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 quarter ended May 31, 2000
( ) Transition 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 of (IRS Employer ID No.)
incorporation or organization)
9620 Chesapeake Drive, Suite 201
SAN DIEGO, CALIFORNIA 92123-1324
--------------------------------
(Address of principal executive offices)
(858) 496-0173
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Common Stock $0.01 per share
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Securities registered pursuant to Section 12(g) of the Act:
None
----
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 be 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:
72,628,959 as July 14, 2000 Common Stock, .01 par value.
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TABLE OF CONTENTS
PAGE
Part I Financial Information
Item 1:
Condensed Consolidated Balance Sheets as of May 31, 2000
(unaudited) and November 30, 1999 3
Condensed Consolidated Statement of Operations (unaudited)
for the Three Months Ended May 31, 2000 and 1999 4
Condensed Consolidated Statement of Operations (unaudited)
for the Six Months Ended May 31, 2000 and 1999 5
Condensed Consolidated Statement of Cash Flows (unaudited)
for the Six Months Ended May 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements (unaudited)..........7
Item 1a: Factors Which May Affect Future Results 10
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Overview 14
Results of Operations 14
Liquidity and Capital Resources 14
Part II: Other Information 15
Item 1: Legal Proceedings 15
Item 2: Changes in Securities 15
Item 3: Defaults Upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 15
Item 6a: Exhibits 15
Item 6b: Reports on Form 8-K 15
SIGNATURES 15
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EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
as of May 31, 2000 and November 30, 1999
<CAPTION>
May 31, November 30,
2000, 1999
(unaudited)
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<S> <C> <C>
ASSETS
CURRENT ASSETS-Cash $ 418,057 $ 228
PROPERTY AND EQUIPMENT, net 922 1,284
PREPAID EXPENSES, net 81,863 81,863
OTHER ASSETS
Real Estate Held For Sale 47,200 47,200
Patent Costs and other intangibles 40,737 40,737
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TOTAL OTHER ASSETS 87,937 87,937
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$ 588,779 $ 171,312
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LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts Payable $ 50,044 $ 83,574
Accrued Expenses 708,140 539,272
Advances from Stockholder 85,925 66,078
Notes Payable 23,853 77,590
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TOTAL CURRENT LIABILITIES 867,962 766,514
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NOTES PAYABLE, long term 16,854 403,545
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TOTAL LIABILITIES 884,816 1,170,059
MINORITY INTEREST 1,153 1,153
STOCKHOLDERS DEFICIT
Preferred Stock, $0.01 par value;
20,000,000 shares authorized; 22,622
& 0 issued & outstanding, respectively 226 226
Common Stock, $0.01 par value;
50,000,000 shares authorized;
49,501,019 issued & outstanding, 500,000 495,010
Common Stock Subscribed 9,597 4,989
Additional Paid-in Capital 10,970,802 9,916,080
Accumulated Deficit prior to
development stage (10,084,284) (10,084,284)
Accumulated Deficit during development stage (1,693,531) (1,331,921)
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TOTAL STOCKHOLDERS' DEFICIENCY (297,190) (999,900)
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$ 588,779 $ 171,312
========== ==========
<FN>
The accompanying notes are integral part of these financial statements
</TABLE>
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EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the three months ended May 31, 2000 (unaudited) AND May 31, 1999
<CAPTION>
Three Months Ended
May 31, 2000 May 31, 1999
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<S> <C> <C>
REVENUE
Sales $ - $ -
Royalties - -
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Total Revenue - -
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OPERATING EXPENSES
General & Administrative 86,148 79,314
Consulting Fee Expense 47,534 28,109
Research and Development 73,500 10,000
Depreciation and Amortization 270 225
Interest, net (422) 14,021
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Total Operating Expenses 207,030 131,669
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Net Operating Loss Before Income Taxes (207,030) (131,669)
Provision for Income Taxes 1,278 800
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Net Income (Loss) $ (208,308) $ (132,469)
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Net Income (Loss) per Average Common Share $ (0.01) $ (0.01)
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Weighted Average Common Shares Outstanding 50,000,000 50,000,000
========== ==========
<FN>
The accompanying notes are integral part of these financial statements
</TABLE>
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EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the six months ended May 31, 2000 (unaudited) AND May 31, 1999
<CAPTION>
Six Months Ended
May 31, 2000 May 31, 1999
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<S> <C> <C>
REVENUE
Sales $ - $ -
Royalties - -
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Total Revenue - -
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OPERATING EXPENSES
General & Administrative 149,122 149,243
Consulting Fee Expense 81,877 67,109
Research and Development 106,953 20,000
Depreciation and Amortization 362 408
Interest, net 10,654 34,515
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Total Operating Expenses 348,968 271,275
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Net Operating Loss Before Income Taxes (348,968) (271,275)
Provision for Income Taxes 2,878 1,600
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Net Income (Loss) $ (351,846) $ (272,875)
