board
of Directors voted to issue 350,000 shares of the Company's Common Stock to
William E. Daniel in exchange for services rendered to the Company. These
shares were valued at $0.10 per share and the Company registered the Shares on
Form S-8.
On February 7, 1994, the Company's Board of Director's granted Robert H.
Goldsmith, then President of the Company, an option to purchase a total of
1,000,000 shares of common stock at a price of eighty-one and one-quarter cents
($.8125) per share exercisable for the period beginning February 8, 1994 and
ending February 7, 2004 for cash payment or a promissory note payable within
ninety (90) days. On April 1, 1994 the option was exercised and one million
(1,000,000) shares of the Company's common stock was issued. The shares were
not paid for within the ninety (90) days set forth in the option agreement. As
a result, the Company established a receivable for the amount due the Company
for this exercised option. The Board also approved the issuance of 1,000,000
shares of the Company's Common Stock to Mr. Goldsmith subject to Mr. Goldsmith
earning these shares for future services to be rendered to the Company and
certain other conditions. These shares were valued at $0.8125 per share.
22
<PAGE>
On April 7, 1995, the Company's Board of Directors voted to issue the
following shares for services rendered to the Company: (i.) 200,000 shares to
the Company's then President, Kevin G. Smith; (ii.) 150,000 shares to William E.
Daniel; (iii.) 56,250 shares to Arnold Hunsberger, a then Director of the
Company; and (iv.) 112,500 shares to William R. Hoelscher, a Director of the
Company. All of these shares were valued at $0.15 per share.
Subsequently, on August 17, 1995, Mr. Hunsberger and Mr. Hoelscher returned
56,250 and 112,500 shares respectively, in exchange for the grant an option to
each of them, by the Company's Board of Directors on August 17, 1996.
On April 24, 1995, the Company's Board of Directors voted to issue the
following shares for services rendered to the Company: (i.) 480,000 shares to
the Company's then President, Kevin G. Smith; (ii.) 90,000 shares to Steven
Broderson; (iii.) 180,000 shares to William E. Daniel; and (iv.) 75,000 shares
to Craig J. Shaber, Esq. for legal services. All of these shares were valued at
$0.19 per share.
On July 13, 1995, the Company's Board of Directors voted to issue 200,000
shares of the Company's Common Stock to Newmin Associates, an entity owned by
the Company's President, for consulting services. These shares were valued at
$0.109 per share.
On July 24, 1995, the Company's Board of Directors took the following
actions:
(i.) granted Edward F. Myers, a former officer and director, an option
to purchase 400,000 shares of the Company's Common Stock at an
exercise price of $0.10 per share upon shipment of the second SYBIOL
unit to China and upon satisfaction of other terms of a consulting
agreement with the Company;
(ii.) granted Edward F. Myers, a former officer and director, an
option to purchase 400,000 shares of the Company's Common Stock at an
exercise price of $0.06 per share in payment of all monies past due
and owing to Mr. Myers;
(iii.) issued 240,000 shares of the Company's Common Stock (valued at
$0.10 per share) to Edward F. Myers, a former officer and director, in
exchange for services rendered;
(iv.) issued 250,000 shares of the Company's Common Stock to Malcolm
D. Campbell, a former officer and director, in exchange for $30,936.15
owed to him;
(v.) granted Arnold Hunsberger an option to purchase 400,000 shares of
the Company's Common Stock at $0.10 per Share and to expire on
November 13, 2000 and an option to purchase 400,000 shares of the
Company's Common Stock at $0.06 per Share and to expire on July 24,
1998; and
(vi.) granted William Hoelscher an option to purchase 400,000 shares
of the Company's Common Stock at $0.10 per Share and to expire on
November 13, 2000 and an option to purchase 400,000 shares of the
Company's Common Stock at $0.06 per Share and to expire on July 24,
1998.
On August 17, 1995, the Company's Board of Directors took the following
actions:
(i.) issued 236,000 shares of the Company's Common Stock to W. Gerald
Newmin, the Company's President, CEO, Chairman, and Secretary in
exchange for services valued at $28,910;
(ii.) issued 52,000 shares of the Company's Common Stock to Arnold
Hunsberger, a director of the Company in exchange for services valued
at $6,370;
(iii.) issued 36,000 shares of the Company's Common Stock to William
R. Hoelscher, a director of the Company in exchange for services
valued at $4,410;
23
<PAGE>
(iv.) granted Arnold Hunsberger, a then director, an option to
purchase 400,000 shares of the Company's Common Stock at an exercise
price of $0.06 per share at any time for a period of three years in
exchange for Mr. Hunsberger's return of 412,500 shares of the
Company's Common Stock to the Company;
(v.) granted William R. Hoelscher, a director, an option to purchase
400,000 shares of the Company's Common Stock an exercise price of
$0.06 per share at any time for a period of three years in exchange
for Mr. Hoelscher's return of 465,000 shares of the Company's Common
Stock to the Company; and
(vi.) issued 720,000 shares of the Company's Common Stock to Margaret
Rawlinson in exchange for consulting services valued at $0.14 per
share.
