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 February 28, 1998 .
[ ] 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 registrant 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 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:
40,718,762 as of March 31, 1998 Common Stock, $0.01 Par Value
<PAGE 1>
Exten Industries, Inc.
Form 10-QSB
Table of Contents
Page
Part I:
Financial Information 2
Item 1:
Condensed Consolidated Balance Sheets as of
February 28, 1998 (unaudited) and November 30, 1997 2
Condensed Consolidated Statements of Operations
(unaudited) for the Three Months Ended
February 28, 1998 and February 28, 1997 3
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended
February 28, 1998 and February 28, 1997 4
Notes to Condensed Consolidated Financial
Statements (unaudited) 5
Item 1a: Factors Which May Affect Future Results 10
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Overview 14
Results of Operations 16
Liquidity and Capital Resources 17
Part II: Other Information 19
Item 1: Legal Proceedings 19
Item 2: Changes in Securities 19
Item 3: Defaults Upon Senior Securities 19
Item 4: Submission of Matters to a Vote of
Security Holders 19
Item 5: Other Information 19
Item 6(a): Exhibits 19
Item 6(b): Reports on Form 8-K 19
SIGNATURES 19
<PAGE 2>
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF February 28, 1998 AND November 30, 1997
August 31, November 30,
1997 1997
(unaudited)
----------- -----------
ASSETS
CURRENT ASSETS-Cash (including
restricted cash of $17,805
and $17,601, respectively) $ 26,514 $ 22,915
PROPERTY AND EQUIPMENT, net - -
OTHER ASSETS
Real Estate Held For Sale 47,200 47,200
Patent Costs 37,226 37,226
----------- -----------
TOTAL OTHER ASSETS 84,426 84,426
----------- -----------
$ 110,940 $ 107,341
=========== ===========
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts Payable $ 69,761 $ 61,776
Accrued Expenses 301,289 275,817
Refunds Payable to Stock
Subscribers 17,601 17,601
Notes Payable, In Default 160,072 160,072
----------- -----------
TOTAL CURRENT LIABILITIES 548,723 515,266
----------- -----------
ESTIMATED LIABILITY UNDER
SETTLEMENT AGREEMENT 30,000 30,000
NOTES PAYABLE 313,545 313,545
----------- -----------
TOTAL LIABILITIES 892,268 858,811
----------- -----------
STOCKHOLDERS DEFICIT
Common Stock, $0.01 par value;
50,000,000 shares authorized;
40,718,792 & 37,136,642 issued &
outstanding, respectively 407,188 371,366
Receivable from Stock Sale (217,690) (140,040)
Additional Paid-in Capital 9,243,051 9,106,023
Accumulated Deficit (10,213,877) (10,088,819)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY (781,328) (751,470)
----------- -----------
$ 110,940 $ 107,341
=========== ===========
Footnote:
The accompanying notes are integral part of these financial
statements
<PAGE 3>
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
AS OF February 28, 1998 AND November 30, 1997
Three Months Ended
February 28,
1998 1997
-------- --------
REVENUE
Sales $ - $ -
Royalties - -
-------- --------
Total Revenue - -
-------- --------
OPERATING EXPENSES
General & Administrative 71,716 69,321
Consulting Fee Expense 41,070 12,500
Depreciation and Amortization - 11,739
Interest, net 11,385 3,325
-------- --------
Total Operating Expenses 124,256 96,885
-------- --------
Net Operating Loss Before
Income Taxes (124,256) (96,885)
Provision for Income Taxes 800 800
-------- --------
Net Income (Loss) $(125,056) $ (97,685)
-------- --------
Net Income (Loss) per
Average Common Share $ ( 0.00) $ (0.00)
-------- --------
Weighted Average Common
Share Outstanding 39,912,066 30,715,032
======== ========
Footnote:
The accompanying notes are integral part of these financial
statements
<PAGE 4>
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
AS OF February 28, 1998 AND November 30, 1997
Three months Ended
August 31,
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(125,056) $ (97,685)
Adjustments to Reconcile
Net Income (Loss) to Net Cash Provided
By (Used In) Operating Activities
Depreciation and Amortization - 11,739
Issuance of Common Stock for Services 70,200 111,470
(Increase) Decrease in: Prepaid Expense - 10,340
Other Assets - (2,007)
Increase (Decrease) in:
Accounts Payable (7,985) 13,760
Accrued Expenses (25,472) (60,696)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (21,399) (13,079)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances from Officer - -
Receipt of Note Receivable - -
--------- ---------
