SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the fiscal year ended November 30, 1999
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
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(Address of principal executive offices)
(858) 496-0173
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(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class on which registered Name of each exchange
Common Stock $0.01 per share (None)
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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 ___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB [X]
State issuer's revenues for its most recent fiscal year: $ 0 .
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State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the issuer (based upon 37,963,107 shares held
by non-affiliates and the closing price of $.85 per share for the common stock
on the over-the counter market as of February 23, 2000: $ 32,268,640.
State the number of shares of the issuer's common stock, par value. 01,
outstanding as of February 23, 2000: 49,501,019.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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Transitional Small Business Disclosure Format (check one): Yes ____ No _X_
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EXTEN INDUSTRIES, INC.
FORM 10-KSB
INDEX
PART I
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Item 1. DESCRIPTION OF BUSINESS 1
Item 2. DESCRIPTION OF PROPERTY 3
Item 3. LEGAL PROCEEDINGS 4
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4
PART II
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Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS 4
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 5
Item 7. FINANCIAL STATEMENTS 6
Item 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 6
PART III
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Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 6
Item 10. EXECUTIVE COMPENSATION 7
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT 8
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 9
Item 13. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
CONSOLIDATED FINANCIAL STATEMENTS F1 - F10
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The private securities litigation reform act of 1985 provides a "safe harbor"
for forward-looking statements. This report on Form 10-KSB contains a number of
forward-looking statements, which reflect the Company's current views with
respect to future events and financial performance including statements
regarding the Company's strategy, product under development and plans for
operations. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "intends," "future," "plans," "targets"
and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on the forward-looking statements
contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements,
to reflect events or circumstances that may arise after the date hereof.
Additionally, 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 introduce new products, the Company's ability to
manage its expected growth, its limited protection of technology and
trademarks, the Company's dependence on limited cash resources, and its
dependence on certain key personnel within the Company. Accordingly, actual
results may differ, possibly materially, from the predictions contained herein.
INTRODUCTION
Exten Ventures, the predecessor of Exten Industries, Inc., a Delaware
Corporation ("the Company" or "Exten"), was originally incorporated on April
28, 1970. From 1985 to 1990, the Company provided merchant banking services.
In September of 1991 the Company acquired all of the outstanding stock of
Xenogenex, Inc., a California corporation, ("Xenogenex"). At that time
Xenogenex was funding research on xenogeneic transplants and the development of
an artificial liver or synthetic bio-liver with a major West Coast medical
center. Xenogenex had the rights to the commercial development of the research
work being performed by that medical center. In July 1996 all right, title and
interest in the artificial liver technology was transferred to the Company.
In 1997 the Company formed a new subsidiary, Xenogenics Corporation, a Nevada
corporation, (Xenogenics) for the express purpose of holding and developing the
Sybiol(R) technology. Xenogenics holds all rights to the extracorporeal
artificial liver technology. The company is currently conducting pre-clinical
research at Loyola University Medical Center in Chicago, Illinois.
BUSINESS OF EXTEN. As of November 30, 1999, the Company's only active business
is the management of its subsidiary and its proposed research and development
activities of Sybiol(R) synthetic bio-liver or artificial liver technology.
BUSINESS OF XENOGENICS. Xenogenics was incorporated in Nevada on April 30, 1997
for the purpose of funding and conducting biotech research. In June 1997,
Exten transferred all assets, including but not limited to, rights to the
Sybiol(R) synthetic bio-liver technology to the majority-owned subsidiary,
Xenogenics. Xenogenics' only active business is the proposed research and
development activities of Sybiol(R) synthetic bio-liver or artificial liver
technology.
EMPLOYEES. As of February 28, 2000, Exten had 2 officers and one part time
person and Xenogenics had one officer.
RESEARCH AND DEVELOPMENT. In fiscal 1999, the Company's research and
development costs were $145,940. Research and development costs during fiscal
1998 were $191,712. The company intends to continue its research and
development during fiscal 2000.
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COMPETITION. The Company is engaged in businesses characterized by extensive
research efforts, rapid technological change, and intense competition.
Vitagen, Hemocleanse, Excorp and one German firm are the 4 most noteworthy of
the competitors in various stages of development. However there is no live-cell
artificial liver device available on the US market. The Company believes it has
significant advantages in methodology and mechanical structure which provide
significant cost and other advantages over competitive technologies. The
Company's device will be among those which most closely replicate human liver
functions, not just a blood-cleaning device. Competition can be expected to
increase as technological advances are made and commercial applications
broaden. The industries in which the Company seeks to compete are characterized
by substantial competition involving biotechnology and major
bio-pharmaceutical, chemical and biological testing companies. Many of the
Company's existing and potential competitors have substantially greater
financial, research and development, clinical, regulatory, marketing and
production resources than those of the Company and may be better equipped than
the Company to develop, manufacture and market competitive therapeutic products
or testing services. These companies may develop and introduce products and
services competitive with, superior to, or less costly than those of the
Company, thereby rendering some of the Company's technologies and products and
services under development less competitive or obsolete. There are established
companies and firms which have significantly greater financial and personnel
resources, technical expertise and experience than the Company. In view of the
Company's limited financial resources and management availability, the Company
may continue to be at significant competitive disadvantage vis-a-vis the
Company's competitors. Competitors or potential competitors of the Company
have filed applications for, or have been issued, certain patents, and may
obtain additional patents and proprietary rights, relating to technologies
competitive with those of the Company. Accordingly, there can be no assurance
that the Company's patent applications will result in patents being issued or
that, if issued, such patents will provide protection against competitive
technology that circumvents such patents or will be held valid by a court of
competent jurisdiction; nor can there be any assurance that others will not
obtain patents that the Company would need to license or circumvent.
Furthermore, there can be no assurance that licenses that might be required for
the Company's processes or products would be available on reasonable terms, if
at all. The Company also intends to rely upon unpatented trade secrets,
know-how and continuing technological innovation to develop and maintain its
competitive position. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
technology, or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its rights to its
unpatented trade secrets.