On September 18, 1995, the Company's Board of Directors took the following
actions:
(i.) issued 1,000,000 shares of the Company's Common Stock to Ben
Johnson in exchange for investment banking services valued at
$120,000;
(ii.) granted Edward F. Myers, a former officer and director an option
to purchase 300,000 shares of the Company's Common Stock an exercise
price of $0.10 per share at any time for a period of three years;
(iii.) issued 136,000 shares of the Company's Common Stock to W.
Gerald Newmin, subsequently, the Company's Chairman and President, in
exchange for services rendered; and
(iv.) issued 100,000 shares of the Company's Common Stock to Carmine
J. Bua, Esq., in exchange for legal services.
The shares issued to Mr. Newmin and Mr. Bua were valued at $0.14 per share.
On November 13, 1995, the Company's Board of Directors voted to issue the
following shares of the Company's Common Stock in payment for services rendered
to the Company: 225,000 shares and 100,000 shares to W. Gerald Newmin and
William Hoelscher, respectively. These shares were valued at $0.12 per share.
The Company's Board of Directors also granted William Hoelscher and a former
Director, Arnold Hunsberger, each an option to purchase up to 400,000 shares of
the Company's Common Stock at an exercise price of $0.10 per share. Both
options expire on November 13, 2000.
No current Officer or Director of the Company has been indebted to the
Company or any of its subsidiaries in an amount in excess of $60,000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Exhibit Description
- ----------- -------------------
10 Compensation/Stock Option Agreement
24 Consent of Harlan & Boettger
27 Financial Data Schedule
24
<PAGE>
REPORTS ON FORM 8-K
ITEM REPORTED
On March 30, 1995 the Company filed a report on Form 8-K relating to the
Company's late filing of its 1994 Form 10-KSB.
On July 11, 1995 the Company filed a report on Form 8-K relating to the
resignation of the Company's then President, Kevin G. Smith and the Company's
entering into a consulting agreement with Newmin Associates, an entity owned by
W. Gerald Newmin.
On September 29, 1995 the Company filed a report on Form 8-K relating to the
grant of a license to GroupMed International.
On November 15, 1995 the Company filed a report on Form 8-K relating to a
report and audit conducted by the Company's auditors, Harlan and Boettger, as of
August 31, 1995.
On December 6, 1995 the Company filed a report on Form 8-K relating to the
election of W. Gerald Newmin
as Chairman, President and CEO of the Company.
On December 13, 1995 the Company filed a report on Form 8-K relating to the
election of Larry Bedard as a Director of the Company.
25
<PAGE>
HARLAN & BOETTGER
Certified Public Accountants
12626 High Bluff Drive, Suite 200
San Diego, California 92130
(619) 755-8113
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
EXTEN INDUSTRIES, INC. AND SUBSIDIARY:
We have audited the accompanying consolidated balance sheet of Exten Industries,
Inc. (a Delaware corporation) and its subsidiary (Note A) as of November 30,
1995 and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Exten Industries,
Inc. and subsidiary as of November 30, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note M to
the consolidated financial statements, the Company's default on certain loan
agreements, recurring losses, decreases in working capital, and negative cash
flows raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note M to the consolidated financial statements. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of reported asset amounts or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
/s/ Harlan & Boettger
San Diego, California
February 15, 1996
26
<PAGE>
HARLAN & BOETTGER
Certified Public Accountants
12626 High Bluff Drive, Suite 200
San Diego, California 92130
(619) 755-8113
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders of
Exten Industries, Inc.
San Diego, California
We have audited the consolidated balance sheets of Exten Industries, Inc. and
its subsidiaries as of November 30, 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Exten Industries,
Inc. and its subsidiaries as of November 30, 1994, and the results of their
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying 1994 consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 25 to the consolidated financial statements, the Company's default on
certain loan agreements, recurring losses, decreases in working capital, and
negative cash flows raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 25 to the consolidated financial statements. The 1994
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result from the outcome of this
uncertainty.