NET CASH FROM INVESTMENT ACTIVITIES - -
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Common Stock 25,000 -
Increase in Long Term Debt - 12,500
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,000 12,500
--------- ---------
NET INCREASE (DECREASE) IN CASH 3,601 (579)
CASH AT BEGINNING OF PERIOD 22,915 579
--------- ---------
CASH AT END OF PERIOD $ 26,514 $ 0
========= =========
Footnote:
The accompanying notes are integral part of these financial
statements
<PAGE 5>
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies Business:
Exten Industries, Inc. ("Exten") is a holding company that
is in the business of developing, through one of its
wholly-owned subsidiaries, Xenogenics Corporation
("Xenogenics"), a synthetic bio-liver technology ("SYBIOL").
In 1993 ,the Company acquired all of the rights to the SYBIOL
technology developed under its contract with Cedars-Sinai
Medical Center. The rights to the technology were transferred
to Xenogenics when it was formed in 1997. A patent
application is currently pending on the process utilized by
the SYBIOL device and the Company has applied for trademark
protection for the SYBIOL trade name.
Basis of consolidation:
The consolidated financial statements include the accounts
of Exten and its subsidiaries (together the "Company"). All
significant intercompany balances and transactions have been
eliminated in consolidation.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results
may differ from those estimates.
Impairment of long-lived assets:
In accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of," ("SFAS 121"), impairment losses on real estate and
other long-lived assets are recognized when events or
changes in circumstances indicate that the undiscounted
cash flows estimated to be generated by such assets are less
than their carrying value and, accordingly, all or a portion
of such carrying value may not be recoverable. Impairment
losses are then measured by comparing the fair value of
assets to their carrying amounts.
The Company's real estate held for sale was determined to
be impaired prior to 1996 and, accordingly, it is stated at
fair value, in accordance with SFAS 121, based upon
management's estimate of the amount that will be recovered
from the ultimate sale of the real estate.
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax
assets and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in future periods based on enacted laws
and rates applicable to the periods in which the temporary
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. The income
tax provision or credit is the tax payable or refundable for
the period plus or minus the change during the period in
deferred tax assets and liabilities.
Net loss per common share:
Net loss per share is calculated using the weighted average
number of outstanding common shares. Common stock equivalents,
consisting of stock options outstanding, have not been
considered because the impact of the assumed exercise of such
options is antidilutive.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share,"
("SFAS 128") which replaces the presentation of primary
earnings per share required under previously promulgated
accounting standards with a presentation of basic and diluted
earnings per share on the face of the statement of operations
for all entities with complex capital structures and provides
guidance on other computational changes. SFAS 128 is
effective for financial statements for both interim and
annual periods ending after December 15, 1997. Management
believes that the adoption of SFAS 128 will not have a
material impact on the Company's reported net loss per share.
Other recent accounting pronouncements:
In June 1997, the FASB issued Statements of Financial
Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130") and No. 131, "Disclosures about
Segments of an Enterprise and Related Information,"
("SFAS 131") which could require the Company to make
additional disclosures in its financial statements no later
than for the fiscal year ending November 30, 1999. SFAS 130
defines comprehensive income, which includes items in
addition to those reported in the statement of operations
and requires disclosures about its components. SFAS 131
requires disclosures for each segment of a business and the
determination of segments based on its internal management
structure. Management believes that the adoption of SFAS 130
and SFAS 131 will not have a material impact on the Company's
disclosures.