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.
NEED FOR GOVERNMENT APPROVAL. 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.
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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.
Item 2. DESCRIPTION OF PROPERTY
EXTEN
SAN DIEGO. Exten leases approximately 300 square feet of space, at $300 per
month, in an office building at 9620 Chesapeake Dr., Suite 201 in San Diego,
CA. The Company believes these facilities are adequate for the near future.
ARIZONA. As of November 30, 1999, the Company owned 227 undeveloped lots in the
Grand Canyon Development in Valle, Arizona, approximately 70 miles south of the
Grand Canyon. This property is currently for sale.
XENOGENICS
During the fiscal year ending November 30, 1999, Xenogenics was provided
offices and clerical services by its parent, Exten, and did not maintain
separate offices.
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Item 3. LEGAL PROCEEDINGS
There were no pending legal proceedings involving the Company as of
November 30, 1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No meeting of the Company's shareholders was held and no matters were submitted
to a vote of the shareholders during the 1999 fiscal year.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
From June 14, 1994 to the present, the Company's Common Stock has traded on the
OTC Bulletin Board. The table below gives the range of high and low bid prices
for Exten Common Stock for the fiscal years ended November 30, 1999 and
November 30, 1998.
CALENDAR YEAR ENDED DECEMBER 31,
1999
High Low
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First quarter .05 .02
Second quarter .067 .02
Third quarter .06 .02
Fourth quarter .07 .02
1998
First quarter .08 .04
Second quarter .14 .05
Third quarter .06 .03
Fourth quarter .06 .03
The quotations reflect inter-dealer prices, without retail mark-ups, mark-down
or commission and may not represent actual transactions or a liquid trading
market.
No cash dividends have been paid on Exten Common Stock for the 1999 and 1998
fiscal years and no change of this policy is under consideration by the Board
of Directors.
The payment of cash dividends in the future will be determined by the Board of
Directors in light of conditions then existing, including the Company's
earnings, financial requirements, and condition, opportunities for reinvesting
earnings, business conditions, and other factors. The number of shareholders
of the Company's Common Stock on November 30, 1999 was approximately 2,550.
There are otherwise no restrictions on the payment of dividends.
RECENT SALES OF UNREGISTERED SECURITIES. None
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Plan of Operation The Company's only business in fiscal 1999 was the research
and development of the proprietary Sybiol(R) liver support technology.
Dr. John Brems, Chairman of the Company's Scientific Advisory Board, oversees
Loyola University's liver transplant program and has established an artificial
liver research program focusing on the Company's technology. He has recruited
a team of many of the world's foremost liver doctors and scientists to Loyola.
Scientific Advisory Board members include Dr. Donald Cramer, BS, DVM, and
Ph.D., director of Transplantation Research at Children's Hospital in
Los Angeles; Dr. Jim Filkins, Professor Emeritus of Physiology and Surgery at
Loyola University Stritch School of Medicine in Chicago; Dr. David Van Thiel,
MD Director of Liver Transplantation at Loyola; Amy Friedman, MD, Chief, Liver
Transplantation, Yale-New Haven Hospital; Kurt Gehlsen, Ph. D., former CEO of
Trauma Products; Dr. Alessandra Colantoni, Research Associate, Liver Transplant
Service, Loyola University; and Dr. Giovanni Ambrosino, Professor of Surgery,
Director of Bioartificial Liver program, University of Padova, Italy; also
serve on the Scientific Advisory Board.
The Company continues to seek financing for its subsidiary, Xenogenics.
In order to resolve its continuing financing difficulties, the Company is
exploring various opportunities to obtain additional means of financing,
including mergers, acquisitions or other business combinations and alliances.
The Company has identified several business entities which present
possibilities for alliance, acquisition or merger. The Company's plans are in
the preliminary discussion stage; the Company currently has no immediate
projects and is not engaged in negotiations with respect to any such alliance
or acquisition.
The Company continues to effect transactions that reduce its liabilities
and cash requirements, and raise capital. The Company has negotiated with
certain vendors and creditors to settle its liabilities. During Fiscal 1998
and 1999, the Company took additional steps to control expenses and in October
of 1998 settled a debt to a former officer, Robert H. Goldsmith, by a debt to
equity exchange for shares of restricted stock, 400,000 up front and an
additional 22,622 convertible preferred shares were issued in April 1999. This
served to reduce prior debt and otherwise permit management to focus its
energies on the Company's proposed business.
While the Company continues to seek additional financing through the
offering and sale of the Company's securities, joint ventures, and other
efforts, the Company has not received any indication that it will be successful
in these efforts. The Company may consider forming an alliance or completing a
merger with one or more other entities. There can be no assurances that the
Company will be successful in obtaining any additional financing or in
otherwise completing any joint venture, alliance, merger, or other transaction
or, if the Company is successful in completing any such transaction, that it
can be completed on terms that are reasonable in view of the Company's current
circumstances.
The Company continues to pay directors fees, consulting fees, and in some
cases, legal fees through the issuance of the Company's Common Stock with the
subsequent registration of the shares so issued on Form S-8. The Company has
been forced to take these steps to conserve the Company's cash and liquid
resources. The Company does not expect to purchase or sell plant or significant
equipment and does not anticipate any significant changes in the number of its
employees.
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.
B. UNIVERSITY OF PADOVA, PADOVA ITALY. The Italian research site did not
produce any data or results in fiscal 1999 and may be discontinued.
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Item 7. FINANCIAL STATEMENTS
The full text of the Company's audited consolidated financial statements for
the fiscal years ended November 30, 1999 and 1998 begins on page F-1 of this
Report and is incorporated herein by reference.