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Net Income (Loss) per Average Common Share $ (0.01) $ (0.01)
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Weighted Average Common Shares Outstanding 50,000,000 49,849,525
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<FN>
The accompanying notes are integral part of these financial statements
</TABLE>
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<TABLE>
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
AS OF May 31, 2000 (unaudited) and May 31, 1999
<CAPTION>
Six Months Ended
May 31, 2000 May 31, 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (351,846) $ (272,875)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided By (Used In)
Operating Activities
Minority Interest - 99,135
Depreciation and Amortization 362 408
Issuance of Common Stock for Services - 58,604
Issuance of Preferred Stock in Exchange
for Settlement of Debt - 177,494
(Increase) Decrease in:
Prepaid Expense - -
Other Assets - 43
Increase (Decrease) in:
Accounts Payable (33,529) 3,001
Accrued Expenses 196,799 (207,952)
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NET CASH USED IN OPERATING ACTIVITIES (188,214) (142,142)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment - -
Advances from officer 16,848 -
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NET CASH USED INVESTMENT ACTIVITIES 16,848 -
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Common Stock 1,054,556 -
Increase in Long Term Debt, net (465,361) 127,996
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NET CASH PROVIDED BY FINANCING ACTIVITIES 589,195 127,996
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NET INCREASE (DECREASE) IN CASH 417,829 (14,146)
CASH AT BEGINNING OF PERIOD 228 14,310
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CASH AT END OF PERIOD $ 418,057 $ 164
========== ==========
<FN>
The accompanying notes are integral part of these financial statements
</TABLE>
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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(R) 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 registered
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.
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.
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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, 1999. The results of operations for the
three-month periods 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, 1999.
2. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information for the six-month period
ended May 31, 2000 (unaudited) and 1999 are summarized as follows:
Six Months Ended May 31, 2000 May 31, 1999
(unaudited)
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Cash paid for interest and income taxes:
Interest $ 15,222 $ 8,744
Income taxes $ 2,878 $ 800
3. Earnings Per Share
Certain options granted and outstanding as of May 31, 2000 (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.
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4. Going Concern Matters
During fiscal years 1999 and 1998, the Company incurred net losses of
($514,564) and ($811,677) (corrected), respectively. Management does not expect
the Company to generate significant revenues in the near future. At
May 31, 2000, the Company's accumulated deficit and stockholders' deficiency
were ($11,777,815) and ($297,190) respectively, and its current liabilities
exceeded its current assets by ($499,905). 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 ($528,646) in 1999. 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, the proceeds of which would be used to protect
the Company's patent position in its SYBIOL(R) technology and satisfy immediate
operating needs include (1) Sales of shares of the Company's common stock to
and through Kestrel Equity Partners Ltd., which has already resulted in their
first $550,000 investment in the Company; (2) raising additional capital
through sales of preferred and common stock; (3) continuing to use common stock
to pay for consulting and professional services; (4) negotiating reductions in
existing liabilities; and (5) 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 2000 and 1999, 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:
2000 1999
----------- -----------
Settlement of account payable $ 6,194 0
Settlement of notes payable $ 444,063 0
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Totals $ 450,257 0
=========== ===========
During March 2000, Mr. A. Jack Schaps, the A. Jack Schaps Estate Trust and the
A. Jack Schaps IRA Trust Fund exchanged a combination of $245,000 of notes and
$100,000 of Xenogenics Corporation Preferred Stock and accrued dividends for
351,448 shares of Xenogenics Common Stock and $16,867.80 of accrued interest.
During March 2000, Mr. W. Gerald Newmin, Chairman and Chief Executive Officer
of the Company, exchanged a note in the amount of $199,063 plus accrued
interest of $12,493 into 211,556 shares of Xenogenics Common Stock..
6. Real Estate Held For Sale
Real estate as of May 31, 2000 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 an estimated fair market value of $47,200 in
1995. (The current assessed cash value is $351,611.) The market may be
experiencing an increase in land value and resale potential. The Company is
currently in arrears on back taxes in the amount of $39,998.07.
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ITEM 1A. FACTORS WHICH MAY AFFECT 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 1999, the Company's most
recent fiscal year, the Company's losses were ($514,564) compared to losses of
($811,677) incurred during fiscal 1998. 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
1999 research and development costs were $145,940; fiscal 1998 research and
development costs were $191,712. The R&D costs reflect the Company's research,
development and pre-clinical trials of the Sybiol(R) synthetic bio-liver
technology. The Company is continuing its research and development during
Fiscal 2000.
