U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number : 0-16354
EXTEN INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 52-1412493
(State or other jurisdiction (IRS Employer
of incorporation or organization) identification No.)
9625 Black Mountain Road, Suite 218, San Diego, California, 92126
(Address of principal executive offices)
(619) 578-9784
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: 31,620,192 as of May 31, 1997 Common
Stock, $0.01 Par Value
Exten Industries, Inc.
Form 10-QSB
Table of Contents
Part 1: Financial Information Page
Item 1: Condensed Consolidated Balance Sheet as of May 31, 1997
(unaudited) and November 30, 1996 3
Condensed Consolidated Statements of Operation (unaudited) for
the Six and Three Months Ended May 31, 1997 and May 31, 1996 4
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Six Months Ended May 31, 1997 and May 31, 1996 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 1a: Factors Which May Affect Future Results 9
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview 13
Results of Operations 15
Liquidity and Capital Resources 17
Part II: Other Information
Item 1: Legal Proceedings 18
Item 2: Changes in Securities 18
Item 3: Defaults Upon Senior Securities 18
Item 4: Submission of Matters to a Vote of Security Holders 18
Item 5: Other Information 18
Item 6(a): Exhibits 18
Item 6(b) Reports on Form 8-K 18
SIGNATURES
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1997 AND NOVEMBER 30, 1996
<TABLE>
<S> <C> <C>
May 31, November 30,
1997 1996
(unaudited)
_______________________________
ASSETS
CURRENT ASSETS
Cash $ 0 $ 579
Prepaid Expenses 10,000 25,000
_______________________________
TOTAL CURRENT ASSETS 10,000 25,579
PROPERTY AND EQUIPMENT, net 0 0
OTHER ASSETS
Real Estate Held For Sale 47,200 47,200
Deferred Offering Costs 5,000 0
Patent Costs 27,007 0
Goodwill, net 11,736 35,214
______________________________
TOTAL OTHER ASSETS 90,943 82,414
______________________________
$ 100,943 $107,993
==============================
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIENCY)
CURRENT LIABILITIES
Accounts Payable $ 168,761 $171,016
Accrued Expenses 158,743 176,861
Notes Payable, Current 325,984 646,484
______________________________
TOTAL CURRENT LIABILITIES 653,488 994,361
______________________________
NOTE PAYABLE (net of current portion) 140,000 0
______________________________
TOTAL LIABILITIES 793,488 994,361
______________________________
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Stock, $0.01 par value; 50,000,000
shares authorized; 31,620,192 &
29,762,432 issued & outstanding,
respectively 316,202 297,624
Additional Paid-in Capital 8,892,885 8,799,993
Preferred Stock, $0.01 par, 1,000,000
shares authorized, Series C, 143 shares
issued & outstanding, respectively 1 1
Accumulated Deficit (9,901,633) (9,983,986)
_______________________________
TOTAL STOCKHOLDERS'
EQUITY (DEFICIENCY) (692,545) (886,368)
_______________________________
$ 100,943 $ 107,993
===============================
</TABLE>
The accompanying notes are integral part of these financial statements
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
SIX MONTHS AND THREE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996
<TABLE>
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Six Months Ended Three Months Ended
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
_______________________________________________
REVENUE
Sales $ 0 $ 0 $ 0 $ 0
Royalties 0 0 0 0
_______________________________________________
Total Revenue 0 0 0 0
_______________________________________________
OPERATING EXPENSES
General & Administrative 155,350 187,839 86,029 79,743
Consulting Fee Expense 12,500 252,313 0 35,915
Depreciation and
Amortization 23,478 146 11,739 73
Interest, net 8,519 281 5,194 85
______________________________________________
Total Operating Expenses 199,847 440,579 102,962 115,816
______________________________________________
Net Operating Loss Before
Extraordinary Item (199,847) (440,579) (102,962) (115,816)
Extraordinary Item - Gain
On Extinguishment of Debt 283,000 (264,000) 283,000 (264,000)
_____________________________________________
Net Operating Income (Loss)
Before Income Taxes 83,153 (704,579) 180,038 (379,816)
Provision for Income Taxes 800 800 0 0
_____________________________________________
Net Income (Loss) $82,153 $(705,379) $ 180,038 $(379,816)
==============================================
Net Operating Loss Before
Extraordinary Item per
Average, Common Share $ (0.01) $ (0.03) $ (0.01) $ (0.01)
Extraordinary Item 0.01 (0.02) 0.01 (0.02)
______________________________________________
Net Income (Loss) per
Average Common Share $ 0.00 $ (0.05) $ 0.00 $ (0.03)
===============================================
Weighted Average Common
Share Outstanding 30,912,032 15,499,331 31,620,192 15,499,331
==================================================
</TABLE>
The accompanying notes are integral part of these financial statements
EXTEN INDUSTRIES, INC.