Item 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Directors and Executive Officers of the Company as of November 30, 1999
were:
Name Age Position Date elected
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W. Gerald Newmin 62 Chairman, CEO, Secretary & Director 12-01-95
Jerry G. Simek 56 President & Director 03-20-98
Farrest Loper 62 Director 06-16-98
MR. W. GERALD NEWMIN was retained as a consultant to the Board of
Directors of the Company in June 1995. Mr. Newmin was elected Acting Secretary
of the Corporation on July 13, 1995. On December 1, 1995, Mr. Newmin was
elected Chairman, Chief Executive Officer, and President of the Company.
Mr. Newmin is a principal of Newmin & Associates, specializing in mergers and
acquisitions and the operational management of troubled companies. Mr. Newmin
currently serves as Chairman of the Board of Directors and CEO of SYS, a
publicly traded defense systems company in San Diego, California which is
currently traded on the OTC Bulletin Board. Mr. Newmin is past Chairman of the
Board of the Corporate Directors Forum, a non-profit organization which
promotes corporate governance, and which is composed of over 140 Board members
from California companies.. Mr. Newmin holds a Bachelor's degree in Accounting
from Michigan State University.
MR. JERRY SIMEK was elected to the Board of Directors on March 20,1998. He
was appointed President, COO and Treasurer of Exten on June 16, 1998. Mr. Simek
has been President of JGS Management Group since 1984, specializing in
strategic planning, financial management, business/corporate development and
international business. He has successfully directed and implemented company
reorganizations, refinancing programs, company turnarounds, market development,
acquisition and divestiture programs. Simek was President of a San Diego
public medical electronics manufacturing company and facilitated its turnaround
and funding. Simek has over thirty years of management experience with major
multinational companies in the medical, energy, electronics and aerospace
industries including Baxter and Johnson & Johnson. He has facilitated raising
capital in public, private and start-up ventures; has identified and
established joint venture transatlantic manufacturing, trading company and
joint licensing programs; plus established and implemented multimillion dollar
project management and manufacturing expansion programs. Mr. Simek has been
Director and/or Management Advisor for public and private companies in the US
and UK. He has a BS from Illinois Institute of Technology and MBA from
Pepperdine University.
MR. FARREST LOPER was elected to the Board of Directors June 1998. For the
past eight years Mr. Loper has been President of Loper & Associates, a firm
providing executive strategic management services to distribution,
manufacturing and service firms, specializing in turnarounds and growth
acceleration. The firm also consults to capital-providing firms, providing
business valuation and due diligence services. As President of Loper &
Associates, Mr. Loper has served as President and CEO of T-Systems
International, Stripping Technologies, and Ponsor Corporation. Mr. Loper's
education includes an MBA from Harvard Business School and a Master of Science
in Engineering Administration from the University of South Florida. He has
served on non-profit and corporate boards in the US, Mexico, Europe and
Australia. He is an adjunct professor for MBA courses in Strategic Management
at National University and the University of Phoenix.
All Directors serve for a term of one (1) year. There are no family
relationships among directors or executive officers of the Company.
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Item 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received for the fiscal years ended November 30, 1999, 1998 and 1997 for
services rendered to the Company in all capacities by the Company's Chief
Executive Officers and other highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Cash Compensation Long Term Compensation
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Awards Payouts
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Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and principal Salary Bonus Compensation Award(s) Options/ Payouts Compensation
position Year ($) ($) ($) ($) SARs (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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W. Gerald Newmin, 1999 0 0 0 0 0 0 0
Chairman, CEO, 1998 0 0 0 0 0 0 $187,351 (2)
Secretary and 1997 0 0 $162,500 (1) 0 0 0 $ 52,000 (2)
Director
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Jerry Simek, 1999 0 0 0 0 0 0 $ 10,560
President, COO, 1998 0 0 0 0 0 0 $ 54,840 (2)
Treasurer and 1997 0 0 0 0 0 0 0
Director
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James Considine, 1999 0 0 0 0 0 0 $ 9,000
President of 1998 0 0 0 0 0 0 $ 59,500 (2)
Xenogenics 1997 0 0 0 0 0 0 0
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</TABLE>
(1) The Company issued a $162,500 secured promissory note to Mr. Newmin for
services rendered as the Company's President during the fiscal year ending
November 30, 1996 and as a prepayment (of $12,500) for services to be rendered
in the month of December 1996. That note was replaced in 1999 by a new note in
the amount of $168,545 (including principal and accrued interest), which was
issued by Xenogenics. The new note carries an interest rate at the Wall Street
Journal prime rate, plus 2% per annum and is convertible into 168,545 shares
of Xenogenics common stock. The note is secured by Xenogenic's patent
applications, licenses, technologies, agreements, inventory, machines, office
furniture, and all other Company assets. The note has been extended through
May 30, 2001.
(2) Represents the fair market value of stock paid in lieu of cash based on
the closing market price on date of approval by the Board of Directors.
2. OTHER NON-CASH COMPENSATION
Directors of the Company who are also consultants do not receive cash
compensation for their services as directors or members of committees of the
Board of Directors, but may be reimbursed for their reasonable expenses
incurred in connection with attending meetings of the Board of Directors or
management committees.
3. STOCK OPTION GRANTS
No new stock options were granted in 1999:
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Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to shares of common
stock owned by (i) each person known to beneficially own more than 5% of the
outstanding common stock, (ii) each director and named executive officer of the
Company, and (iii) all executive officers and directors of the Company as a
group. Unless otherwise indicated, each person has sole voting and investment
power over the shares beneficially owned by him. Unless otherwise indicated,
the address of each named beneficial owner is that of the Company's principal
offices located at 9620 Chesapeake Dr., Suite 201, San Diego, California 92123.
