<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended August 31, 1996
Commission File No. 0-16354
EXTEN INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
STATE OF DELAWARE 52-1412493
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
9625 Black Mountain Road, Suite 218, San Diego, CA 92126-4564
(Address of principal executive offices)
(619) 578-9784
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year,
if changed since last report)
Common Stock Outstanding at August 31, 1996
23,222,705 Shares of $0.01 Par Value Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes _X_
No.
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EXTEN INDUSTRIES, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at August 31, 1996
(Unaudited) and November 30, 1995.................. 4
Consolidated Statements of Operation (Unaudited)
for the nine months and three months ended
August 31, 1996 and 1995........................... 5
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended August 31, 1996 and
August 31, 1995.................................... 6
Notes to Consolidated Financial Statements,
August 31, 1996.................................... 7
Item 1A. Factors Which May Affect Future Results............. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview........................................... 13
Results from Operations............................ 13
Liquidity and Capital Resources.................... 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................. 14
Item 2. Changes in the Rights of the Company's
Security Holders................................... 14
Item 3. Defaults by the Company on its Senior Securities... 14
Item 4. Results of Votes of Security Holders............... 14
Item 5. Other Information.................................. 14
Item 6(a). Exhibits........................................... 14
Item 6(b). Reports of Form 8-K................................ 14
SIGNATURES......................................... 15
</TABLE>
2
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PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
The Consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
In the opinion of the Company, all adjustments, consisting of only
normal recurring adjustments, necessary to present fairly the financial
position of the Company as of August 31, 1996, have been made. The
result of operations for such interim period is not necessarily
indicative of the results to be expected for the entire year.
3
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EXTEN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1996 November 30, 1995
---------------- -----------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 868 $ 8,233
Employee receivable 75,909 78,960
Accounts receivable 0 64,000
Prepaid expenses and other 59,075 164,400
---------------- -----------------
TOTAL CURRENT ASSETS 135,852 315,593
PROPERTY AND EQUIPMENT 157,850 158,024
OTHER ASSETS:
Real estate held for sale 150,000 354,000
Investments (11,830) 48,170
Notes receivable 107,000 83,000
Deposits 0 62,500
---------------- -----------------
TOTAL OTHER ASSETS 245,170 547,670
---------------- -----------------
$ 538,872 $ 1,021,287
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 170,518 $ 187,948
Accrued expenses & other payables 229,515 167,694
Notes payable, current portion 734,462 387,987
---------------- -----------------
TOTAL CURRENT LIABILITIES 1,134,495 743,629
---------------- -----------------
NOTE PAYABLE (net of current portion) 0 350,000
MINORITY INTEREST 0 (99,149)
---------------- -----------------
TOTAL LIABILITIES 1,134,495 994,480
---------------- -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.01 par value; 50,000,000
shares authorized; 23,222,705 & 23,462,205
issued & outstanding at August 31, 1996 &
November 30, 1995 232,227 234,621
Additional paid-in capital 8,485,439 8,322,399
Preferred stock, $.01 par, 1,000,000 shares
authorized, Series C-143 shares issued &
outstanding at August 31, 1996 &
November 30, 1995 1 1
Retained deficit (9,313,290) (8,530,214)
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (595,523) 26,807
---------------- -----------------
---------------- -----------------
$ 538,872 $ 1,021,287
---------------- -----------------
---------------- -----------------
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4
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EXTEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
August 31 August 31
1996 1995 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Sales $ 0 $ 1,001,170 $ 0 $1,000,000
Cost of Sales 0 0 0 0
------------------------------------------------------
Gross Profit 0 1,001,170 0 1,000,000
Other Income 0 (44,354) 0 (83,125)
------------------------------------------------------
Total Revenues 0 956,816 0 916,875
------------------------------------------------------
COSTS AND EXPENSES
Selling, General & 155,165 619,916 16,180 160,411
Administrative
Consulting Fees 363,030 880,900 60,717 436,426
Interest 81 13,400 0 6,178
------------------------------------------------------
Total Costs and Expenses 518,276 1,514,217 76,897 603,015
------------------------------------------------------
Adjustment to Investments (264,000) 0 0 0
Minority Interest 0 10,528 0 10,528
------------------------------------------------------
Income (Loss) before Income (782,976) (567,928) (76,897) 313,060
Taxes
Provision for Income Taxes 800 800 0 0
------------------------------------------------------
------------------------------------------------------
Net Income (Loss) $(783,07) $(568,72) $(76,897) $313,060
------------------------------------------------------
------------------------------------------------------
Income (Loss) per Share $ (0.05) $ (0.05) $ (0.01) $ 0.02
------------------------------------------------------
------------------------------------------------------
</TABLE>
5
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EXTEN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended
August 31, August 31,
1996 1995
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (76,897) $ 313,060
Adjustments to Reconcile Net Income
(Loss) to Net Cash
Provided By (Used By) Operating
Activities
Depreciation and Amortization 100 624
Common Stock Issued for Services 0 929,427
Other Non-Cash Items 174,698 (1,127,395)
(Increase) Decrease in:
Accounts Receivable (78) 106,877
Other Current Assets 12,175 (186,591)
Increase (Decrease) in:
Accounts Payable (68,625) 8,094
Other Current Liabilities (63,289) (69,385)
----------------------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (21,916) (25,289)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in Investments 0 (1,878)
Other 0 0
----------------------------
NET CASH FROM INVESTMENT ACTIVITIES 0 (1,878)
----------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Common Stock Issued 17,975 6,000
Increase (Decrease) in LT Debt 0 0
----------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 17,975 6,000
----------------------------
NET INCREASE(DECREASE) IN CASH (3,941) (21,167)
CASH AT BEGINNING OF PERIOD 4,809 28,602
----------------------------
CASH AT END OF PERIOD $ 868 $ 7,435
----------------------------
----------------------------
</TABLE>
6
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EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to the Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals
considered necessary for a fair presentation) have been included.
