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 August 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
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(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
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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:
72,539,706 as August 31, 2000 Common Stock, .01 par value.
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TABLE OF CONTENTS
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1:
Condensed Consolidated Balance Sheets as of August 31, 2000
(unaudited) and November 30, 1999 (audited) . . . . . . . . . . . . . . . 2
Condensed Consolidated Statement of Operations (unaudited)
for the Three Months Ended August 31, 2000 and August 31, 1999 . . . . . 3
Condensed Consolidated Statement of Operations (unaudited)
for the Nine Months Ended August 31, 2000 and August 31, 1999 . . . . . 4
Condensed Consolidated Statement of Cash Flows (unaudited)
for the Nine Months Ended August 31, 2000 and August 31, 1999 . . . . . 5
Notes to Condensed Consolidated Financial Statements (unaudited) . . . . 6
Item 1a: Factors Which May Affect Future Results . . . . . . . . . . . . 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 12
Overview .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . 14
PART II: OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 1: Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2: Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 14
Item 3: Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 14
Item 4: Submission of Matters to a Vote of Security Holders . . . . . . . 14
Item 5: Other Information . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6(a): Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6(b): Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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<TABLE>
EXTEN INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
as of August 31, 2000 (unaudited) and November 30, 1999 (audited)
<CAPTION>
August 31, 2000 November 30, 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS - Cash $ 296,825 $ 228
PREPAID EXPENSES, net 41,421 81,863
PROPERTY AND EQUIPMENT, net 1,738 1,284
OTHER ASSETS
Real Estate Held For Sale 47,200 47,200
Patent Costs and other intangibles 40,768 40,737
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TOTAL OTHER ASSETS 87,968 87,937
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TOTAL ASSETS $ 427,952 $ 171,312
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LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts Payable $ 10,960 $ 83,574
Accrued Expenses 103,882 539,272
Advances from Stockholder 0 66,078
Notes Payable 16,510 77,590
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TOTAL CURRENT LIABILITIES 131,352 766,514
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NOTES PAYABLE, long term 17,154 403,545
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TOTAL LIABILITIES 148,506 1,170,059
MINORITY INTEREST 180,926 1,153
STOCKHOLDERS EQUITY (DEFICIENCY)
Preferred Stock, $0.01 par value;
5,000,000 shares authorized;
0 issued & 22,622 outstanding,
respectively 0 226
Common Stock, $0.01 par value;
200,000,000 shares authorized;
72,749,003 and 49,501,109
issued & outstanding. 727,490 495,010
Common Stock Subscribed 0 4,989
Additional Paid-in Capital 11,244,477 9,916,080
Accumulated Deficit prior to
development stage (10,084,284) (10,084,284)
Accumulated Deficit during
development stage (1,789,163) (1,331,921)
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TOTAL STOCKHOLDERS'
EQUITY (DEFICIENCY) 98,520 (999,900)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 427,952 $ 171,312
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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 OPERATIONS (UNAUDITED)
For the three months ended August 31, 2000 AND August 31, 1999
<CAPTION>
Three Months Ended
August 31, 2000 August 31, 1999
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<S> <C> <C>
REVENUE
Sales $ - $ -
Royalties - -
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Total Revenue - -
OPERATING EXPENSES
General and Administrative 143,738 23,722
Consulting Fee Expense 19,325 24,786
Research and Development 40,441 (50,000)
Depreciation and Amortization 270 225
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Total Operating Expenses 203,774 (1,267)
OTHER INCOME (EXPENSE)
Interest, net 3,978 (14,745)
Minority Interest in Loss of Subsidiary 94,397 1,355
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Total Other Income (Expense) 98,375 (13,390)
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Net Operating Loss Before Income Taxes (105,399) (12,123)
Provision for Income Taxes 0 0
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Net Income (Loss) $ (105,399) $ (12,123)
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Net Income (Loss) per Average
Common Share $ (0.01) $ (0.01)
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Weighted Average Common Shares
Outstanding 65,166,002 50,000,000
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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 OPERATIONS (UNAUDITED)
For the nine months ended August 31, 2000 AND August 31, 1999
<CAPTION>
Nine Months Ended
August 31, 2000 August 31, 1999
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<S> <C> <C>
REVENUE
Sales $ - $ -
Royalties - -
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Total Revenue - -
OPERATING EXPENSES
General & Administrative 289,735 174,566
Consulting Fee Expense 141,702 91,895
Research and Development 112,894 (30,000)
Depreciation and Amortization 632 633
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Total Operating Expenses 544,963 237,094
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OTHER INCOME (EXPENSE)