Name Title Common Shares % Class (1)
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W. Gerald Newmin (2) President, CEO,
Chairman & Secretary 3,898,339 7.88%
Jerry G. Simek Director and COO 784,250 1.58%
Farrest Loper Director 24,000 0.04%
James Considine Pres. of Xenogenics 30,000 .06%
William R. Hoelscher (3) 2,493,000 5.03%
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All Officers and
Directors as a Group (4 persons) 4,736,589 9.56%
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Footnotes:
(1) Based on 49,501,019 shares of the Company's Common Stock outstanding as of
February 23, 2000. Beneficial ownership has been determined in accordance with
Rule 13d-3 of the Securities and Exchange Act of 1934. Pursuant to the rules
of the Securities and Exchange Commission, shares of Common Stock that each
named person and group has the right to acquire within 60 days pursuant to
options, warrants, conversion privileges or other rights are deemed outstanding
for purposes of computing shares beneficially owned by and the percentage of
ownership of each such person and group. However, such shares are not deemed
outstanding for purposes of computing the shares beneficially owned by, or
percentage of ownership of, any other person or group.
(2) Includes 902,236 shares beneficially controlled by Mr. Gerald Newmin.
(3) Includes 172,000 shares and 1,600,000 shares underlying options granted
Electrical & Technical Consulting, a company partially owned by the estate of
William R. Hoelscher, a deceased former Director of the Company. Options to
purchase 800,000 shares are exercisable at $.10 per share, and options to
exercise the remaining 800,000 are exercisable at $.06 per share. All options
expire on November 30, 2000. There is no provision in the grant for any
extension of the exercise period beyond the expiration date shown above.
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Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 30, 1996, Xenogenics assumed a promissory note in the amount
of $162,500 plus accrued interest of $6,045 owing to W. Gerald Newmin, in
connection with the transfer of the Sybiol(R) patents, trademarks, licenses and
assets from Exten. The note is payable at Wall Street Prime Rate plus 2% per
annum until maturity and is convertible into common stock of Xenogenics at
$1.00 per share over its term. In addition Mr. Newmin was granted an option to
purchase an additional 162,500 shares of common stock at $1.00 per share over a
three year period. The note is secured by a security interest. in the Sybiol(R)
patents, trademarks, technology and assets. The balance at May 30, 1999
including interest was $199,063. The note has been extended through
May 30, 2001.
In June 1997 Mr. A. Jack Schaps loaned Xenogenics $245,000 under two year
promissory notes which are payable interest only at Wall Street Prime Rate plus
2 % per annum until maturity and are convertible into common stock under a
formula ranging from $1.00 to $3.00 per share. In addition, Mr. Schaps was
granted an option to purchase 245,000 shares of common stock of Xenogenics at
$1.00 per share over a three-year period. The note is secured by a partial
security interest in the Sybiol(R) patents, trademarks, technology and assets.
The note has been extended through March 7, 2001. During January 1999,
Mr. Schaps purchased shares of preferred stock of Xenogenics for $99,996.
The Preferred Stock is Series A Convertible Limited Term Preferred stock with
7% per annum dividend and is convertible into 83,335 shares of Xenogenics'
common stock over a period of three years.
Exten entered into a Settlement and Mutual Release Agreement with former
President of Exten, Robert H. Goldsmith, on September 7, 1998. Under the terms
of this agreement Exten issued 400,000 shares of its Common Stock and agreed to
issue additional shares should the price not achieve certain levels during the
period of December 1, 1998 to January 31, 1999. Since the price of Exten's
stock did not achieve the agreed-upon price level, Exten has issued an
additional 22,622 shares of Series A Preferred stock to Goldsmith for no
additional consideration.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS DESCRIPTION
Exhibit 27.1 Financial Data Schedule
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
- 9 -
- -------------------------------------------------------------------------------
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15D of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized,
EXTEN INDUSTRIES, INC.
(Registrant)
By /s/ W. Gerald Newmin
W. Gerald Newmin
Chairman & CEO
Dated 2/25/00
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ W. Gerald Newmin Chairman ,CEO,
W. Gerald Newmin and Secretary 02/25/00
/s/Jerry G. Simek President, COO 02/25/00
Jerry G. Simek and Treasurer
/s/ Farrest Loper Director 02/25/00
- 10 -
- -------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Exten Industries, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheet of Exten
Industries, Inc. and Subsidiary (a development stage company) as of
November 30, 1999, and the related consolidated statements of operations,
stockholders' deficiency and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Exten Industries, Inc. and Subsidiary
as of November 30, 1998, before restatement adjustment described in Note 4,
were audited by other auditors whose report dated March 2, 1999 included an
explanatory paragraph that described the going concern uncertainty to the
financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit of the financial statements
provides a reasonable basis for our opinion.
We also audited the adjustments described in Note 4 that were applied to
restate the 1998 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Exten Industries, Inc. and
Subsidiary as of November 30, 1999, and the results of its operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has sustained recurring losses
and negative cash flows for several years and it had a working capital
deficiency and was in default under the terms of three of its loan agreements
at November 30, 1999. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3 to the consolidated financial
statements. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts and classification of liabilities that might result from the outcome of
this uncertainty.