Reclassification:
Certain balances in the 1996 consolidated financial statements
have been reclassified to conform to the 1997 presentation.
Basis of Accounting
The Company's policy is to use the accrual method of
accounting and to prepare and present financial statements
that 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 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 are 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, 1997. The results of operations for the three
months ended February 28, 1998 are not necessarily
indicative of the operating results for the year ended
November 30, 1998. 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, 1997.
Reclassifications
Certain February 28, 1997 balances have been reclassified to
conform to the February 28, 1998 condensed financial statement
presentation.
2. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information for the
three-month periods ended February 28, 1998 and 1997 are
summarized as follows:
Three Months Ended February 28
1998 1997
(unaudited) (unaudited)
----------- -----------
Cash paid for interest and
income taxes:
Interest $ 7,635 $ 810
Income taxes $ 800 $ 800
3. Earnings Per Share
Certain options granted and outstanding as of February 28, 1998
(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.
4. 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
In 1997 and 1996, the Company incurred net losses of $104,834
and $950,222, respectively. Management does not expect the
Company to generate significant revenues in the near future.
At November 30, 1997, the Company's accumulated deficit and
stockholders' deficiency were $10,088,819 and $751,470
respectively, and its current liabilities exceeded its current
assets by $492,351. Additionally, even though the Company has
been able to satisfy obligations for certain operating
expenses by issuing shares of the Company's common stock,
operating activities still resulted in negative cash flows
aggregating $59,039 in 1997. Furthermore, judgments and
claims against the Company relating to loan guarantees, and
amounts owed current and former suppliers continue to
accumulate and it was in default under the terms of certain
loan agreements. 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, develop and
commercialize its technology and, ultimately, achieve a
profitable level of operations, the Company will need,
among other things, additional capital resources.
Management's plans to obtain such resources for the Company
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) continuing to use
common stock to pay for consulting and professional services;
(3) negotiating reductions in existing liabilities; and
(4) selling non-productive assets. In addition, management
is continually seeking other potential joint venture partners
or merger candidates that would provide financial, technical
and/or marketing resources to enable the Company to realize
the potential value of its technology. 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.
7. Extinguishments of debt
During 1997 the Company extinguished debts that had carrying
values in excess of the fair value of the consideration
transferred to the creditors and realized gains as shown
below, which were classified, in accordance with generally
accepted accounting principles, as extraordinary items in
the accompanying consolidated statements of operations:
In 1997, a judgment payable by the Company to a bank of
$333,000, which arose from a prior settlement of a note
payable, was settled and released through a cash payment
of $50,000.
On October 21, 1997, the Company entered into an agreement
with a creditor to settle an account payable with a balance
of approximately $100,000 for total initial consideration of
$50,000, comprised of a cash payment of $20,000, and the
issuance of 750,000 shares of the Company's common stock
with a market value of $30,000 or $.04 per share (see Note 8).
If the market value of the Company's common stock at
December 10, 1998 is less than $.10 per share, the creditor
will be entitled to file, without notification or objection
from the Company, a stipulated judgment for a cash payment
(the "Contingent Payment") equal to the lesser of (i) the
excess of $75,000 over the market value of 750,000 shares
as of that date, or (ii) $45,000. Accordingly, at
November 30, 1997, the Company accrued a liability of
$30,000 for the Contingent Payment equal to the excess of
$75,000 over the market value of the 750,000 shares which
was $45,000; it also recognized the extraordinary gain of
$20,000 based on the excess of the balance of the account
payable over the total of the initial consideration paid and
the value of the Contingent Payment at year end.
8. REAL ESTATE HELD FOR SALE
Real estate as of February 28, 1998 consists of a parcel of
undeveloped land near the Grand Canyon.
The land was originally purchased in February 1992 for
$1,654,000 and written down to its estimated fair market
value of $47,200 in 1995.