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, 1999 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, 1999, the Company had $766,514 in current debts and other
obligations that are due and payable on or before November 30, 2000. Included
in the amounts due by November 30, 2000 is $ 77,590 in notes payable together
with other current liabilities of $688,924. Further, as of November 30, 1999,
the Company had over 4 times as many current liabilities as it had current
assets. In the event that the Company is not able to generate sufficient cash
resources to pay these and other current liabilities on or before their due
dates, the Company will likely incur substantial additional costs and expenses
and otherwise risk whatever claims creditors may assert against the Company in
connection with any default thereby, 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 has obtained a
commitment from Kestrel Equity Partners, Ltd. for a private placement 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, 1999,
the Company had Total Current Liabilities of $766,514 and Total Current Assets
of $171,312 with the result that the Company had negative working capital of
($595,201) as Total Current Liabilities exceeded Total Current Assets by that
amount. 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 1998 and 1999 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 1999, the Company issued 1,151,350 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. 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 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.
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9. LACK OF INDEPENDENT EVALUATION OF TECHNOLOGY & COMMERCIAL VIABILITY.
The Company's current management does not possess any studies performed by an
independent third party, which demonstrate that the synthetic bio-liver
technology has ever been rigorously evaluated. There can be no assurance
that this technology offers safe, efficacious, and cost-effective therapeutic
attributes relative to those provided by competing technologies or, if it does
that the technology is commercially viable.
10. LIMITED MANAGEMENT. The Company currently has two 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.
11. 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.
12. 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.
13. VALUATIONS & PRIOR ASSET ACQUISITIONS. There can be no assurance that
the Company will not revalue the Company's previously acquired assets to
reflect changing values and conditions.
14. POSSIBLE RULE 144 STOCK SALES. As of November 30, 1999, 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. 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.
15. POSSIBLE STOCK SALES - REGULATION S & FORM S-8 REGISTRATION STATEMENT.
The Company has periodically issued shares to non-U.S. citizens under
Regulation S. In addition, the Company has utilized the services of consultants
and, in this connection, the Company has issued shares of the Company's Common
Stock and registered these shares for sale 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.
16. RISKS OF LOW PRICED STOCKS. Trading in the Company's Common Stock is
limited. Consequently, a shareholder may find it more difficult to dispose of,
or to obtain accurate quotations as to the price of, the Company's securities.
In the absence of a security being quoted on NASDAQ, or the Company having
$2,000,000 in net tangible assets, trading in the Common Stock is covered by
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 for non-
NASDAQ and non-exchange listed securities. Under such rules, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors (generally institutions with assets in excess of
$5,000,000 or individuals with net worth in excess of $1,000,000 or an annual
income exceeding $200,000 or $300,000 jointly with their spouse) must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
also exempt from this rule if the market price is at least $5.00 per share, or
for warrants, if the warrants have an exercise price of at least $5.00 per
share. The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure related to the market for penny stocks and for trades in
any stock defined as a penny stock.
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The Commission has recently adopted regulations under such Act which define a
penny stock to be any NASDAQ or non-NASDAQ equity security that has a market
price or exercise price of less than $5.00 per share and allow for the
enforcement against violators of the proposed rules. In addition, unless
exempt, the rules require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule prepared by the Commission explaining
important concepts involving a penny stock market, the nature of such market,
terms used in such market, the broker/dealer's duties to the customer, a toll-
free telephone number for inquiries about the broker/dealer's disciplinary
history, and the customer's rights and remedies in case of fraud or abuse in
the sale.
Disclosure also must be made about commissions payable to both the broker/
dealer and the registered representative, current quotations for the
securities, and, if the broker/dealer is the sole market maker, the
broker/dealer must disclose this fact and its control over the market. Monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
While many NASDAQ stocks are covered by the proposed definition of penny stock,
transactions in NASDAQ stock are exempt from all but the sole market-maker
provision for (i) issuers who have $2,000,000 in tangible assets ($5,000,000 if
the issuer has not been in continuous operation for three years), (ii)
transactions in which the customer is an institutional accredited investor and
(iii) transactions that are not recommended by the broker/dealer. In addition,
transactions in a NASDAQ security directly with the NASDAQ market maker for
such securities, are subject only to the sole market-maker disclosure, and the
disclosure with regard to commissions to be paid to the broker/dealer and the
registered representatives.
Finally, all NASDAQ securities are exempt if NASDAQ raised its requirements for
continued listing so that any issuer with less than $2,000,000 in net tangible
assets or stockholder's equity would be subject to delisting. These criteria
are more stringent than the proposed increase in NASDAQ's maintenance
requirements. The Company's securities are subject to the above rules on penny
stocks and the market liquidity for the Company's securities could be severely
affected by limiting the ability of broker/ dealers to sell the Company's
securities.
17. COMPETITION. The Company is engaged in businesses characterized by
extensive research efforts, rapid technological change, and intense
competition. Vitagen, HemoTherapies, Excorp and one German firm are some 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-.-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.