Interest, net (6,676) (49,260)
Minority Interest in Loss of Subsidiary 94,397 0
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Total Other Income (Expense) 87,721 (49,260)
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Net Operating Loss Before Income Taxes (457,242) (286,354)
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Net Income (Loss) $ (457,242) $ (286,354)
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Net Income (Loss) per Average
Common Share $ (0.01) $ (0.01)
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Weighted Average Common Shares
Outstanding 55,055,334 50,000,000
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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 August 31, 2000 and August 31, 1999
<CAPTION>
Nine Months Ended
August 31, 2000 August 31, 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (457,242) $ (286,355)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By
(Used In) Operating Activities
Minority Interest (94,397) 99,135
Depreciation and Amortization 632 633
Issuance of Common Stock for Services 406,556 58,831
Prepaid research 40,441 0
Other Assets (31) (84)
Increase (Decrease) in:
Accounts Payable (51,845) 7,650
Accrued Expenses (144,431) (208,288)
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NET CASH USED IN OPERATING ACTIVITIES (300,317) (328,478)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (1,086) 0
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NET CASH USED INVESTMENT ACTIVITIES (1,086) 0
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Common Stock 550,000 0
Common stock options exercised 48,000 0
Advances from officer 0 8,739
Short term debt 0 (14,510)
Increase in Long Term Debt, net 0 320,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 598,000 314,229
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NET INCREASE (DECREASE) IN CASH 296,597 (14,249)
CASH AT BEGINNING OF PERIOD 228 14,310
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CASH AT END OF PERIOD $ 296,825 $ 61
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<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 SYBIOLR 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.
Basis of Accounting/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.
Basis of presentation:
The accompanying unaudited condensed financial statements and related notes have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, consisting of a normal recurring nature and considered necessary
for a fair presentation, have been included. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-KSB for the
year ended November 30, 1999. The results of operations for the three-month
periods are not necessarily indicative of the operating results for the year
ended November 30, 2000.
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2. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the nine-month period
ended August 31, 2000 (unaudited) and 1999 are summarized as follows:
<CAPTION>
Nine Months Ended August 31, 2000 August 31, 1999
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(unaudited)
<S> <C> <C>
Cash paid for interest and income taxes:
Interest $ 606 $ 49,260
</TABLE>
During May, 2000 Electrical and Technical Consulting Inc. exercised 800,000
stock options at $.06 per share.
Kestrel Equity Partners, Ltd. was issued 5,000,000 shares of Exten Industries,
Inc. common stock and 350,000 shares of Xenogenics Corp. common stock in
consideration for the release of the first $550,000 of funding to Xenogenics.
3. EARNINGS PER SHARE
Certain options granted and outstanding as of August 31, 2000 (unaudited) are
antidilutive for the purposes of calculating basic and diluted earnings per
share and therefore are not included in the earnings per share calculations.
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 August 31, 2000, the Company's accumulated deficit and stockholders' equity
were ($11,873,447) and $98,520 respectively, and its current assets exceeded its
liabilities by $206,895. 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
SYBIOLR 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; and another $500,000 held in equity by Kestrel for release to the
Company at an agreed-upon point, (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. Management cannot
provide any assurances that the Company will be successful in accomplishing any
of its plans.
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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, 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.
<TABLE>
5. EXTINGUISHMENT OF DEBT THROUGH THE ISSUANCE OF STOCK
During the 9 months ended August 31, 2000 and August 31, 1999 the issued common
stock in exchange for accounts payable and outstanding notes payable, as shown
below:
<CAPTION>
Nine Months Ended August 31, 1999 August 31, 2000
------------ ------------
(unaudited)
<S> <C> <C>
Settlement of account payable $ 6,194 $ 103,937
Settlement of notes payable $ 444,063 $ 268,551
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Totals $ 450,257 $ 372,488
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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
accrued interest of $16,867.80 and $100,000 of Xenogenics Corporation Preferred
Stock and accrued dividends for 351,448 shares of Xenogenics Common .
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 for 211,556 shares of Xenogenics Common Stock.
During June, 2000, Jeffers, Schaff and Falk, LLP; Brown, Martin, Haller, McLain,
LLP; Mr. W. Gerald Newmin, Chairman and CEO of the Company, and Jerry Simek,
President of the Company, exchanged indebtedness by the Company totaling
$16,028, $4740, $83,169 and $3000 for 80,140, 23,698, 2,718,469 and 112,000
shares of common stock respectively.