9. NOTES PAYABLE IN DEFAULT
Notes payable in default at February 28, 1998 consist of the
following:
Agreement payable to a former
president of the Company, with
interest at 10% $150,000
Note payable to attorneys for
professional services 10,072
-------
Total $160,072
=======
10. NOTES PAYABLE
Notes payable at November 30, 1997 consist of the following:
Note payable to officer, with interest
at 8.5%, due in full on May 31, 1999 $168,545
Notes payable to an unrelated party,
with interest at the prime rate
(8.5% at November 30, 1997), due in
full on March 7, 1999 145,000
-------
Total $313,545
=======
<PAGE 10>
ITEM 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-KSB, prospective investors should
carefully consider the following risk factors:
1. Significant and Repeated Losses. During fiscal 1997, the
Company's most recent fiscal year, the Company's losses were
($104,834). The Company faces all the risks inherent in a new
business. The Company's Xenogenics subsidiaries 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 might lose all or substantially
all of their investment.
2. Qualified Opinion. The Company's independent public
accountants issued a qualified opinion on the Company's
financial statements for the years ended November 30, 1997
and 1996 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 currently 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 & Default.
As of November 30, 1997, the Company had $515,266 in current
debts and other obligations that are due and payable on or
before November 30, 1998. Included in the amounts due by
November 30, 1998 is $160,072 in notes payable currently in
default together with other current liabilities of $355,194.
Further, as of
November 30, 1997, the Company had over 22 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, 1997, the Company had Total Current Liabilities
of $515,266 and Total Current Assets of $22,915 with the
result that the Company had negative working capital of
($492,351) as Total Current Liabilities exceeded Total
Current Assets by that amount. While the Company's
management continues to seek 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 1996 and 1997 fiscal years.
7. Potential Dilution. Funding of the Company's proposed
business plan would result in substantial and on-going
dilution of the Company's existing stock-holders. During
1997, the Company issued 7,374,210 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 was in default on
its repayment of a certain loan totaling $150,000 (as of
November 30, 1997) with a former officer of the Company,
Robert H. Goldsmith, and certain attorneys for past services.
In addition, the Company had over $365,266 in other
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 US will be subject to the
rigorous testing and approval processes of the US 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 might 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 & 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. 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.
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. 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.
15. Possible Rule 144 Stock Sales. As of November 30, 1997,
the Company had 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 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.
16. Possible Stock Sales - Regulation S & Form S-8
Registration Statement. The Company has periodically issued
shares to non-US. 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 one year 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.
17. 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.
18. Competition. The Company 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 the Company seeks to compete are characterized by
substantial competition involving biotechnology and major
bio-pharmaceutical, chemical and biological testing
companies. Many of the Company's existing and potential
competitors have substantially greater financial, research
and development, clinical, regulatory, marketing and
production resources than those of the Company and may be
better equipped than the Company 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 the Company, thereby rendering
some of the Company's technologies and products and
services under development less competitive or obsolete.
<PAGE 13>
Item 2. Management's' 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.
<PAGE 14>
Overview
Business of Exten Industries, Inc.
As of November 30, 1997, the Company's only active business
is the proposed research and development activities of
SYBIOLR artificial liver technology.
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 at that time 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, SYBIOLR developed for Xenogenex under
contract with Cedars-Sinai Medical Center.
In July of 1996, Xenogenex transferred all assets and rights
to the Sybiol synthetic bio-liver technology to Exten
Industries, Inc., in exchange for the assumption of certain
of its debts.
Business of Xenogenics Corporation
Xenogenics Corp. ("Xenogenics") was incorporated in Nevada
on April 30, 1997 for the purpose of funding and conducting
biotech research.
In June 1997, Exten Industries, Inc. transferred all assets
and rights to the Sybiol synthetic bio-liver technology to
the new Xenogenics Corporation, a wholly owned subsidiaries.
A patent application is presently pending on the process
utilized by the SYBIOLR artificial liver device. The Company
has received notice that the Sybiol trademark (US Trademark
Application Serial No. 74/522,603) has been registered by
the United States Patent and Trademark Office.