Logan Throop & Co., LLP
San Diego, California
February 22, 2000
- F1 -
- -------------------------------------------------------------------------------
<PAGE>
Exten Industries, Inc. and Subsidiary
(a development stage company)
Consolidated Balance Sheets
<TABLE>
===============================================================================
November 30, 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 228 $ 14,310
Prepaid research 81,863 -
- -------------------------------------------------------------------------------
Total current assets 82,091 14,310
Real estate held for sale 47,200 47,200
Patent costs and other intangibles 40,737 38,667
Equipment, net of accumulated depreciation 1,284 1,650
- -------------------------------------------------------------------------------
Total assets $ 171,312 $ 101,827
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable $ 83,574 $ 64,870
Accrued expenses to be satisfied
by the issuance of common stock 470,450 124,093
Other accrued expenses 68,822 227,681
Advances from officer 66,078 37,989
Notes payable 77,590 382,617
- -------------------------------------------------------------------------------
Total current liabilities 766,514 837,250
- -------------------------------------------------------------------------------
Noncurrent notes payable 403,545 15,000
- -------------------------------------------------------------------------------
Total liabilities 1,170,059 852,250
- -------------------------------------------------------------------------------
Minority interest in subsidiary 1,153 863
Stockholders' deficiency
Preferred convertible stock, series H,
par value $.01, 5,000,000 shares
authorized, 22,622 and 0 shares
issued and outstanding. 226 -
Common stock, par value $.01,
50,000,000 shares authorized,
49,501,019 and 48,349,669 shares
issued and outstanding. 495,010 483,496
Common stock subscribed and unissued
498,981 and 1,650,331 shares
respectively. 4,989 16,502
Additional paid in capital 9,916,080 9,649,212
Deficit accumulated prior to the
development stage (10,084,284) (10,084,284)
Deficit accumulated during the
development stage (1,331,921) (816,212)
- -------------------------------------------------------------------------------
Total stockholders' deficiency (999,900) (751,286)
- -------------------------------------------------------------------------------
Total liabilities and stockholders'
deficiency $ 171,312 $ 101,827
===============================================================================
</TABLE>
See accompanying notes and Independent Auditors' report
- F2 -
- -------------------------------------------------------------------------------
<PAGE>
Exten Industries, Inc. and Subsidiary
(a development stage company)
Consolidated Statements of Operations
<TABLE>
==================================================================================================
Period from February 28, 1997
(inception of development stage)
to November 30, 1999
Years ended November 30, 1999 1998 (unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating expenses
General and administrative 330,514 594,908 1,346,976
Research and development 145,940 191,712 172,249
Depreciation 367 183 24,025
- --------------------------------------------------------------------------------------------------
Total operating expenses 476,821 786,803 1,543,250
- --------------------------------------------------------------------------------------------------
Loss from operations (476,821) (786,803) (1,543,250)
- --------------------------------------------------------------------------------------------------
Other income (expense)
Interest expense (46,345) (24,254) (98,508)
Minority interest in loss of subsidiary 8,602 - 8,602
- --------------------------------------------------------------------------------------------------
Total other income (expense) (37,743) (24,254) (89,906)
- --------------------------------------------------------------------------------------------------
Net loss before extraordinary item (514,564) (811,057) (1,633,156)
Net gain (loss) on extinguishments
of debt - (620) 302,380
- --------------------------------------------------------------------------------------------------
Net loss $(514,564) $(811,677) $(1,330,776)
==================================================================================================
Loss per share $ (0.01) $ (0.02) $ (0.03)
Average number of shares outstanding 49,405,073 41,549,599 42,605,003
</TABLE>
See accompanying notes and Independent Auditors' report
- F3 -
- -------------------------------------------------------------------------------
<PAGE>
Exten Industries, Inc. and Subsidiary
(a development stage company)
Consolidated Statements of Stockholders' Deficiency
<TABLE>
===============================================================================================================
Series H
Common Convertible Common Total
Stock Preferred stock Accumulated Stockholders'
Shares Shares Amount subscribed deficit deficiency
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1997
inception of development
stage (unaudited) 29,968,382 - $ 9,207,400 - $(10,084,284) $(876,884)
Issuance of stock for cash
(unaudited) 120,000 - 6,000 - - 6,000
Issuance of stock for
services (unaudited) 3,798,038 - 93,949 - - 93,949
Issuance of stock for
settlement of accounts
payable (unaudited) 750,000 - 30,000 - - 30,000
Issuance of stock to
officer unpaid at end
of year (unaudited) 2,500,222 - 140,040 (140,040) - -
Net loss (unaudited) - - - - (4,535) (4,535)
- ---------------------------------------------------------------------------------------------------------------
Balance at November 30, 1997 37,136,642 - 9,477,389 (140,040) (10,088,819) (751,470)
Issuance of stock for
cash, net 625,000 - 25,000 - - 25,000
Issuance of stock for
services 10,040,027 - 511,177 - - 511,177
Issuance of stock for
settlement of accounts
payable 48,000 - 2,880 - - 2,880
Issuance of stock for
settlement of notes
payable 500,000 - 30,000 - - 30,000
Effect of issuance of stock
by subsidiary for
consideration in excess
of underlying book value - - 49,137 - - 49,137
Services provided by
officer to extinguish
receivable from sale
of stock - - - 140,040 - 140,040
Stock subscribed - - 37,125 16,502 - 53,627
Net loss - - - - (811,677) (811,677)
- ---------------------------------------------------------------------------------------------------------------
Balance at November 30, 1998 48,349,669 - 10,132,708 16,502 $(10,900,496) $(751,286)
Issuance of stock for
legal settlement - 22,622 176,000 - - 176,000
Issuance of stock
subscribed 1,151,350 - 11,513 (11,513) - -
Effect of issuance of
stock by subsidiary
for consideration in
excess of underlying
book value - - 91,095 - - 91,095
Dividend paid to preferred
minority shareholders - - - - (1,145) (1,145)
Net loss - - - - (514,564) (514,564)
- ---------------------------------------------------------------------------------------------------------------
Balance at November 30, 1999 49,501,019 22,622 $10,411,316 $ 4,989 $(11,416,205) $(999,900)
===============================================================================================================
</TABLE>
See accompanying notes and Independent Auditors' report
- F4 -
- -------------------------------------------------------------------------------
<PAGE>
Exten Industries, Inc. and Subsidiary
(a development stage company)
Consolidated Statements of Cash Flows
<TABLE>
========================================================================================================
Period from inception of
development stage to
November 30, 1999
Years ended November 30, 1999 1998 (unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(514,564) $(811,677) $(1,330,776)
Adjustments to reconcile net loss to
net cash used by operating activities:
Minority interest in loss of subsidiary (8,602) - (8,602)
Common stock issued for services - 511,177 714,909
Note issued for compensation - - 15,133