PART 1 - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996
<TABLE>
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Six Months Ended
May 31, 1997 May 31, 1996
____________________________________
CASH FLOWS FORM OPERATING ACTIVITIES
Net Income (Loss) $ 82,153 $ (705,379)
Adjustments to Reconcile Net Income (Loss)
to Net Cash
Provided by (Used In) Operating Activities
Depreciation and Amortization 23,478 146
Issuance of Common Stock for Services 111,470 (68,381)
Other Non-Cash Items 0 0
Extinguishment of Debt (283,000) 264,000
(Increase) Decrease in:
Accounts Receivable 0 3,129
Prepaid Expense 15,000 105,321
Other Assets (32,007) 62,500
Increase (Decrease) in:
Accounts Payable (2,055) 51,195
Accrued Expenses (18,118) 122,323
_______________________________
NET CASH USED IN OPERATING ACTIVITIES (103,079) (165,146)
_______________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Investment 0 0
Receipt of Note Receivable 0 40,000
______________________________
NET CASH FROM INVESTMENT ACTIVITIES 0 40,000
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Common Stock 0 145,153
Incrase in Long Term Debt 102,500 362
______________________________
NET CASH PROVIDED BY FINANCING ACTIVITIES 102,500 145,515
______________________________
NET INCREASE (DECREASE) IN CASH (579) 20,369
CASH AT BEGINNING OF PERIOD 579 8,233
______________________________
CASH AT END OF PERIOD $ 0 $ 28,602
==============================
</TABLE>
The accompanying notes are integral part of these financial statements
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Nature of Operations
Exten Industries, Inc. (the "Company") was incorporated
on December 1, 1970 in the state of Delaware. The
Company's principal business is the research and
development of the synthetic liver technology (SYBIOL) of
its wholly owned subsidiary, Xenogenex, Inc. (Xenogenex).
Xenogenex was incorporated on July 30, 1991 in the state
of California for the purpose of funding this
biotechnology research. In March 1993, Xenogenex received
all rights to the SYBIOL technology developed for
Xenogenex under contract with Cedars-Sinai Medical
Center. A patent application has been filed and approved
for the process utilized by the SYBIOL device and the
Company has applied for trademark protection for the
SYBIOL tradename.
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.
Basis of Consolidation
The consolidated financial statements include the
accounts of Exten Industries, Inc. and its wholly owned
subsidiary, Xenogenex, Inc. (the Company). All
significant intercompany balances and transactions have
been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed financial statements
and related notes have been prepared pursuant to the
rules and regulations of the Securities and Exchange
Commission for Form 10-QSB. 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 a normal recurring nature and
considered necessary for a fair presentation, have been
included. It is suggested that these financial statements
be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on
Form 10-KSB for the year ended November 30, 1996. The
results of operations for the six months ended May 31,
1997 are not necessarily indicative of the operating
results for the year ended November 30, 1997. For further
information, refer to the financial statements and notes
thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year November 30, 1996.
Reclassifications
Certain May 31, 1996 balances have been reclassified to
conform to the May 31, 1997 condensed financial statement
presentation.
1. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost, and depreciated
using the straight-line method over the estimated useful
lives of the assets, which range from three to five
years. Assets under capital leases are depreciated by the
straight-line method over the shorter of the lease term
or the useful lives of the assets. Maintenance, repairs
and minor renewals are charged to operations as incurred.
Major replacements or upgrades are capitalized. When
properties are retired or otherwise disposed, the related
cost and accumulated depreciation are eliminated from the
respective accounts and any gain or loss on disposition
is reflected as income or expense.
Prepaid Expense
Prepaid Expense consist primarily of consulting services
that have been prepaid pursuant to contracts.
2. Property and Equipment
Property and equipment at May 31, 1997 and at November 30, 1996
are summarized as follows:
[/TABLE]
[S] [C] [C]
May 31, 1997 November 30,
(unaudited) 1996
Machinery and equipment $ 9,368 $ 9,368
Furniture and fixtures 14,706 14,706
___________ ___________
24,074 24,074
Less accumulate ddepreciation and
amortization (24,074) (24,074)
___________ ____________
Property and equipment, net $ 0 $ 0
____________ ____________
3. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information for the
six month periods ended May 31, 1997 and 1996 are
summarized as follows:
Six Months Ended Six Months Ended
May 31, 1997 May 31, 1997
(unaudited) (unaudited)
Cash paid for interest
and income taxes:
Interest $ 4,548 $ 810
Income taxes $ 800 $ 800
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Earnings Per Share
Certain options granted and outstanding as of May 31,
1997 (unaudited) are antidilutive for the purposes of
calculating primary and fully diluted earnings per share
and therefore are not included in the earnings per share
calculations.
