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, 1999.
[ ] 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.
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(Exact name of registrant as specified in its charter)
Delaware 52-1412493
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(State or other jurisdiction (IRS Employer
of incorporation or organization) identification No.)
9620 Chesapeake Drive, Suite 201
San Diego, California, 92123
--------------------------------
(Address of principal executive offices)
(858) 496-0173
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(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:
50,000,000 as of June 30, 1999 Common Stock,.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 May 31, 1999
(unaudited) and November 30, 1998 2
Condensed Consolidated Statement of Operations (unaudited)
for the Three Months Ended May 31, 1999 and 1998 3
Condensed Consolidated Statement of Operations (unaudited)
for the Six Months Ended May 31, 1999 and 1998 4
Condensed Consolidated Statement of Cash Flows (unaudited)
for the Six Months Ended May 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 1a: Factors Which May Affect Future Results 11
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Overview 15
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 May 31, 1999 AND November 30, 1998
May 31, November 30,
1999 1998
(unaudited)
----------- -----------
ASSETS
CURRENT ASSETS-Cash $ 164 $ 14,310
PROPERTY AND EQUIPMENT, net 1,284 1,650
PREPAID EXPENSES, net - -
OTHER ASSETS
Real Estate Held For Sale 47,200 47,200
Patent Costs and other 38,710 38,667
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TOTAL OTHER ASSETS 85,910 85,867
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$ 87,358 $ 101,827
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LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts Payable $ 67,871 $ 64,870
Accrued Expenses 383,008 591,057
Advances from Stockholder 37,989 37,989
Notes Payable 190,613 382,617
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TOTAL CURRENT LIABILITIES 679,481 1,076,533
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NOTES PAYABLE, long term 335,000 15,000
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TOTAL LIABILITIES 1,014,481 1,091,533
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MINORITY INTEREST 99,998 863
STOCKHOLDERS DEFICIT
Preferred Stock, $0.01 par value; 20,000,000
shares authorized; 22,622 & 0 issued &
outstanding, respectively 227 0
Common Stock, $0.01 par value; 50,000,000
shares authorized; 50,000,000 & 48,349,669
issued & outstanding, respectively 500,000 483,496
Additional Paid-in Capital 9,831,681 9,612,087
Accumulated Deficit (11,359,029) (11,086,152)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY (1,027,121) (990,569)
----------- -----------
$ 87,358 $ 101,827
=========== ===========
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 May 31, 1999 AND 1998
Three Months Ended
May 31,
1999 1998
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REVENUE
Sales $ - $ -
Royalties - -
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Total Revenue - -
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OPERATING EXPENSES
General & Administrative 79,314 66,907
Consulting Fee Expense 28,109 15,675
Research and Development 10,000 -
Depreciation and Amortization 225 -
Interest, net 14,021 3,764
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Total Operating Expenses 131,669 86,346
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Net Operating Loss Before Income Taxes (131,669) ( 86,346)
Provision for Income Taxes 800 -
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Net Income (Loss) $(132,469) $( 86,346)
========= =========
Net Income (Loss) per Average Common Share $ 0.00 $ (0.01)
========= =========
Weighted Average Common Share Outstanding 50,000,000 40,718,066
========== ==========
The accompanying notes are integral part of these financial statements
<PAGE 4>
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
AS OF May 31, 1999 AND 1998
Six Months Ended
May 31,
1999 1998
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REVENUE
Sales $ - $ -
Royalties - -
---------- ----------
Total Revenue - -
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OPERATING EXPENSES
General & Administrative 149,243 138,623
Consulting Fee Expense 67,109 56,745
Research and Development 20,000 -
Depreciation and Amortization 408 -
Interest, net 34,515 15,149
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Total Operating Expenses 271,275 210,517
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Net Operating Loss Before Income Taxes (271,275) (210,517)
Provision for Income Taxes 1,600 800
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Net Income (Loss) $ (272,875) $ (211,317)
========== ==========
Net Income (Loss) per Average Common Share $ (0.01) $ (0.01)
========== ==========
Weighted Average Common Share Outstanding 49,849,525 40,112,561
========== ==========
The accompanying notes are integral part of these financial statements
<PAGE 5>
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
AS OF May 31, 1999 and 1998
Six Months Ended
May 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(272,875) $(211,317)
Adjustments to Reconcile