Depreciation and amortization 367 183 24,025
Gain (loss) on extinguishment of debt - 620 (302,380)
(Increase) decrease other current assets (81,863) - (65,196)
Increase (decrease) accounts payable 18,704 3,094 (20,997)
Increase (decrease) accrued expenses 419,006 115,884 580,465
- --------------------------------------------------------------------------------------------------------
Net cash used by operating activities (166,952) (180,719) (393,419)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs (2,070) (1,441) (40,737)
Purchase of property and equipment - (1,833) (1,833)
- --------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,070) (3,274) (42,570)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes and loans payable 28,000 80,000 240,500
Payments of notes and loans payable - - (50,000)
Proceeds from sale of stock - 25,000 31,000
Proceeds from sale of stock by subsidiary 99,996 32,399 132,395
Advances from officer 28,089 37,989 66,078
Dividends paid-subsidiary preferred stock (1,145) - (1,145)
Proceeds from subscriptions for purchase of
common stock of subsidiary - - 17,601
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 154,940 175,388 436,429
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (14,082) (8,605) 440
Cash at beginning of period 14,310 22,915 (212)
- --------------------------------------------------------------------------------------------------------
Cash at end of period $ 228 $ 14,310 $ 228
========================================================================================================
Supplemental disclosures:
Interest paid $ 5,940 $ 10,749 $ 31,185
Noncash transactions
Issuance of stock for legal settlement $ 176,000
Note payable issued for accrued liabilities $ 20,000 $ 11,500
Note payable increased by accrued interest $ 30,518
Stock subscribed for accrued expenses
to be satisfied by the issuance of stock $ 18,961
</TABLE>
See accompanying notes and Independent Auditors' report
- F5 -
- -------------------------------------------------------------------------------
<PAGE>
Exten Industries, Inc. and Subsidiary
(a development stage company)
Notes to Consolidated Financial Statements
Years ended November 30, 1999 and 1998
1. ORGANIZATION AND OPERATIONS
ORGANIZATION
Exten Industries, Inc. (Exten) is a holding company that is in the business of
developing, through its subsidiary, Xenogenics Corporation (Xenogenics), a
synthetic bio-liver ("SYBIOL") technology. Xenogenics was incorporated in
February 1997 when Exten had written off the majority of its other holding
investments and started focusing on the research and development of the
SYBIOL(R) technology. Exten and its subsidiary (together the "Company"),
therefore reentered the development stage with the formation of Xenogenics
Corporation.
OPERATIONS
Since inception of the development stage, the Company has been engaged in
research and development, organizational activities, and obtaining financing.
Through November 30, 1999, the Company has incurred development stage losses of
$1,330,776. The technology was developed by Cedars Sinai Medical Center. The
Company acquired all rights to the SYBIOL(R) technology in 1993 and has applied
for trademark protection for the SYBIOL(R) trade name. In addition the rights
to the technology on the process utilized by the Company's SYBIOL(R) device
were pending as of November 30, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of ("SFAS 121 "), impairment losses on real estate and other long-
lived assets are recognized when events or changes in circumstances indicate
that the undiscounted cash flows estimated to be generated by such assets are
less than their carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are then measured by
comparing the fair value of assets to their carrying amounts.
The Company's real estate held for sale was determined to be impaired prior to
1996 and, accordingly, it is stated at fair value, in accordance with SFAS 121,
based upon management's estimate of the amount that will be recovered from the
ultimate sale of the real estate.
PATENT COSTS
Patent costs are recorded at cost and will be amortized over the estimated
useful life using the straight-line method once finalized. Each patent will be
continually evaluated by management to determine if its carrying value will be
realized based upon the estimated discounted cash flow expected from the
patent. Additional amortization will be recognized in a period a decline in
value is identified. Because the patent is still pending amortization has not
yet commenced.
EQUIPMENT
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (one to five years) using the straight-line method.
INCOME TAXES
Deferred income taxes are provided for the estimated tax effects of timing
differences between income for tax and financial reporting. A valuation
allowance is provided against deferred tax assets, where realization is
uncertain. 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.
- F6 -
- -------------------------------------------------------------------------------
<PAGE>
EARNINGS (LOSS) PER SHARE
Effective November 30, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"), which
replaced the presentation of "primary" and "fully-diluted" earnings (loss) per
common share required under previously promulgated accounting standards with
the presentation of "basic" and "diluted" earnings (loss) per common share.
Basic earnings (loss) per common share is calculated by dividing net income or
loss by the weighted average number of common shares outstanding during the
period. The calculation of diluted earnings (loss) per common share is similar
to that of basic earnings (loss) per common share, except that the numerator
and denominator are adjusted to reflect the decrease in earnings per share or
the increase in loss per share that could occur if securities or other
contracts to issue common stock, such as stock options and convertible notes,
were exercised or converted into common stock that then shared in the Company's
earnings or loss.
The Company was required to compute primary and diluted loss per share amounts
for 1999 and 1998 pursuant to SFAS 128. Since the Company and its subsidiary
had losses applicable to common stock in 1999 and 1998, the assumed effects of
the exercise of outstanding stock options and conversion of notes were anti-
dilutive and, accordingly, dilutive per share amounts have not been presented
in the accompanying consolidated statements of operations.
3. GOING CONCERN MATTERS
The Company has incurred net losses for several years, including net losses of
$514,564 in 1999 and $811,677 in 1998. Management does not expect the Company
to generate significant revenues in the near future. At November 30, 1999, the
Company's stockholders' deficiency was $999,900 and its current liabilities
exceeded its current assets by $684,423.
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 generated negative cash flows aggregating $166,952
in 1999 and $180,719 in 1998. Furthermore, judgments and claims against the
Company relating to loan guarantees, and amounts owed current and former
suppliers continue to accumulate and it is in default under the terms of three
of its loan agreements (see Note 9). These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
In order to continue as a going concern, develop and commercialize its
technology and, ultimately, achieve a profitable level of operations, the
Company will need, among other things, additional capital resources.
Management's plans to obtain such resources for the Company include (1) raising
additional capital through sales of common stock, the proceeds of which would
be used to perfect the Company's patent position in its SYBIOL(R) technology
and satisfy immediate operating needs; (2) continuing to use common stock to
pay for consulting and professional services; (3) negotiating reductions in
existing liabilities; and (4) selling nonproductive 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.