In February 1997, the Financial Accounting Standards
Board issued "Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings per Share," which is required
to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently
used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock
options will be excluded. The impact is not expected to
result in any change in primary earnings per share for
the six months ended May 31, 1997. The impact of
Statement 128 on the calculation of fully diluted
earnings per share for these periods is also not expected
to be material.
5. Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. Actual results could differ from
those estimates.
6. Going Concern Matters
The Company's accumulated deficit and stockholders'
deficiency at May 31, 1997 were $9,901,633 and $692,545,
respectively. In addition, at May 31, 1997, the Company's
current liabilities exceeded its current assets by $643,488.
Additionally, even though the Company has been able to satisfy
certain operating expenses by issuing shares of the Company's
common stock, operating activities have still resulted in
negative cash flows aggregating $103,079 for the six months
ended May 31, 1997. Furthermore, judgments and claims against
the Company relating to loan guarantees, claims of a former
president of the Company, and amounts owed current and former
suppliers continue to accumulate. These factors, among others,
raise substantial doubt about the Company's ability to
continue as a going concern.
In order to continue as a going concern, management's
plans include (1) raising additional capital through sales of
common stock, the proceeds of which would be used to perfect
the Company's patent position in its SYBIOL technology and
satisfy immediate operating needs; (2) continue to use common
stock to pay for consulting and professional services; (3)
negotiate reduced settlements of existing liabilities; and
(4) sell non-productive assets. In addition, management is
continually seeking other potential joint venture partners or
merger candidates that would allow for the immediate
recognition of the value of the SYBIOL technology for
creditors and stockholders. However, management cannot provide
any assurances that the Company will be successful in
accomplishing any of its plans. The ability of the Company to
continue as a going concern is dependent upon its ability to
successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and
attain profitable operations. The accompanying consolidated
financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a
going concern.
PART IA. FACTORS AFFECTING FUTURE OPERATING 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-QSB, prospective investors should
carefully consider the following risk factors:
1. SIGNIFICANT AND REPEATED LOSSES. During the most recent
fiscal year ended November 30, 1996, the Company's losses were
significant. The Company has a history of losses dating back
to 1992 and beyond. 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 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 independent public
accountants issued qualified opinions for the Company's
financial statements for the years ended November 30, 1996,
1995 and 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 is the
research and development activities from which the Company
generates no stream of revenues and there can be no assurance
that the Company will ever generate any revenues 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 AND DEFAULT.
As of May 31, 1997, the Company had current debts and other
obligations that are due and payable on or before November 30,
1997. Included in these obligations is approximately $10,000
in notes payable currently in default. Furthermore, as of May
31, 1997, the Company had over 65 times as many current
liabilities as 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 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 1996 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. During the six months
ended May 31, 1997 and for the year ended November 30, 1996,
the Company issued 1,857,760 and 6,300,227 additional shares
of its common stock, respectively, 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 may incur substantial dilution.
8. DEFAULT ON INDEBTEDNESS. The Company was in default on its
repayment of a certain loan totaling $343,072 (as of November
30, 1996) (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 judgment
against the Company. The Company's management has settled this
debt for payment of $50,000, which it has. In addition, the
Company has over $653,488 in liabilities all due and payable
on or before November 30, 1997. 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.
10. LACK OF INDEPENDENT EVALUATION OF TECHNOLOGY AND
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 a law firm that previously represented the Company. 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 one full-time employee. 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.
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, 1996,
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 one year may
thereafter sell in brokerage transactions, an amount not
exceeding in any six 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 six 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 AND 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-
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 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.
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.
Item 2. Managements' Discussion and Analysis of Financial
Condition and Results of Operations.
This Quarterly Report on Form 10-QSB contains forward-looking
statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to,
those discussed in the section entitled "Factors Affecting
Future Operating Results."
Forward-Looking Information -General
The following information contains certain forward-looking
statements that anticipate future trends or events. These
statements are based on certain assumptions that may prove to
be erroneous and are subject to certain risks including, but
not limited to, the Company's ability to complete and fund it
research and development. Accordingly, actual results may
differ, possibly materially, from the predictions contained
herein.