Net Income (Loss) to Net Cash Provided
By (Used In) Operating Activities
Minority Interest 99,135 -
Depreciation and Amortization 408 -
Issuance of Common Stock for Services 58,604 85,200
Issuance of Preferred Stock in Exchange
for Settlement of Debt 177,494 -
(Increase) Decrease in:
Prepaid Expense - (50,000)
Other Assets 43 (1,960)
Increase (Decrease) in:
Accounts Payable 3,001 1,960
Accrued Expenses (207,952) 102,929
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NET CASH USED IN OPERATING ACTIVITIES (142,142) (73,188)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment - (1,834)
Advances from officer - -
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NET CASH USED INVESTMENT ACTIVITIES - (1,834)
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CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Common Stock - 25,000
Increase in Long Term Debt, net 127,996 50,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 127,996 75,000
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NET INCREASE (DECREASE) IN CASH (14,146) ( 22)
CASH AT BEGINNING OF PERIOD 14,310 22,915
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CASH AT END OF PERIOD $ 164 $ 22,893
========= =========
The accompanying notes are integral part of these financial statements
<PAGE 6>
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 its subsidiary, Xenogenics Corporation ("Xenogenics"), an
artificial liver technology, the (SYBIOL) synthetic bio-liver. In 1993 ,the
Company acquired all of the rights to the SYBIOL technology developed under its
contract with a major west coast 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 received trademark protection for the SYBIOL trade name.
Basis of consolidation:
The consolidated financial statements include the accounts of Exten and its
subsidiary (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.
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.
<PAGE 7>
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 did
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.
In October 1997, March 1998 and December 1998, the American Institute
of Certified Public Accountants ("AICPA") issued Statements of Position
("SOP") 97-2, "Software Revenue Recognition", SOP 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2", "Software Revenue Recognition"
and SOP 98-9, "Modification of SOP 97-2", "Software Revenue Recognition with
Respect to Certain Transactions" (collectively, "SOP 97-2"). We are required
to adopt the provisions of SOP 97-2 for transactions entered into in the
fiscal year beginning December 1, 1998. SOP 97-2 provides guidance on
recognizing revenue on software transactions and superseded SOP 91-1. We
believe that the adoption of SOP 97-2 will not have an impact on revenue
recognition practices.
In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use", which
provides guidance on accounting for the cost of computer software developed
or obtained for internal use. SOP 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. We do not expect that the
adoption of SOP 98-1 will have a material impact on our financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. We do not expect that the
adoption of SFAS No. 133 will have a material impact on our financial
statements.
The FASB had issued certain other pronouncements as of November 30, 1998 that
will become effective in subsequent periods; however, management does not
believe that any of those pronouncements will affect any financial accounting
measurements or disclosures the Company will be required to make.
Basis of accounting:
The Company uses the accrual method of accounting and prepares and presents
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, 1998. The results of operations for the
three month periods ended May 31, 1999 are not necessarily indicative of the
operating results for the year ended November 30, 1999. 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, 1998.
Reclassifications:
Certain May 31, 1998 balances have been reclassified to conform to the
May 31, 1999 condensed financial statement presentation.
2. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information for the three-month period
ended May 31, 1999 and 1998 are summarized as follows:
Six Months Ended May 31,
1999 1998
(unaudited) (unaudited)
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Cash paid for interest and income taxes:
Interest $ 8,744 $ 7,635
Income taxes $ 800 $ 800
3. Earnings Per Share
Certain options granted and outstanding as of May 31, 1999(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. Going Concern Matters
During fiscal years 1998 and 1997, the Company incurred net losses of $997,333
and $104,834, respectively. Management does not expect the Company to generate
significant revenues in the near future. At November 30, 1998, the Company's
accumulated deficit and stockholders' deficiency were $11,086,152 and $990,569
respectively, and its current liabilities exceeded its current assets by
$1,062,223. 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 $180,719 in 1998. Furthermore, judgments and claims against the
Company relating to loan guarantees, 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, 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 preferred and 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.