/s/ Harlan & Boettger
March 20, 1995
27
<PAGE>
EXTEN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of November 30,
--------------------------
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 8,233 $ -
Employee receivables 78,960 -
Accounts receivable 64,000 -
Notes receivable (Note B) - 245,025
Prepaid expenses and other 164,400 14,235
----------- -----------
TOTAL CURRENT ASSETS 315,593 259,260
INVESTMENTS (Note E) 48,170 192,650
REAL ESTATE HELD FOR SALE (Note F) 354,000 1,671,667
PROPERTY & EQUIPMENT, net (Note D) 158,024 81,488
NOTES RECEIVABLE, net of current portion (Note B) 83,000 2,306,845
DEPOSITS 62,500 1,027
----------- -----------
$ 1,021,287 $ 4,512,937
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 187,948 $ 147,745
Accrued expenses 167,694 395,201
Notes payable, current portion (Note G) 387,987 265,896
----------- -----------
TOTAL CURRENT LIABILITIES 743,629 808,842
NOTES PAYABLE, net of current portion (Note G) 350,000 2,463,737
MINORITY INTEREST (99,149) -
----------- -----------
TOTAL LIABILITIES 994,480 3,272,579
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 50,000,000 shares authorized,
23,462,205 and 7,272,457 shares issued and outstanding at
November 30, 1995, and 1994 (Note J) 234,621 72,724
Additional paid-in capital (Note J) 9,134,899 7,433,809
Receivable from related party (Note C) (812,500) (812,500)
Common stock subscribed, 2,000,000 shares subscribed
net of subscription receivable of $165,000 at November 30,
1995, none at November 30, 1994 (Note H) - -
Preferred stock, $0.01 par value,1,000,000 shares
authorized, 143 shares issued and outstanding (Note J) 1 1
Retained deficit (8,530,214) (5,453,676)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 26,807 1,240,358
----------- -----------
$ 1,021,287 $ 4,512,937
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
<TABLE>
<CAPTION>
EXTEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended November 30,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
Sales $ 1,170 $ 1,988
Royalties 96 63,483
Rents 5,388 25,123
----------- -----------
TOTAL REVENUE 6,654 90,594
OPERATING EXPENSES
Consulting fees 609,579 606,298
General and administrative expenses 1,043,543 656,628
Research and development costs 72,058 140,755
Depreciation and amortization 21,064 22,596
----------- -----------
TOTAL OPERATING EXPENSES 1,746,244 1,403,671
----------- -----------
LOSS FROM OPERATIONS (1,739,590) (1,313,077)
OTHER INCOME (EXPENSES)
Extinguishment of debt 49,348 83,027
Interest expense (22,438) (33,798)
Loss on disposition of assets (Note E) (1,514,167) (63,359)
Sale of technology license 60,000 -
Bad debt expense - (17,000)
Loss from investment in partnership (7,980) (6,470)
Minority interest income 99,089 -
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (1,336,148) (37,600)
----------- -----------
LOSS BEFORE INCOME TAXES (3,075,738) (1,350,677)
Provision for income taxes (Note I) 800 800
----------- -----------
NET LOSS $(3,076,538) $(1,351,477)
----------- -----------
----------- -----------
NET LOSS PER COMMON SHARE $ (.20) $ (.23)
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 15,367,331 5,875,987
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
EXTEN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ -------
<S> <C> <C> <C> <C>
Balance, November 30, 1993 4,903,677 $ 49,037 313 $ 3
Issuance of stock 163,000 1,630 - -
Issuance of stock for services 875,552 8,756 - -
Conversion of Series E preferred
stock for common stock 170,000 1,700 (170) (2)
Common stock dividend
on Series C preferred stock 228 1 - -
Exercise of stock options 160,000 1,600 - -
Net loss - - - -
Balance, November 30, 1994,
as originally stated 6,272,457 $ 62,724 143 $ 1
Adjustment:
Exercise of stock
options (Note P) 1,000,000 10,000 - -
Balance, November 30, 1994,
as adjusted 7,272,457 $ 72,724 143 $ 1
Issuance of stock 4,863,000 48,630 - -
Subscribed stock 2,000,000 - - -
Less subscription
receivable of $165,000 (2,000,000) - - -
Issuance of stock for services 13,177,248 131,772 - -
Issuance of stock for investment 500,000 5,000 - -
Exercise of stock options 60,000 600 - -
Issuance of stock options - - - -
Return of common stock issuances
for recession of contracts
for services (2,410,500) (24,105) - -
Net loss - - - -
----------- ---------- --------- -------
Balance, November 30, 1995 23,462,205 $ 234,621 143 $ 1
----------- ---------- --------- -------
----------- ---------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
Receivable