- F7 -
- -------------------------------------------------------------------------------
<PAGE>
4. CORRECTION OF PRIOR YEAR FINANCIAL STATEMENTS
During the year the Company discovered that research expenses, under a contract
with a university, had been accrued without consideration to all the facts
actually available at the time. This resulted in a material error in prior
year financial statements. The effect on the 1998 financial statements was as
follows:
Previously
Adjusted stated Total
November 30, 1998 balance balance adjustment
===============================================================================
Other accrued expenses $ 227,681 $ 413,337 $(185,656)
Research and development expenses $ 100,862 $ 286,518 $(185,656)
Net loss $(811,677) $(997,333) $ 185,656
===============================================================================
A second error was discovered in the treatment of stock to be issued for
services. In prior years, the Company had erroneously accounted for such Board
approved shares as a liability until the shares were issued. According to
generally accepted accounting principles a commitment that is quantified in
shares should be shown as stock subscribed until issued. Prior years financial
statements have been restated to reflect the shares approved by the Board of
Directors up to the maximum authorized shares. Because the Company has
committed to issuing more shares than the 50,000,000 authorized, the excess is
reflected as a liability. This error did not affect the net loss. The effect
of this correction is as follows:
Previously
Adjusted stated Total
November 30, 1998 balance balance adjustment
===============================================================================
Accrued expenses to be satisfied
by the issuance of common stock $ 124,093 $ 177,720 $ (53,627)
Additional paid in capital $9,649,212 $9,612,087 $ 37,125
Common stock subscribed and unissued. $ 16,502 $ 0 $ 16,502
===============================================================================
5. REAL ESTATE HELD FOR SALE
Real estate held for sale as of November 30, 1999 consisted of a parcel of
undeveloped land near the Grand Canyon. The land was originally purchased in
February 1992 for $1,654,000 and written down to its estimated fair market
value of $47,200 in 1995.
6. EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
Equipment, net of accumulated depreciation consists of the following:
November 30, 1999 1998
===============================================================================
Computer equipment $ 1,834 $ 1,834
Less accumulated depreciation (550) (183)
- -------------------------------------------------------------------------------
$ 1,284 $ 1,651
===============================================================================
7. EXTINGUISHMENTS OF DEBT
During 1998 and 1997, the Company extinguished debts that had carrying values
more or less than the fair value of the consideration transferred to the
creditors and realized gains and losses as shown below. These were classified,
in accordance with generally accepted accounting principles, as extraordinary
items in the accompanying consolidated statements of operations:
November 30, 1998
===============================================================================
Settlement of accounts payable $ 30,000
Settlement of note payable (30,620)
- -------------------------------------------------------------------------------
$ (620)
===============================================================================
The Company reversed a contingent payment it had accrued as of
November 30, 1997 and recognized an extraordinary gain of $30,000 in 1998.
Pursuant to a tentative agreement dated September 7, 1998 the Company
extinguished a note payable and accrued interest thereon with an aggregate
carrying value of $171,100 by agreeing to issue a total of 3,590,664 shares of
common stock to the creditor with a total fair value of $201,720. Accordingly,
the Company recognized a loss on the extinguishment of debt of $30,620 in 1998.
Subsequently in 1999 the note was settled for 22,622 shares of preferred
convertible stock in lieu of the 3,590,664 shares of common stock.
8. ADVANCES FROM OFFICER
An officer of the Company incurred expenses on behalf of the Company and agreed
to defer payment. Advances from the officer are due on demand and accrue
interest at the Wall Street Journal prime rate.
9. NOTES PAYABLE
Notes payable consisted of the following:
November 30, 1999 1998
===============================================================================
Note payable to minority shareholder, with
interest at the prime rate, 8.25% at
November 30, 1999, due on April 6, 2001.
(b), (d) $ 195,000 $ 195,000
Note payable to related party, with interest
at the prime rate, 8.25% at November 30, 1999,
due on October 28, 1999. (a), (d) 25,000 0
Note payable to related party, with interest
at the prime rate, 8.25% at November 30, 1999,
due on January 5, 2001. (d) 25,000 0
Note payable to officer, with interest at the
prime rate, 8.25% at November 30, 1999, due on
June 1, 2001. (b), (c) 199,063 168,545
Note payable to officer, with interest at 12%,
due on March 31, 2000. (b) 3,000 0
Notes payable to unrelated parties:
2 loans with interest at 10%, due on
April 17, 1999. (a), (e) 15,000 15,000
With interest at 8%, due on
November 10, 2000. (e) 15,000 15,000
Note payable to attorneys for
professional fees. 4,072 4,072
- -------------------------------------------------------------------------------
Total 481,135 397,617
Less current portion (77,590) (382,617)
- -------------------------------------------------------------------------------
Non-current portion $ 403,545 $ 15,000
===============================================================================
a) In default at November 30, 1999.
b) Interest on loans to related parties totaled $16,250 and $15,407 in 1999 and
1998, respectively.
c) Convertible into common shares of Xenogenics at $1.00 per share.
d) Convertible into common shares of Xenogenics at prices, based on a formula,
ranging from $1.00 to $3.00 per share.
e) Convertible into common shares of Xenogenics at $1.875 per share.
- F8 -
- -------------------------------------------------------------------------------
<PAGE>
10. STOCKHOLDERS' DEFICIENCY
NON-CASH STOCK ISSUANCES
During 1999, the Company issued shares of common stock, which were valued at
their fair market value at the date of Board approval, in the following
non-cash transactions:
> 1,151,350 shares, valued at $34,711, were issued for consulting services
and directors' fees.
> The Company further issued 22,622 shares of series H convertible preferred
stock valued at $176,000 in accordance with a final settlement agreement.
The preferred shares are convertible into 100 shares of common stock. The
Company has the right to redeem the shares at a price of $10 per share.
During 1998, the Company issued shares of common stock, which were valued at
their fair market value at the date of issuance, in the following non-cash
transactions:
> 10,040,027 shares, valued at $511,177, were issued for consulting services
and directors' fees.