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 $37,909.
7. CONVERSION OF PREFERRED STOCK
During June, 2000, 226,220 shares of Exten common stock were issued to Robert H.
Goldsmith in exchange for the conversion of 22,622 shares of Series H
Convertible Preferred stock
ITEM IA. 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 SybiolR synthetic bio-liver technology. The Company
is continuing its research and development during Fiscal 2000.
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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 CURRENT LIABILITIES. 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.
In the event that the Company is not able to generate sufficient cash resources,
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. As of August, 2000 the Company's
current liabilities have been reduced to $131,352. The reduction in liabilities
was due to payments provided by the Kestrel Equity Partners Ltd. financing and
the exchange of certain debts for equity. There can be no assurance that this
trend will continue.
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
financial obligations. While the Company has obtained a $550,000 investment from
Kestrel Equity Partners, Ltd. and Kestrel holds a 2nd $500,000 in escrow for the
Company, 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. WORKING CAPITAL & 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. However,
management will continue to seek additional financing for the Company and its
subsidiary to complete its business plan, Due to the financing provided by
Kestrel Equity Partners, Ltd., the Company has achieved positive cash flow for
the nine months ended August 31, 2000. There can be no assurance that this
trend will continue.
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
financial losses. During 2000, the Company issued 23,247,984 additional shares
of its common stock in connection with its fund-raising, exchange for debt and
operations. 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, Algenix, HemoTherapies, Excorp, Circe Biomedical 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 or will have significant advantages in methodology and
mechanical structure that 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.
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.
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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 pre-
clinical 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, and Professor David Van Thiel, MD, FACP, Xenogenics Scientific
Advisory Board member. 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.
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."
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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 August 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 SybiolR 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
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THREE MONTHS ENDED
AUGUST 31, 1999
Cash at end of period is $296,825 as compared to $61 as of August 31,1999 due
to Kestrel Equity Partners Ltd. providing a first round of funding.
During the 3 months ended August 31, 2000, the Company incurred $19,325 in
consulting fees compared to $24,786 for the 3 months ended August 31, 1999.
This 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 3 months ended August 31, 2000, the Company incurred $143,738 in
general and administrative expenses. This increased from $23,722 for the
3-month period ended August 31, 1999. This increase was due to an increase in
executive salaries due to the hiring of a full-time president for Xenogenics,
support functions, and legal and accounting and other ancillary expenses
including the May shareholders meeting.
As a result, total operating expenses for the 3-month period ended
August 31, 2000 were $203,774 compared to ($1,267) for the 3-month period ended
August 31, 1999. This resulted in the Company recording a loss from operations
of ($105,399) for the 3-month period ended August 31, 2000 compared to a loss
from operations of $12,123 for the comparable period in 1999.
NINE MONTHS ENDED AUGUST 31, 2000 COMPARED TO NINE MONTHS ENDED AUGUST 31, 1999
Cash at end of period is $296,825 as compared to $61 as of August 31,1999 due
to Kestrel Equity Partners Ltd. providing a first round of funding.
During the 9 months ended August 31, 2000, the Company incurred $141,702 in
consulting fees compared to $91,895 for the 9 months ended August 31, 1999.
This was due to the Company's use of outside consultants for administrative
activities and the reliance on the roles filled by outside consultants.
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During the 9 months ended August 31, 2000, the Company incurred $289,735 in
general and administrative expenses. This increased from $174,566 for the
9-month period ended August 31, 1999. This increase was due to an increase in
executive salaries due to the hiring of a full-time president for Xenogenics.
Other factors are rate of usage of support functions, and legal/accounting and
other ancillary expenses including the May shareholders meeting.
As a result, total operating expenses for the 9-month period ended
August 31, 2000 were $544,963 compared to $237,094 for the 9-month period ended
August 31, 1999. This resulted in the Company recording a loss from operations
of $457,242 for the 9-month period ended August 31, 2000 compared to a loss from
operations of $286,354 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. The reduction in liabilities
was due to payments provided by the Kestrel Equity Partners Ltd. financing and
the exchange of certain debts for equity.
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 with
a second round of funding now being held in escrow by Kestrel. 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
NONE
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
NONE
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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: 10/20/00 By: /s/ W. Gerald Newmin
----------------
W. Gerald Newmin
Chairman, Chief Executive Officer
Date: 10/20/00 By: /s/ Jerry Simek
----------------
Jerry Simek
Director, President
and Chief Operating Officer
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