from Total
Additional Related Retained Stockholders
Paid-in Capital Party Deficit Equity
--------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, November 30, 1993 $ 6,113,904 $ - $(4,102,199) $ 2,060,745
Issuance of stock 85,371 - - 87,001
Issuance of stock for services 375,332 - - 384,088
Conversion of Series E preferred
stock for common stock (1,698) - - -
Common stock dividend
on Series C preferred stock - - - 1
Exercise of stock options 58,400 - - 60,000
Net loss - - (1,351,477) (1,351,477)
----------- ---------- ----------- -----------
Balance, November 30, 1994,
as originally stated $ 6,631,309 $ - $(5,453,676) $ 1,240,358
Adjustment:
Exercise of stock
options (Note P) 802,500 (812,500) - -
Balance, November 30, 1994,
as adjusted $ 7,433,809 $ (812,500) $(5,453,676) $ 1,240,358
Issuance of stock 353,910 - - 402,540
Subscribed stock - - - -
Less subscription
receivable of $165,000 - - - -
Issuance of stock for services 1,386,015 - - 1,517,787
Issuance of stock for investment 57,500 - - 62,500
Exercise of stock options 5,400 - - 6,000
Issuance of stock options 167,500 - - 167,500
Return of common stock issuances
for recession of contracts
for services (269,235) - - (293,340)
Net loss - - (3,076,538) (3,076,538)
------------ ---------- ----------- -----------
Balance, November 30, 1995 $ 9,134,899 $ (812,500) $(8,530,214) $ 26,807
------------ ---------- ----------- -----------
------------ ---------- ----------- -----------
</TABLE>
<PAGE>
EXTEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended November 30,
------------------------------
1995 1994
------------ ---------
<S> <C> <C>
CASH FLOWS IN OPERATING ACTIVITIES
Net Loss $(3,076,538) $(1,351,477)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 21,064 22,596
Common stock issued for services rendered 1,224,447 384,088
Common stock issued for partnership interest 62,500 -
Issuance of stock options below
market value for services 167,500 -
Wrap-notes reserve (Note L) 356,741 -
Other non-cash items (24,000) 87,426
Extinguishment of debt (49,348) (83,027)
Loss from investment in partnership 7,980 6,470
Loss on disposition and impairment of assets 1,514,167 63,359
Sale of license technology (60,000) -
Increase in minority interest (99,089) -
Increase in note payable from mediated judgement 100,938 -
Changes in operating assets and liabilities:
Other assets 3,236 2,471
Prepaid expenses (152,374) 1,674
Inventory -- 234,217
Accounts payable 40,203 (17,375)
Accrued expenses (227,507) 356,624
---------- -----------
NET CASH USED IN OPERATING ACTIVITIES (190,080) (292,954)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (97,600) (100,917)
Proceeds from sale of assets - 76,215
Advances of employee and loan receivables (78,960) (47,339)
Investment in partnership - (2,620)
Advances to related party - 83,000
---------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (176,560) 8,339
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes and loans payable 2,500 303,502
Payments on notes and loans payable (36,167) (109,050)
Net proceeds from sale of stock and exercise of
stock options 408,540 87,001
---------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 374,873 281,453
---------- -----------
NET INCREASE (DECREASE) IN CASH 8,233 (3,162)
CASH, AT BEGINNING OF YEAR $ - $ 3,162
---------- -----------
CASH, AT END OF YEAR $ 8,233 $ -
---------- -----------
---------- -----------
</TABLE>
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The consolidated financial statements includes the accounts of Exten
Industries, Inc. and its 90 percent owned subsidiary Xenogenex, Inc.
(together "the Company"). Minority interest represents the 10 percent
minority shareholders' proportionate interest in the equity of the
subsidiary. Investments in affiliated companies where the Company has the
ability to exercise significant influence, are accounted for by the equity
method. The Company's share of affiliates' earnings is included in the
current periods profit and loss. All significant intercompany balances and
transactions are eliminated.
REVENUE RECOGNITION
The Company generally recognizes revenue when services are provided over
the terms of the consulting contracts entered into and from sales related
to various license agreements.
BASIS OF ACCOUNTING
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles. 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 and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the assets ranging from five to ten years.