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18. 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.
19. 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. The company's research and development efforts commenced in 1998 with
the signing of the Loyola research agreement and the commencement of research
activities by their scientific staff.
B. Multicell Associates, Inc. of Warwick Rhode Island, has entered into an
agreement with the Company to evaluate and optimize the Sybiol device and to
provide an engineered liver cell line and to optimize the interface between the
Multicell cell line and the device. Dr. Hugo Jauregui, noted cell expert and
President of Multicell, heads this research.
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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.
OVERVIEW
BUSINESS OF EXTEN INDUSTRIES, INC.
As of May 31, 2000, the Company's only active business is the proposed research
and development activities of SYBIOL(R) artificial liver technology.
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(R)
synthetic bio-liver technology to the new Xenogenics Corporation, at that time
a wholly owned subsidiary (now majority-owned) so as to better fund and
continue the research with the artificial liver technology. The company has
filed US and foreign patent applications under the Patent Cooperative Treaty in
15 countries (Patent Cooperative Treaty US 94/10935). A patent application is
presently pending on the process utilized by the SYBIOL(R) artificial liver
device.
RESULTS OF OPERATIONS
Six Months Ended May 31, 2000 Compared to six Months Ended May 31, 1999
Cash at end of period is $418,057 as compared to $164 as of May 31,1999 due to
Kestrel Equity Partners Ltd. providing a first round of funding.
During the 6 months ended May 31, 2000, the Company incurred $56,534 in
consulting fees compared to $28,109 for the 6 months ended May 31, 1999. This
increase in consulting fees was due to the Company's use of outside consultants
for administrative activities and the reliance on the roles filled by outside
consultants.
During the 6 months ended May 31, 2000, the Company incurred $86,148 in general
and administrative expenses. This increased from $79,314 for the 6-month
period ended May 31, 1999. This increase was due to an increase in executive
salaries (which have been accrued and not paid), support functions, and legal
and accounting and other ancillary expenses.
As a result, total operating expenses for the 6-month period ended May 31, 2000
were $ 207,030 compared to $190,319 for the 6-month period ended May 31, 1999.
This resulted in the Company recording a loss from operations of ($208,308)
for the 6-month period ended May 31, 2000 compared to a loss from operations of
($190,319) for the comparable period in 1999.
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 to permit management to
focus its energies on the Company's proposed business.
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The Company continues to seek additional financing through the offering and
sale of the Company's securities, joint ventures, and other efforts, and has
received a first round of funding from Kestrel Equity Partners Ltd. of Dallas,
Texas. 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 and professional 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.
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
On May 17, 2000 an annual shareholders meeting was held
at which the shareholders voted to:
Elect Ed Sigmond as director and re-elect directors
Farrest Loper, W. Gerald Newmin and Jerry Simek.
In addition the shareholders voted to:
1) Amend the Company's Certificate of Incorporation to
increase the authorized common stock to 200,000,000
shares;
2) Ratify and approve the Company's 2000 Stock Incentive
Plan and the reservation of 5,000,000 shares of the
Company's common stock thereunder;
3) Appoint Logan Throop & Co as the Company's independent
auditors, and
4) Ratify and approve the Company's 2000 Employee Benefit
Plan,
The votes were cast as follows:
Re-election of W. Gerald Newmin as director -
45,106,621 for, 410,456 against;
Re-election of Farrest Loper as director -
44,682,621 for, 834,456 against;
Re-election of Jerry Simek as director -
45,082,568 for, 434,509 against;
Election of Ed Sigmond as director -
45,327,121 for, 189,956 against.
Amendment of the Company's Certificate of
Incorporation -
43,949,886 for, 1,218,918 against and 348,273
abstaining.
Approval of Stock Incentive Plan -
15,587,014 for, 911,946 against, 192,615
abstaining.
Appointment of Logan Throop & Co. -
45,337,239 for, 16,241 against, 163,597
abstaining.
Approval of Employee Benefit Plan -
15,822,708 for, 686,738 against, 182,129
abstaining.
Item 5: Other Information:
The Company's address is
9620 Chesapeake Drive, Suite 201
San Diego, California, 92123-1324
Item 6(a): Exhibits
NONE
Item 6(b): Reports on Form 8-K
On May 15, 2000 the Company filed an amended Form 8-K reporting a letter from
its former auditors, J. H. Cohn, LLP stating that there were no disagreements
with the form 8-K filed by the Company on February 29, 2000.
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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: 07/14/00 By: /s/ W. Gerald Newmin
--------------------
W. Gerald Newmin
Chairman, Chief Executive Officer
Date: 07/14/00 By: /s/ Jerry Simek
--------------------
Jerry Simek
Director, President and Chief
Operating Officer