Although the Company cannot accurately anticipate the effects
of inflation, the Company does not believe inflation has had
or is likely to have a material effect on its results of
operations or liquidity.
The Company's quarterly operating results vary significantly
depending on the occurrence of funding and the involvement of
Company personnel in these endeavors. The results of
operations for any quarter are not necessarily indicative of
the results to be expected for any future period.
Overview
The Company's only active business is the proposed research
and development activities of its SYBIOL technology.
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.
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 September of 1991 the Company acquired all of the
outstanding stock of 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.
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 1993, the Company divested itself of its other business
lines, leaving development of the synthetic bio-liver
("SYBIOL") through its subsidiary Xenogenex, Inc. as the
Company's only business.
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. In July 1996, the Company
acquired all of the assets of Xenogenex; and, as a result , as
of May 31, 1997, the Company owned all assets of Xenogenex.
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-QSB, prospective investors should carefully consider the
following risk factors:
1. PATENTS AND PROPRIETARY TECHNOLOGY. Any proprietary
protection 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 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. The Company
also intends to rely upon non-patented 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 the Company's trade secrets or
disclose such technology, or that the Company can meaningfully
protect its rights to its non-patented trade secrets.
3. GOVERNMENT REGULATION. The Company'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 the Company.
4. THERAPEUTIC PRODUCTS. The Company'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 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.
Results of Operations
Six Months Ended May 31, 1997 Compared to Six Months Ended May
31, 1996
During the six months ending May 31, 1997 and May 31, 1996 the
Company did not record any revenues.
During the six months ended May 31, 1997, the Company incurred
$12,500 in consulting fees compared to $252,313 for the six
months ended May 31, 1996. This decrease (95%) in consulting
fees was due primarily to the Company's continued limited use
of outside consultants and the increased reliance on the
services of the Company's Chief Executive Officer and
Directors to fill the roles previously filled by outside
consultants.
During the six months ended May 31, 1997, the Company incurred
$155,350 in general and administrative expenses. This
decreased by nearly 18% from the six month period ended May
31, 1996. This decrease was primarily due to reduced
administrative, payroll, legal and accounting functions and
other ancillary expenses being held to a minimum due to
economic and financial reasons.
During the six months ended May 31, 1997 no research and
development costs were incurred. The absence of research and
development costs reflected the Company's substantially
limited financial resources and the efforts expended in
pursuing those financial resources. The Company believes that
research and development efforts will commence within the next
year if private placement funds become available.
During the six months ended May 31, 1997, the Company incurred
$23,478 in amortization expense. This amortization expense is
resultant of the Goodwill recognized during the year ended
November 30, 1996 pursuant to the redemption of the minority
shareholders interest in the subsidiary Xenogenex. The $146
incurred for the six month period ended May 31, 1996 was due
to the remaining equipment that the Company held.
As a result, total operating expenses for the six month period
ended May 31, 1997 were $199,847 compared to $440,579 for the
six month period ended May 31, 1997. This resulted in the
Company recording a loss from operations of $199,847 for the
six month period ended May 31, 1997 compared to a loss from
operations of $440,579 for the six month period ended May 31,
1996, or a decrease of approximately 55%.
During the six months ended May 31, 1997 the Company entered
into an agreement with Union Bank to settle a previous
existing note payable and judgment with a balance due of
$333,000. As of May 31, 1997 a payment of $50,000 was made
for full settlement in connection with the note payable and
judgment, the Company recorded a gain on extinguishment of
debt of $283,000 during this period. For the six months ended
May 31, 1996 the Company recognized a loss on dispositions of
$264,000.
Three Months Ended May 31, 1997 Compared to Three Months Ended
May 31, 1996
During the three months ending May 31, 1997 and May 31, 1996
the Company did not record any revenues.
During the three months ended May 31, 1997, the Company did
not incur consulting fee expense compared to $35,915 for the
three months ended May 31, 1996. This decrease in consulting
fees was due primarily to the Company's continued limited use
of outside consultants and the increased reliance on the
services of the Company's Chief Executive Officer and
Directors to fill the roles previously filled by outside
consultants.
During the three months ended May 31, 1997, the Company
incurred $86,029 in general and administrative expenses. This
increased by nearly 7% from the three month period ended May
31, 1996. This increase was primarily due to the executive
officer positions being held by Mr. Newmin as an employee
versus the status of a consultant, legal and accounting
functions and other ancillary expenses. The Company continues
to hold these expenses to a minimum due to economic and
financial reasons.