Maintenance, repairs and minor renewals are charged to operations as
incurred. Major replacements or betterments are capitalized when property
and equipment are retired or otherwise disposed, the related cost and
accumulated depreciation are eliminated and any gain or loss is reflected
in current years income or loss.
RESEARCH AND DEVELOPMENT
Research and development costs, consist principally of laboratory, design
and development costs devoted to creating the liver technology are expensed
as incurred.
32
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
REAL ESTATE
Real estate held for sale has been considered impaired due to the Company's
operating conditions and the Company's ability to fully recover the
original carrying value of the asset. The basis as of November 30, 1994 of
the property includes the allocation of original purchase price and other
costs of development as incurred (see Note E). Real estate taxes and
interest costs have been capitalized during the development period.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consists of taxes currently due plus deferred
taxes related primarily to differences between the basis of various assets
for financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes also are recognized
for net operating losses that are available to offset future taxable income
and tax credits that are available to offset future federal income taxes.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the
current year presentation.
NET LOSS PER COMMON SHARE
Net loss per share is calculated using the weighted average outstanding
common and common stock equivalent shares. Company stock equivalents
consist of all options granted at prices below fair market value in the
previous twelve months which are considered to be outstanding for all
periods presented.
33
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
B. NOTES RECEIVABLE:
Notes receivable as of November 30, 1995 and 1994 consist of:
1995 1994
-------- --------
Notes receivable with interest rates ranging from
9.5 to 10.0 percent. Each note has an underlying
note payable whereby the note receivable and note
payable are considered a wrap note unit.
(See Notes F and K) $ -- $2,449,872
Trust deeds, secured by real property, interest
rate of10.5%, interest only monthly payments
of $150, balance due April 1995. -- 18,998
Note receivable, from Teca International, Ltd.
(Teca), a related party, non-interest bearing,
no formal repayment date. (Note D) 83,000 83,000
83,000 2,551,870
Less current portion -- 245,025
-------- ----------
$ 83,000 $2,306,845
-------- ----------
-------- ----------
C. RECEIVABLE FROM RELATED PARTY:
On February 7, 1994 the Company granted to a former President of the
Company an option to purchase a total of one million (1,000,000) shares of
common stock at a price of eighty-one and one-quarter cents ($.8125) per
share exercisable for the period beginning February 8, 1994 and ending
February 7, 2004 for cash payment or a promissory note payable within
ninety (90) days.
On April 1, 1994 the option was exercised and one million (1,000,000)
shares of the Company's common stock was issued. The shares were not paid
for within the ninety (90) days set forth in the option agreement. As a
result, a receivable has been established for the amount due the Company
for this exercised option.
34
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
D. PROPERTY AND EQUIPMENT:
Property and equipment as of November 30, 1995 and 1994 consists of:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Furniture and fixtures $ 14,706 $ 14,706
Equipment, office and laboratory 110,285 110,285
Self constructed Sybiol machines 97,600 --
--------- -------
221,791 124,191
Less accumulated depreciation 63,767 42,703
--------- --------
$ 158,024 $ 81,488
--------- --------
--------- --------
</TABLE>
E. INVESTMENTS:
Investments as of November 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Investment in Teca Ltd. $ (11,830) $ (3,850)
Investment in helicopter control technology -- 187,500
Investment in GroupMed International common stock 60,000
Investment in Timeshare -- 9,000
--------- --------
$ 48,170 $192,650
--------- --------
--------- --------
</TABLE>
During January, 1994, the Company, together with an unaffiliated entity,
formed Teca International, Ltd. (Teca), under Hong Kong laws. The
business purpose of Teca is to manufacture, market and sell in Asia,
Australia and New Zealand clinical devices licensed from Xenogenex,
Inc. The Company's investment as of November 30, 1995 represents its
18.6% interest in Teca, which is accounted for under the equity method
of accounting.
During 1992, the Company issued shares of its common stock for all the
rights, title, interest in the helicopter control technology recorded on
its books. The Company as of November 30, 1995 has considered the
helicopter control technology to be impaired as described within
Statement Financial Accounting Standard (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." The Company believes that changes in operating conditions raise
doubt about the Company to fully recover the carrying value of the
helicopter control technology and therefore has decided to write off the
helicopter technology for the current period.
35
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
E. INVESTMENTS (CONTINUED):
During August, 1995 the Company entered into a license agreement with
GroupMed International (GMI), a publicly traded company, to manufacture,
market, use, distribute and sell the Company's artificial liver technology
in Mexico, Central and South America. In exchange for the license
agreement, the Company received 250,000 share of GMI common stock and an
ongoing royalty payment. The Company recorded the investment in GMI stock
at the trading value on the date of execution ($4.00 per share), less a
discount of $400,000 due to the restricted nature of the shares held by the
Company.