5. Extinguishment of Debt
During 1998 and 1997, the Company extinguished debts that had carrying values
more or less than the fair value of the consideration transferred to the
creditors and realized gains and losses as shown below, which were classified,
in accordance with generally accepted accounting principles, as extraordinary
items in the accompanying consolidated statements of operations:
1998 1997
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Settlement of account payable (A) $ 30,000 $ 20,000
Settlement of note payable (B) (30,620) -
Settlement of judgment (C) 283,000
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Totals $ (620) $ 303,000
========== ==========
(A) 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
7). If the market value of the Company's common stock had not been at
least $ .10 per share at any time during the period from October 27, 1997
through December 10, 1998, the creditor would have been 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. Since the market value of the Company's common stock reached
$ .10 per share prior to November 30, 1998, the Company was not obligated
to make any additional payments to the creditor. Accordingly, the
Company reversed the Contingent Payment it had accrued as of November 30,
1997 and recognized an additional extraordinary gain of $30,000 in 1998.
(B) Pursuant to an agreement dated September 7, 1998, the Company
extinguished a note payable and accrued interest thereon with an
aggregate carrying value of $171,100 by agreeing to issue a total of
3,590,664 shares of common stock to the creditor with a total fair value
of $201,720. Accordingly, the Company recognized a loss on the
extinguishment of debt of $30,620 in 1998. The Company issued 400,000
shares to the creditor in 1998 and, accordingly, the accompanying 1998
consolidated statement of stockholders' equity reflects a credit of
$24,000 for the fair value of those shares. Pursuant to the amended
agreement the Company issued 22,369 shares of Preferred Series F Stock
to the creditor during May 1999 and, accordingly, the accompanying
consolidated balance sheet at May 31, 1999 reflects the issuance
of the Preferred Stock. The Preferred Series F Stock is convertible
into shares of Common Stock at a rate of 100 shares of Common for
each share of Preferred Stock.
The Company also issued 100,000 shares with a fair value of $6,000 to
another creditor during 1998 as a settlement of a portion of a note
payable with an equivalent carrying value and, accordingly, the Company
did not recognize any gain or loss. The accompanying 1998 consolidated
statement of stockholders' equity also reflects a credit of $6,000 for
the fair value of those shares.
(C) 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.
6. Real Estate Held For Sale
Real estate as of May 31, 1999 consisted 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.
The current market value in the Grand Canyon has been experiencing an increase
in land value and resale potential. The Company is currently in arrears on back
taxes in the amount of $35,000.
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-QSB,
prospective investors should carefully consider the following risk factors:
1. SIGNIFICANT AND REPEATED LOSSES. During fiscal 1998, the Company's most
recent fiscal year, the Company's losses were ($997,333) compared to losses of
($104,834) incurred during fiscal 1997. The Company faces all the risks
inherent in a new business. The Company's Xenogenics 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,
so shareholders might lose all or substantially all of their investment. Fiscal
1998 research and development costs were $286,518; theCompany did not incur any
research and development costs during Fiscal 1997. The increase in R&D costs
during Fiscal 1998 reflected the Company's beginning its pre-clinical trials of
the Sybiol technology. The Company will continue its research and development
during Fiscal 1999.
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, 1998 and 1997 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 shareholders could incur further substantial dilution and loss in the
value of their investment.
4. SIGNIFICANT AND INCREASING CURRENT LIABILITIES & DEFAULT. As of
November 30, 1998, the Company had $1,076,533 in current debts and other
obligations that are due and payable on or before November 30, 1999. Included
in the amounts due by November 30, 1999 is $382,617 in notes payable together
with other current liabilities of $693,916. Further, as of November 30, 1998,
the Company had over 75 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, which may result in shareholders 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
shareholders.