Xenogenics may attempt to sell up to 20% of its Common Stock
to raise up to $1,000,000 in venture capital financing.
If Xenogenics were successful in raising this additional
capital, the Company's ownership interests would be reduced
accordingly.
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.
<PAGE 16>
Results of Operations
During 1997 the Company formed a new subsidiary, Xenogenics
Corporation. With the formation of the subsidiary the Company
contributed the SYBIOL technology and certain debts so as to
continue the focus on the research with the artificial liver
technology.
Three months Ended February 28, 1998 Compared to Three months
Ended February 28, 1997
During the Three months ended February 28, 1998, the Company
incurred $41,070 in consulting fees compared to $12,500 for
the Three months ended February 28, 1997. This increase 228%
in consulting fees was due primarily to the Company's
continued use of outside consultants and the increased
reliance on the roles filled by outside consultants.
During the Three months ended February 28, 1998, the
Company incurred $71,716 in general and administrative
expenses. This increased slightly from the three-month period
ended February 28, 1997. This increase was primarily due to
increased officers salary (which has been accrued and not
paid) offset by reduced administrative, payroll, legal and
accounting functions and other ancillary expenses.
During the Three months ended February 28, 1998 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. The Company
however did incur expenses related to the patent for the
SYBIOL technology, which it intends to defend vigorously.
During the Three months ended February 28, 1997, the Company
incurred $11,739 in amortization expense. This amortization
expense is resultant of the Goodwill recognized during the
year ended November 30, 1997 pursuant to the redemption of
the minority shareholders interest in the subsidiary Xenogenex.
There will be no additional amortization expense related to
this Goodwill.
As a result, total operating expenses for the Three month
period ended February 28, 1998 were $124,256 compared to
$96,885 for the Three month period ended February 28, 1997.
This resulted in the Company recording a loss from operations
of $124,256 for the Three month period ended February 28, 1998
compared to a loss from operations of $96,885 for the
comparable period in 1997, or a increase of approximately 28%.
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 .048 to 1 as of February 28, 1998. During
the first Three 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 $70,850,
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
mergers 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. The Company is also
currently conducting a private placement of common stock
of its wholly owned subsidiary Xenogenics. The offering
is a best efforts offering with a minimum and maximum
amount to be placed. There can be no assurance that the
Company will be successful with this offering.
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 within the year
ending November 30, 1997 stock issuance's.
In connection with the formation and private placement of
the Company's wholly owned subsidiary Xenogenics, the
following transpired. Xenogenics assumed a promissory note
in the amount of $162,500, plus accrued interest of $6,045
owing to an officer of the Company in connection with the
transfer of the SYBIOL patents, trademarks, licenses and
assets from Exten. This note matures within two years and
is payable interest only at 7% per annum until maturity and
is convertible into common stock of Xenogenics at $1.00 per
share over its term. In addition, a grant of an option to
purchase an additional 162,500 shares of common stock at
$1.00 per share over a three year period. The note is
secured by a security interest in the SYBIOL patents,
trademarks, technology and assets.
An unrelated party loaned Xenogenics (as stated above)
$145,000 under a two year promissory note in June 1997,
that is payable interest only and is convertible into
common stock under a formula ranging from $2.00 to $3.00 per
share. In addition, the unrelated party was granted an
option to purchase 145,000 shares of common stock of
Xenogenics at $1.00 per share over a three-year period.
The note is also secured by a security interest.
Additionally, two directors of Xenogenics were granted
stock options in June 1997, to purchase 50,000 shares of
common stock each at $1.00 per share over a five-year period.
<PAGE 19>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
NONE
Item 2: Changes in Securities
NONE
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
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)
Date: 04/07/98 By: /s/ W. Gerald Newmin
W. Gerald Newmin
Chairman, Chief Executive Officer
Date: 04/07/98 By: /s/ William R. Hoelscher
William R. Hoelscher
Director, Vice-President and
Principal Accounting Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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