As of November 30, 1995 GMI stock was trading at a price of $0.40 per
share. The Company therefore adjusted the value of the investment
accordingly to market value with a discount of 40% which approximates
$40,000. Additionally, the Company has entered into negotiations for the
rescission of the license agreement with GMI and the Company's return of
the restricted shares for the liver technology agreement. The Company will
continue to offer GMI the opportunity to purchase the license agreement for
proper monetary payment if GMI so desires.
As of November 30, 1995 the company has written off $9,000 investment in
timeshare. The Company believes that the timeshare has a net realizable
value equal to zero and is properly accounting for the disposal as a loss.
F. REAL ESTATE HELD FOR SALE:
Real estate as of November 30, 1995 and 1994 consists of:
1995 1994
--------- -----------
Real estate - Grand Canyon area $ 354,000 $ 1,671,667
--------- -----------
$ 354,000 $ 1,671,667
--------- -----------
--------- -----------
The Company believes that changes in operating conditions raise doubts
about the company's ability to fully recover the carrying value of the real
estate held for sale. It has been determined that the carrying value of
the land will not be fully recovered, and therefore the asset is considered
to be impaired under the requirements of SFAS 121.
The Company believes that there has been a significant decrease in the
asset's market value in light of the Company's current operations and
managements estimate of fair market value has changed because of the change
in the lands use. The Company intends on the sale and disposition of the
real estate in the most profitable and cost effective manner. Management
of the Company believes that an impairment loss of approximately $1,300,000
should be recognized on the real estate held.
36
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
G. NOTES PAYABLE:
Notes payable at November 30, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Notes payable, with interest rates at 9.7%,
quarterly payments of $110,607, including
principal and interest. Each note has a related
receivable, whereby the note receivable and
and note payable are considered a wrap note
unit. (Notes B and K) $ -- $2,093,131
Note payable to a bank, with interest at
10.25% principal and interest due
December 30, 1991, in default 333,000 333,000
Notes payable, to a former President of the
Company with interest at prime plus 2%,
mediated judgement and settlement. 388,000 --
Note payable of $250,000 due December 31,
1997, to a former President of the Company
bearing interest at prime plus 2% per annum,
and $37,062 of demand notes, bearing interest
at 6% per annum, in default. -- 287,062
Related party note payable, with interest at
10%, due upon demand. 13,461 16,440
Related party notes payable, with interest at
6%, due upon demand. 3,526 --
---------- ----------
737,987 2,729,633
Less current portion 387,987 265,896
---------- ----------
Long-term $ 350,000 $2,463,737
---------- ----------
---------- ----------
</TABLE>
37
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
G. NOTES PAYABLE (CONTINUED):
A former President filed suit against the Company in January, 1995 seeking
damages, declaratory relief and punitive damages arising out of the
Company's alleged failure to pay the promissory notes, breach of employment
contract and fraud. The Company is negotiating payment terms associated
with the mediated judgement and settlement. The former President has
subsequent to year end filed another injunction against the Company in the
state of Arizona relative to the real estate for sale as satisfaction for
the amounts due him. Approximately $350,000 of amount owed to the former
President has common stock held in escrow by the Company relative to the
obligation under the mediated judgement and settlement.
As of November 30, 1995, the Company is in default on its repayment of the
loan agreement with a commercial bank. The bank received a judgement
against the Company for $333,000, and for fees associated with the
collection of the loans. The fees are estimated at $35,000, and are
included in the accompanying financial statements as an accrued expense.
H. SUBSCRIPTIONS RECEIVABLE:
During the twelve months ended November 30, 1995, the Company sold under
various stock purchase agreements 2,000,000 shares of its common stock and
received promissory notes for $165,000. The notes call for payment to be
made within 6 months of issuance, including interest accrued.
Accordingly, the subscribed stock is reflected in the accompanying
financial statements as of November 30, 1995 as a separate component of
stockholders equity, net of any subscriptions receivable.