6. NEGATIVE WORKING CAPITAL & NEGATIVE CASH FLOW. As of November 30, 1998,
the Company had Total Current Liabilities of $1,076,533 and Total Current
Assets of $14,310 with the result that the Company had negative working capital
of ($1,062,223) as Total Current Liabilities exceeded Total Current Assets by
that amount. While the Company's management continues to seek additional
financing for the Company and its subsidiary 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 1997 and 1998 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
stockholders. During 1998, the Company issued 11,213,027 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. INDEBTEDNESS. The Company's previous indebtedness of $150,000 to a
former officer of the Company, Robert H. Goldsmith, was partially exchanged
for equity as of October 1998. In addition, the Company had over $1,076,533
in other liabilities all due and payable on or before November 30, 1999. 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, the Company may
default on obligations to creditors with the result that shareholders may
lose all or substantially all of their investment.
9. GOVERNMENT REGULATION. The Company's present and proposed activities
are subject to regulation by numerous governmental authorities in the United
States and other countries. Any change in applicable law or regulation may
have a material effect on the business and prospects of the Company. 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
authoritiesin 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 three full time
officers and one part-time person. The Company's limited cash flow and
financial resources do not allow the Company to increase or add to the
Company's 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, 1998, 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 one year 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 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
marketprice 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
fraudabuse 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. Vitagen, Hemocleanse, Excorp and one German firm are the 4
most noteworthy of the competitors in various stages of development. However
there is no live-cell artificial liver device available on the US market. The
Company believes it has significant advantages in methodology and mechanical
structure which provide significant cost and other advantages over
competitive technologies. The Company's device will be among those, which
most closely replicate human liver functions, not just a blood-cleaning
device. 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. There are established companies and firms which have
significantly greater financial and personnel resources, technical expertise
and experience than the Company. In view of the Company's limited financial
resources and management availability, the Company may continue to be at
significant competitive disadvantage vis-a-vis the Company's competitors.
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 unpatented trade secrets, know-how
and continuing technological innovation to develop and maintain its
competitive position. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
technology, or otherwise gain access to the Company's trade secrets or
disclose such technology, or that the Company can meaningfully protect its
rights to its unpatented trade secrets.
19. Patents and Proprietary Technology. Any proprietary protection that
the Company can obtain and maintain will be important to its proposed
business. A patent application is presently pending on the process utilized
by the SYBIOL (R) artificial liver device under the Patent Cooperative Treaty
Protection in 15 countries. The SYBIOL (R) mark is registered in the United
States Patent and Trademark Office, number 2,048,080. 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.
20. Therapeutic Products. The Company's products will be subject to
regulation in the US 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.
RESEARCH AGREEMENTS FOR SYBIOL (R) DEVELOPMENT
A. LOYOLA UNIVERSITY MEDICAL CENTER, CHICAGO
US research on the efficacy of the SYBIOL (R) device is being conducted at
Loyola University Medical Center, Chicago, IL, by a team of bioartificial
liver researchers including John. Brems, MD, FACS, Chairman of Xenogenics'
Scientific Advisory Board, James Filkins, Ph.D., and Professor David Van
Thiel, MD, FACP, also Xenogenics Scientific Advisory Board members and
noted hepatological experts. Dr. Filkins is a full time contract employee
of the company's Xenogenics Corporation subsidiary and is the Chief
Scientist.
B. UNIVERSITY OF PADOVA, PADOVA ITALY
Giovanni Ambrosino, MD, Head of the Bioartificial Liver Program of the
First Department of Surgery and Liver Transplant Unit of the University
of Padova, Italy, in cooperation with Loyola is conducting animal testing
in Italy of Xenogenics' SYBIOL (R) bioartificial liver support technology.
This research is under the auspices of the Xenogenics Scientific Advisory
Board. Research in Padova, will include cell life extension and other
research arenas complementary to the US efforts and is expected to progress
swiftly from animal trials to human trials.
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 15>
Overview
Business of Exten Industries, Inc.
As of May 31, 1999, 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.