During the three months ended May 31, 1997 no research and
development costs were incurred. The absence of research and
development costs reflected the Company's substantially
limited financial resources and the efforts expended in
pursuing those financial resources. The Company believes that
research and development efforts will commence within the next
year if funds become available.
During the three months ended May 31, 1997, the Company
incurred $11,739 in amortization expense. This amortization
expense is resultant of the Goodwill recognized during the
year ended November 30, 1996 pursuant to the redemption of the
minority shareholders interest in the subsidiary Xenogenex.
The $73 incurred for the three month period ended May 31, 1996
was due to the remaining equipment that the Company held.
As a result, total operating expenses for the three month
period ended May 31, 1997 were $102,962 compared to $115,816
for the three month period ended May 31, 1997. This resulted
in the Company recording a loss from operations of $102,962
for the three month period ended May 31, 1997 compared to a
loss from operations of $115,816 for the three month period
ended May 31, 1996, or a decrease of approximately 11%. The
Company believes that expenses and losses will be
significantly less than previous years due to cost cutting and
outside services being held to a minimum.
Liquidity And Capital Resources
The Company's principal capital requirements are to fund
operations and development of new products. The Company has
historically satisfied its cash requirements through cash
flows from private placements and short-term borrowings.
The Company's current ratio (current assets over current
liabilities) is .0153 to 1 as of May 31, 1997. During the
first six months of fiscal year 1997, the Company's cash
requirements were met by short term borrowings from an officer
of the Company and long term borrowings from an unrelated
party. The Company issued in the amount of $111,470, common
stock of the Company for services performed.
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.
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.
The Company is raising some funds intermittently through the
use of long term debt instruments and through the payment of
services with stock.
On March 7, 1997, the Company borrowed $125,000 from an
unrelated party. On March 18, 1997, this note was increased to
$145,000 by an additional borrowing of $20,000. The terms of
the note require monthly interest payments of approximately
$1,000 beginning April 7, 1997. Interest will be charged at
the published prime rate which was 8.25% at March 7, 1997.
On March 18, 1997, the Company entered into an agreement
with a bank to settle a note payable in the amount of
$333,000. The Company is in default on the note and the bank
has received a judgment for the full amount of the note plus
fees of $35,000 associated with the collection of the note. As
stipulated by the agreement, the Company made a cash payment
in the amount of $50,000 in full settlement of the note and
fees.
The Company entered into an agreement with a former president
of the Company to settle a previously existing note in the
amount of $388,000. As part of that settlement, the Company
has agreed to a cash payment of $50,000 which was never made.
On March 6, 1997, the Company settled that $50,000 obligation
by issuing an additional 1,000,000 shares of stock with a
market value of $.05 per share to the former president of the
Company. This transaction was recorded for the year ending
November 30, 1996 stock issuances.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
As of August 29, 1997, there were no pending legal proceedings
involving the Company which, in the opinion of management,
after discussion with legal counsel, were of a material nature
except the following:
1. Zampi & Associates Litigation
(1) San Diego County Superior Court, State of
California
(2) October 16, 1996.
(3) Zampi & Associates as plaintiff. Exten Industries,
Inc. as a defendant.
(4) Lawsuit to collect legal fees.
(5) Relief Sought: Monetary payment.
2. Steven A. Lyman Litigation
(1) San Diego County Superior Court, State of
California
(2) December 12, 1996.
(3) Steven A. Lyman as plaintiff. Exten Industries,
Inc. as a defendant.
(4) Lawsuit to recover monies from purchase of stock.
(5) Relief sought: Monetary judgment.
Item 2: Changes in Securities
The following securities were sold by the Company without
registering the securities under the Securities Act of 1953
under the claim exemption stated.
On February 21, 1997, the Company issued 1,000,000 shares
of its common stock ($.001 par value) (the "shares") on a
private placement basis pursuant to the exemption allowed
under Section 4(2) of the Securities Act of 1933. These
shares were sold to an investor by the Company with out the
assistance of any underwriter or broker-dealer at a price of
five cents ($.05) each in settlement for a debt of the Company
in the amount of $50,000.
Item 3: Defaults Upon Senior Securities
NONE
Item 4: Submission of Matters to a Vote of Security Holders
NONE
Item 5: Other Information
NONE
Item 6(a): Exhibits
NONE
Item 6(b): Reports on Form 8-K
NONE
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.
(Registrant)
8/29/97 W. Gerald Newmin
(Date) (Signature)
8/29/97 William R. Hoelscher
(Date) (Signature)