38
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
I. INCOME TAXES:
The Company's total deferred tax asset as of November 30, 1995 is as
follows:
1995
------------
Net operating loss carryforwards $ 1,900,000
Valuation allowance (1,900,000)
------------
Net deferred tax asset $ --
------------
------------
As of November 30, 1995 the Company had net operating loss carryforwards
before any limitations which expires as follows:
Year Ending
November 30, Federal
------------ -----------
2004 $ 259,000
2005 $ 56,000
2006 $ 931,000
2007 $ 820,000
2008 $ 1,584,000
2009 $ 1,580,000
J. STOCKHOLDERS' EQUITY:
STOCK FOR SERVICES
During the twelve months ended November 30, 1995, the Company authorized
and issued approximately 11,000,000 shares of common stock in exchange for
consulting, payroll, directors fees and other services provided.
Approximately 1,600,000 shares authorized and issued during the year ended
November 30, 1995 is for future services to be performed under contractual
agreements. The $160,000 is included as a prepaid expense as of November
30, 1995.
In April 1994 1,000,000 shares of common stock was issued to a former
President of the Company as part of his employment agreement. The
compensation of 1,000,000 shares was subject to certain conditions.
Subsequent to termination it was determined that the conditions for the
issuance of the common stock were not met. The Company is in the process
of obtaining the 1,000,000 shares of common stock. The shareholder has
agreed to return these shares and, accordingly, these shares are not
included in the common stock outstanding.
39
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
J. STOCKHOLDERS' EQUITY (CONTINUED):
STOCK OPTIONS
The Company has granted common stock options to various individuals,
officers and directors of the Company in return for various services
rendered to the Company.
Changes during the twelve months ended November 30, 1995, of common stock
options was as follows:
Shares Price Range
----------- -------------
Outstanding at November 30, 1994 590,000 $.10 - $.50
Granted 3,200,000 $.06 - $.10
Exercised 200,000 $0.06
Outstanding at November 30, 1995 3,790,000 $.10 - $.50
K. COMMITMENTS AND CONTINGENCIES:
The Company leases its office space under a year to year operating lease.
The Company has been named as defendant in several legal proceedings and
litigation arising in the ordinary course of business. Significantly all
of these proceedings are a result of non payment of accounts payable and
notes payable. In the opinion of management, the outcome of such
proceedings and litigation will not materially affect the company's results
of operations or financial position. Based upon the opinion of legal
counsel, all amounts represented in the legal proceedings and litigation
have been reflected in the accounts payable and notes payable of the
Company as of November 30, 1995.
40
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
L. WRAP NOTES:
As of November 30, 1995, the Company has determined that the wrap notes
(Notes B & F) and associated equity purchased during 1992 have an
undeterminable value. The Company believes that a valuation allowance
should be established for the entire amounts relative to the wrap notes
receivable and payable balances. The Company has recognized the loss
associated with the wrap notes in the amount of $356,741 for the year ended
November 30, 1995. This increase for reserves of $356,741 has been
reflected within general and administrative expenses in the accompanying
consolidated statement of operations for the year ended November 30, 1995.
M. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information for the years ended
November 30, 1995 and 1994 are summarized as follows:
1995 1994
--------- ---------
Cash paid for interest and
income taxes:
Interest $ 14,752 $ 27,982
Income taxes $ 800 $ 800
Noncash investing and
financing activities:
Sale of Sybiol license $(60,000) $ --
41
<PAGE>
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
(CONTINUED)
N. GOING CONCERN:
The Company has had recurring losses from operations, and as of November
30, 1995, the Company's current liabilities exceeded its current assets by
approximately $400,000. In addition, the Company had negative cash flows
for the year ended November 30, 1995 and significant continuing losses.
Furthermore, a judgement against the Company, as one of five guarantors
arising out of a loan obtained from a bank on the repayment of three loans,
has been received in the amount of $333,000 (See Note G), the Company has a
mediated judgement against itself from a former officer and director for
approximately $388,000 and the Company is in arrears on accounts with
creditors. These factors create an uncertainty as to the Company's ability
to continue as a going concern.
Several steps have been taken by the Company to reduce its liabilities,
reduce its cash requirements, and raise capital. The Company is
considering merging with other entities, and has been negotiating with the
bank and creditors to settle its liabilities outstanding. The Company has
also entered in various agreements to pay for services from consultants and
others with common stock of the Company.
The ability of the Company to continue as a going concern is dependent upon
its ability to settle the bank judgement, mediated judgement, and accounts
payable to its creditors, its endeavors to seek additional sources of
capital, and its attaining future profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
O. SUBSEQUENT EVENTS
During February, 1996 the Company received notice that it was in default on
the wrap notes (Notes B & F) and that payment was due in the amount of
$135,000 to the holders of the notes. Numerous discussions with experts in
the real estate field has left the Company to determine that at the present
time proper accounting would require that the wrap notes be written off to
a net realizable value of zero.