<PAGE 17>
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 May 31, 1999 Compared to Three Months Ended May 31, 1998
During the three months ended May 31, 1999, the Company incurred $28,109 in
consulting fees compared to $15,675 for the three months ended May 31, 1998.
This increase in consulting fees was due primarily to the Company's continued
use of outside consultants for adminstrative activities and the reliance on the
roles filled by outside consultants.
During the three months ended May 31, 1999, the Company incurred $79,314 in
general and administrative expenses. This decreased from the three-month period
ended May 31, 1998. This increase was due to executive salaries (which have
been accrued and not paid) and additional support functions as well as legal
and accounting and other ancillary expenses.
During the three months ended May 31, 1999 $10,000 in research and development
costs were incurred. Research and development costs although minimal reflects
the Company's substantially limited financial resources and the efforts
expended in pursuing those financial resources. The Company's research and
development efforts commenced with the signing of the Loyola research agreement
and the commencement of research activities by their scientific staff.
As a result, total operating expenses for the three month period ended
May 31, 1999 were $131,669 compared to $86,346 for the three month period ended
May 31, 1998. This resulted in the Company recording a loss from operations of
$131,669 for the three month period ended May 31, 1999 compared to a loss from
operations of $86,346 for the comparable period in 1998, or an increase of
approximately 52%.
Six Months Ended May 31, 1999 Compared to Six Months Ended May 31, 1998
During the six months ended May 31, 1999, the Company incurred $67,109 in
consulting fees compared to $56,745 for the six months ended May 31, 1998. This
increase in consulting fees was due primarily to the Company's continued use of
outside consultants for adminstrative activities and the reliance on the roles
filled by outside consultants.
During the six months ended May 31, 1999, the Company incurred $149,243 in
general and administrative expenses. This decreased from the six-month period
ended May 31, 1998. This increase was due to executive salaries (which have
been accrued and not paid) and additional support functions as well as legal
and accounting and other ancillary expenses.
During the six months ended May 31, 1999 $20,000 in research and development
costs were incurred. Research and development costs although minimal reflects
the Company's substantially limited financial resources and the efforts
expended in pursuing those financial resources. The Company's research and
development efforts commenced with the signing of the Loyola research agreement
and the commencement of research activities by their scientific staff.
As a result, total operating expenses for the six month period ended May 31,
1999 were $271,275 compared to $210,517 for the six month period ended May 31,
1998. This resulted in the Company recording a loss from operations of $271,275
for the six month period ended May 31, 1999 compared to a loss from operations
of $210,517 for the comparable period in 1998, or an increase of approximately
28%.
Liquidity and Capital Resources
The Company continues to effect transactions that reduce its liabilities and
cash requirements, and raise capital. The Company has negotiated with certain
vendors and creditors to settle its liabilities.During Fiscal 1998 and 1999,
the Company took additional steps to control expenses and in October of 1998
settled a debt to a former officer, Robert H. Goldsmith by a debt to equity
exchange for shares of restricted stock, 400,000 up front and additional shares
to be issued. This served to reduce prior debt and otherwise permit management
to focus its energies on the Company's proposed business.
While the Company continues to seek additional financing through the offering
and sale of the Company's securities, joint ventures, and other efforts, the
Company has not received any indication that it will be successful in these
efforts. The Company may consider forming an alliance or completing a merger
with one or more other entities. There can be no assurances that the Company
will be successful in obtaining any additional financing or in otherwise
completing any joint venture, alliance, merger, or other transaction or, if the
Company is successful in completing any such transaction, that it can be
completed on terms that are reasonable in view of the Company's current
circumstances.
The Company continues to pay directors fees, 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.
<PAGE 18>
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
The Company's new address is the following:
9620 Chesapeake Drive, Suite 201
San Diego, California, 92123
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: 07/14/99 By: /s/ W. Gerald Newmin
W. Gerald Newmin
Chairman, Chief Executive Officer
Date: 07/14/99 By: /s/ Jerry Simek
Jerry Simek
Director, President and
Chief Operating Officer
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