> 500,000 shares, valued at $30,000, were issued in connection with
agreements for the settlement of notes payable.
> 48,000 shares, valued at $2,880, were issued in connection with an
agreement for the settlement of an account payable.
> A receivable of $140,040 from the sale of shares to an officer in 1997 was
extinguished through the provision of services with equivalent fair value
which was a noncash transaction in 1998.
STOCK OPTIONS
The Company has granted options to purchase common stock to various
individuals, officers and directors of the Company in return for various
services rendered to the Company. Since the Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("SFAS 123") and the exercise
price of all of the options granted in 1999 and 1998 was equal to or greater
than fair value, no earned or unearned compensation cost was recognized in the
accompanying consolidated financial statements for stock options granted by the
Company or its subsidiary in 1999 and 1998. However, even if compensation cost
had been computed based on the fair value at the grant date for all awards in
1999 and 1998 consistent with the provisions of SFAS 123 and recognized in the
financial statements, the Company's net loss in 1999 and 1998, and the related
per share amounts, would not have been materially different from the amounts
reported in the accompanying 1999 and 1998 consolidated statement of
operations,
Changes during the years ended November 30, 1999 and 1998 in common stock
options outstanding for the Company were as follows:
November 30, 1999 1998
===============================================================================
Weighted Weighted
Shares or average Shares or average
price exercise price exercise
per share price per share price
===============================================================================
Options outstanding at
beginning of year 1,977,500 $.10 2,420,000 $.25
Options granted 0 0 957,500 $.09
Options amended to extend
terms (expired in prior year.) 300,000 $.50
Options cancelled or expired 0 0 (1,400,000) $.35
===============================================================================
Options outstanding at
end of year 2,277,500 $.14 1,977,500 .10
===============================================================================
Options price range at
end of year $.04 - $.50 $.04 - $.10
===============================================================================
Exercisable at end of year 2,164,167 1,830,833
===============================================================================
The following table summarizes information about stock options outstanding at
November 30, 1999 and 1998, all of which are at fixed prices:
Exercise Price Number of options Contractual life of Number of options
outstanding options outstanding exercisable
===============================================================================
$.04 37,500 1.9 37,500
$.06 800,000 1.0 800,000
$.10 220,000 1.2 146,667
$.10 60,000 2.1 40,000
$.10 60,000 3.1 40,000
$.50 300,000 3.7 300,000
- -------------------------------------------------------------------------------
2,277,500 2,164,167
===============================================================================
- F9 -
- -------------------------------------------------------------------------------
<PAGE>
COMMON STOCK OF SUBSIDIARY
Prior to 1998, Xenogenics had been a wholly-owned subsidiary of Exten. As of
November 30, 1998, Xenogenics was authorized to issue up to 50,000,000 shares
of common stock and Exten owned 1,500,000 (98.7%) of the 1,520,000 shares that
were outstanding. The 20,000 shares held by the minority stockholders were
purchased pursuant to the terms of a private placement memorandum for $50,000,
or $2.50 per share, during 1998. The proceeds of the sale exceeded Exten's
proportionate interest in Xenogenics by $49,137 which the Company recorded as
an increase in additional paid-in capital and the balance of $863 was recorded
as an increase in minority interest.
PREFERRED STOCK OF SUBSIDIARY
During 1999, Xenogenics issued 16,667 shares of series A convertible limited
term preferred stock for total proceeds of $99,996. The shares are convertible
into 83,335 shares of Xenogenics common stock. The proceeds of the sale
exceeded Exten's proportionate interest in Xenogenics by $91,095, which the
Company recorded as an increase in additional paid-in-capital and the balance
of 8,901 was recorded as an increase in minority interest.
Xenogenics preferred shares call for monthly dividends of 7% per annum. During
1999 $1,145 was paid. Including the preferred shares Exten owned 93.6% of
Xenogenics at November 30, 1999.
STOCK OPTIONS OF SUBSIDIARY
During 1997 and 1999, the Company's subsidiary, Xenogenics, granted options to
acquire 494,063 shares of its common stock at $1.00 per share to various
individuals, officers and directors of Xenogenics in connection with the issue
of notes and in return for services rendered. No options were, exercised or
cancelled during 1999.
COMMON STOCK RESERVED OF SUBSIDIARY
As of November 30, 1999, Xenogenics also had a maximum of 337,563 shares of
common stock reserved for the possible conversion of notes payable (Note 9).
11. LEASE COMMITMENTS:
The Company subleases its office space on a month-to-month lease. Rent expense
was $5,623 in 1999 and $13,198 in 1998.
12. INCOME TAXES
As of November 30, 1999, the Company had net operating loss carryforwards and
other temporary differences arising primarily from the write-down of real
estate totaling more than $5,150,000. The net operating loss carryforwards,
before any limitations, expire on various dates through 2019.
Due to the uncertainties related to, among other things, the extent and timing
of its future taxable income, the Company has offset the deferred tax assets
attributable to the potential benefits from the net operating loss
carryforwards and the other temporary differences by an equivalent valuation
allowance as shown below:
November 30, 1999
===============================================================================
Deferred tax assets:
Net operating loss carryforwards $1,750,000
Valuation allowance for deferred tax assets (1,750,000)
- -------------------------------------------------------------------------------
Net deferred tax asset $ 0
===============================================================================
13. SUBSEQUENT EVENTS
The Company is in the process of raising capital by negotiating an agreement to
sell additional common stock of the Company and its subsidiary.
The Company has renegotiated various notes payable to a minority shareholder
and related parties, along with the preferred shares in Xenogenics Corporation
held by the same shareholder. In accordance with the new agreement the
shareholder will receive 345,000 shares of Xenogenics Corporation common stock
in return for notes totaling $245,000 and the 16,667 series A preferred shares
outstanding in the subsidiary.
In addition the Company is in the process of renegotiating the remainder of the
notes that are in default as of November 30, 1999.
- F10 -
- -------------------------------------------------------------------------------
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