P. ADJUSTMENT TO 1994
Subsequent to the issuance of the 1994 financial statements the Company
discovered that a stock option granted of 1,000,000 shares of common stock
granted to a former President of the Company had been exercised on April 1,
1994. Accordingly, the Company has adjusted stockholders' equity $812,500
as a result of this transaction. (See Note C)
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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, on the 16th day of May 1996.
EXTEN INDUSTRIES, INC.
By: /s/ W. GERALD NEWMIN
--------------------------
W. Gerald Newmin
President, CEO, Chairman, and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ W. GERALD NEWMIN
- ---------------------
W. Gerald Newmin President, CEO, Chairman & Secretary 05/16/96
/s/ WILLIAM R. HOELSCHER
- --------------------------
William R. Hoelscher Director & Treasurer 05/16/96
/s/ LARRY BEDARD
- -----------------
Larry Bedard Director 05/16/96
43
<PAGE>
LIST OF SUBSIDIARIES
As of May 10, 1996, the registrant had one subsidiary, Xenogenex, Inc.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
10 Compensation/Stock Option Agreement
24 Consent of Harlan & Boettger
27 Financial Data Schedule
44
<PAGE>
Exhibit 10
COMPENSATION/STOCK OPTION AGREEMENT
This Agreement is entered into and is effective as of February 7, 1994, by
and between EXTEN INDUSTRIES, INC. ("EXTEN") and ROBERT H. GOLDSMITH
("GOLDSMITH").
1. PURPOSE OF AGREEMENT: The purpose of this Agreement is to provide
compensatrion to Goldsmith in accordance with Goldsmith's employment
agreement dated February 7, 1994.
2. TYPE OF COMPENSATION: The compensation to Goldsmith will be in the form of
an option to purchase from Exten a total of 1,000,000 shares of common
stock of Exten.
3. GRANT OF OPTION: Exten hereby grants Goldsmith an option to purchase a
total of One Million (1,000,000) shares of common stock of Exten at a
price of Eighty-One and One-Quarter XCents ($0.8125) per share exercisable
for the period beginning Fewbruary 8, 1994 and ending February 7, 2004,
for cash payment or a promissory note payable within ninety (90) days.
4. S-8 REGISTRATION OF UNDERLYING STOCK: Exten agrees to register the
underlying stock via a SEC Form S-8 Registration Statement.
EXTEN INDUSTRIES, INC.
Dated: February 7, 1994 By: /s/ MALCOLM D. CAMPBELL
----------------------------
President
Dated: February 7, 1994 By: /s/ CARMINE J. BUA
----------------------------
Assistant Secretary
Dated: February 7, 1994 By: /s/ ROBERT H. GOLDSMITH
----------------------------
Robert H. Goldsmith
45
<PAGE>
Exhibit 24
HARLAN & BOETTGER
Certified Public Accountants
12626 High Bluff Drive, Suite 200
San Diego, California 92130
(619) 755-8113
May 10, 1996
Board of Directors
EXTEN INDUSTRIES, INC. AND SUBSIDIARY
9625 BLACK MOUNTAIN ROAD, SUITE 218
SAN DIEGO, CALIFORNIA 92126
RE: CONSENT TO USE OPINIONS AS EXHIBITS IN 1995 FORM 10-KSB
Gentlemen:
Let this letter serve as our consent to use our opinions, dated February
15, 1996 and March 20, 1995 as exhibits in the Company's 1995 Form 10-KSB.
Sincerely,
/s/ Harlan & Boettger
46
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<CASH> 8,333
<SECURITIES> 0
<RECEIVABLES> 64,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 315,593
<PP&E> 512,024
<DEPRECIATION> 63,767
<TOTAL-ASSETS> 1,021,287
<CURRENT-LIABILITIES> 743,629
<BONDS> 0
0
1
<COMMON> 234,621
<OTHER-SE> 9,134,899
<TOTAL-LIABILITY-AND-EQUITY> 1,021,287
<SALES> 1,170
<TOTAL-REVENUES> 6,654
<CGS> 0
<TOTAL-COSTS> 1,746,244
<OTHER-EXPENSES> 1,336,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,438
<INCOME-PRETAX> (3,075,738)
<INCOME-TAX> 800
<INCOME-CONTINUING> (3,076,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,076,530)
<EPS-PRIMARY> $(0.20)
<EPS-DILUTED> $(0.20)
</TABLE>