Operating results for the interim period ended August 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ended November 30, 1996.
The consolidated financial statements include the accounts of
Exten Industries, Inc. and its 96% owned subsidiary, Xenogenex, Inc.
Intercompany balances and transactions are eliminated in consolidation.
NOTE B - COMPUTATION OF INCOME PER SHARE
Income (Loss) per share was computed by dividing net income (loss)
by the weighted average number of common shares and common stock
equivalents during each period as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
August 31 August 31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Period
------
Weighted Average Number of
Shares Outstanding 15,618,164 11,191,485 15,539,275 9,417,491
</TABLE>
7
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Part IA. 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
From 10-QSB, prospective investors should carefully consider the
following risk factors:
1. SIGNIFICANT AND REPEATED LOSSES. 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
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 in 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. The Company's
current liabilities exceed its current assets. In the event that the
Company is not able to generate sufficient cash resources to pay its
current debts and obligations on or before their due dates, 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 AND NEGATIVE CASH FLOW. 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 from the 1992, 1993, 1994 and 1995 fiscal years.
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. 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 may incur substantial dilution.
8. GOVERNMENT REGULATION AND PRODUCT APPROVALS. The Company's
research, testing, preclinical development, clinical trials,
manufacturing and marketing of its proposed therapeutic product are
subject to extensive and ever-
8
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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 described
statutory or regulatory provisions, it is qualified in its entirely 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.
9. 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.
10. 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 for the
research and development work conducted by its subsidiary, Xenogenex,
Inc.
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. The
Company is also investigating the necessity and merits of actions
against other former officers and directors. While the Company seeks
to resolve the disputes 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. 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.
13. 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.
14. POSSIBLE RULE 144 STOCK SALES. The Company has 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.
9
<PAGE>
15. 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 of Form S-8. The shares issued under Regulation S become
freely-tradable 41 days after issuance. The shares registered on Form
S-8 are immediately freely- tradable. 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 the Company's Common Stock will likely be depressed by
the registration and sale of shares on an on-going basis.
16. 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 the Company 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 $l,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.
The Commission recently adopted regulations under such Act which
define a penny stock to be 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.
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These criteria are more stringent that 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.
17. 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
biopharmaceutical and biotechnology patents or whether the Company will
have the financial resources to aggressively protect its rights.
18. 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 also 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.
19. 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 to 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.
20. 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.
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
11
<PAGE>
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 the 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 zmay be subject to other
present and possible future local, state, federal and foreign regulation,
including future regulation of the biotechnology field.
12
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
The Company's only active business in the operation of its subsidiary,
Xenogenex, Inc., which is engaged in biotech research. There is
currently no business activity associated with its helicopter
technology.
RESULTS FROM OPERATIONS
Of the Selling, General and Administrative expenses, substantially 100%
is attributable to Exten Industries, Inc. overall operations,
Xenogenex's portion of these expenses have been reduced in total from
past quarters. Salaries and wages are included in the Selling, General
& Administrative costs. The Company during the nine months ended
August 31, 1996 adjusted the carrying value of two investments that
are/were held on the books. The Company adjusted the carrying value of
the Grand Canyon property and the Group Med license for a total
adjustment of $264,000. The Company believes this adjustment to the
carrying value of the land valuation and the recission of the licensing
agreement to be proper. The Company is actively pursing its liver
technology with other business ventures and potential technology
investors. Most, if not all, expenses incurred during the nine months
ended are either for the pursuit of the liver technology or the pursuit
of general investment funds.
The Company during the third quarter of 1996 exchanged approximately $1
million in intercompany receivable for all the assets and the
assumption of certain debts of its subsidiary, Xenogenex, Inc. The
Company has offered to exchange common stock of the Company for the
shares of Xenogenex held by the minority shareholders. The Company
believes that these minority shareholders will exchange their shares of
Xenogenex, Inc. based upon this offer.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio of assets to liabilities is .833 to 1. During the
fiscal first quarter of 1996, the Company's cash requirements were met
by increasing debt and sales of common stock. The Company is seeking
working capital from various sources but no assurance can be given that
sufficient working capital will be obtained for the Company to
adequately fund its research and development and other activities.
13
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A) Goldsmith litigation against Exten Industries, Inc.
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 damage and costs of suit. The
Company disputes the facts and has filed a cross-complaint
for conversion, fraud and breach of fiduciary responsibility.
B) Goldsmith litigation against Xenogenex, Inc.
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.
C) 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. Judgment 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 February 2,
1996. 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 judgment.
Item 2. Changes in the Rights of the
Company's Security Holders
NONE
Item 3. Defaults by the Company on its Senior Securities
NONE
Item 4. Results of Votes of Security Holders
NONE
Item 5. Other Information
NONE
Item 6(a). Exhibits
NONE
Item 6(b). Reports on Form 8-K
NONE
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report be signed on its behalf by
the undersigned thereunto duly authorized.
EXTEN INDUSTRIES, INC.
Date: 10/28/96 By: /S/ W. Gerald Newmin
-----------------------------------
W. Gerald Newmin
Chairman, Chief Executive Officer
Date: 10/28/96 By: /S/ William R. Hoelscher
-----------------------------------
William R. Hoelscher
Director, Vice-President
15
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