-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, INl447zdz4UJ1kfNLbC888NbXjGF7QX6bAyjJpySnEgNZHzW+UaPJoySN08KqVaZ Zco4C+EJ4NQDwCxsPOWTdg== 0001086380-00-000020.txt : 20000418 0001086380-00-000020.hdr.sgml : 20000418 ACCESSION NUMBER: 0001086380-00-000020 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXTEN INDUSTRIES INC CENTRAL INDEX KEY: 0000811779 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 521412493 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-10221 FILM NUMBER: 602790 BUSINESS ADDRESS: STREET 1: 9620 CHESAPEAKE DRIVE STREET 2: SUITE 201 CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 858/496-0173 MAIL ADDRESS: STREET 1: 9620 CHESAPEAKE DRIVE STREET 2: SUITE 201 CITY: SAN DIEGO STATE: CA ZIP: 92123 FORMER COMPANY: FORMER CONFORMED NAME: EXTEN VENTURES INC DATE OF NAME CHANGE: 19910923 10QSB 1 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 February 29, 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. ---------------------- (Exact name of registrant as specified in its charter) DELAWARE 52-1412493 -------- ---------- (State or other jurisdiction of (IRS Employer ID No.) incorporation or organization) 9620 Chesapeake Drive, Suite 201 SAN DIEGO, CALIFORNIA 92123-1324 -------------------------------- (Address of principal executive offices) (858) 496-0173 -------------- (Issuer's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act Common Stock $0.01 per share ---------------------------- Securities registered pursuant to Section 12(g) of the Act: None ---- Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to be file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 49,380,975 as of April 3, 2000 Common Stock, .01 par value. - ------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE PART I FINANCIAL INFORMATION Item 1: Condensed Consolidated Balance Sheets as of February 29, 2000 (unaudited) and November 30, 1999 (unaudited) 2 Condensed Consolidated Statement of Operations (unaudited) for the Three Months Ended February 29, 2000 and February 28, 1999 3 Condensed Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended February 29, 2000 and February 28, 1999 4 Notes to Condensed Consolidated Financial Statements (unaudited) 5 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 12 Results of Operations 12 Liquidity and Capital Resources 12 PART II OTHER INFORMATION Item 1: Legal Proceedings 13 Item 2: Changes in Securities 13 Item 3: Defaults Upon Senior Securities 13 Item 4: Submission of Matters to a Vote of Security Holders 13 Item 5: Other Information 13 Item 6(a): Exhibits 13 Item 6(b): Reports on Form 8-K 13 SIGNATURES 13 - 1 - - ------------------------------------------------------------------------------- EXTEN INDUSTRIES, INC. PART I - FINANCIAL INFORMATION CONDENSED CONSOLIDATED BALANCE SHEETS as of February 29, 2000 (unaudited) and November 30, 1999 (audited) February 29, November 30, 2000, 1999 (unaudited) ---------- ---------- ASSETS CURRENT ASSETS-Cash $ (616) $ 228 PROPERTY AND EQUIPMENT, net 1,192 1,284 PREPAID EXPENSES, net 82,439 81,863 OTHER ASSETS Real Estate Held For Sale 47,200 47,200 Patent Costs and other intangibles 40,737 40,737 ---------- ---------- TOTAL OTHER ASSETS 87,937 87,937 ---------- ---------- $ 170,376 $ 171,312 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY) CURRENT LIABILITIES Accounts Payable $ 104,850 $ 83,574 Accrued Expenses 873,025 539,272 Advances from Stockholder 293,859 66,078 Notes Payable 264,072 77,590 ---------- ---------- TOTAL CURRENT LIABILITIES 1,535,806 766,514 ---------- ---------- NOTES PAYABLE, long term 15,000 403,545 ---------- ---------- TOTAL LIABILITIES 1,550,806 1,170,059 MINORITY INTEREST 1,153 1,153 STOCKHOLDERS DEFICIT Preferred Stock, $0.01 par value; 20,000,000 shares authorized; 22,622 & 0 issued & outstanding, respectively 227 226 Common Stock, $0.01 par value; 50,000,000 shares authorized; 49,501,019 issued & outstanding, 495,010 495,010 Common Stock Subscribed 4,989 4,989 Additional Paid-in Capital 9,916,080 9,916,080 Accumulated Deficit (11,797,888) (11,416,205) ---------- ---------- TOTAL STOCKHOLDERS' DEFICIENCY (1,381,583) (990,900) ---------- ---------- $ 170,376 $ 171,312 ========== ==========
The accompanying notes are integral part of these financial statements - 2 - - ------------------------------------------------------------------------------- EXTEN INDUSTRIES, INC. PART I - FINANCIAL INFORMATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the three months ended February 29, 2000 (unaudited) AND February 28, 1999 Three Months Ended February 29, 2000 February 28, 1999 ----------- ----------- REVENUE Sales $ - $ - Royalties - - ----------- ----------- Total Revenue - - OPERATING EXPENSES General & Administrative 72,588 62,686 Consulting Fee Expense 294,842 62,500 Research and Development 1,453 50,000 Depreciation and Amortization 92 - Interest, net 11,109 15,133 ----------- ----------- Total Operating Expenses 380,084 190,319 ----------- ----------- Net Operating Loss Before Income Taxes (380,084) (190,319) Provision for Income Taxes 1,600 - ----------- ----------- Net Income (Loss) $ (381,684) $ (190,319) =========== =========== Net Income (Loss) per Average Common Share $ (0.01) $ (0.00) =========== =========== Weighted Average Common Shares Outstanding 49,501,019 42,155,762 =========== ===========
The accompanying notes are integral part of these financial statements - 3 - - ------------------------------------------------------------------------------- EXTEN INDUSTRIES, INC. PART I - FINANCIAL INFORMATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) AS OF February 29, 2000 (unaudited) and February 28, 1999 Three Months Ended February 29, 2000 February 28, 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $ (381,684) $ (401,636) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By (Used In) Operating Activities - - Depreciation and Amortization 92 - Issuance of Common Stock for Services - 132,240 (Increase) Decrease in: Prepaid Expense - - Other Assets - (4,440) Increase (Decrease) in: Accounts Payable 54,439 3,000 Accrued Expenses 313,084 143,944 ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES 367,615 (126,892) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Equipment - (1,742) Advances from officer 13,225 - ----------- ----------- NET CASH USED INVESTMENT ACTIVITIES 13,225 (1,742) ----------- ----------- CASH FLOW FROM FINANCING ACTIVITIES Issuance of Common Stock - 25,000 Increase in Long Term Debt, net - 87,955 ----------- ----------- NET CASH (844) 112,955 ----------- ----------- NET INCREASE (DECREASE) IN CASH - (15,679) CASH AT BEGINNING OF PERIOD 228 22,915 ----------- ----------- CASH AT END OF PERIOD $ (616) $ 7,236 =========== ===========
The accompanying notes are integral part of these financial statements - 4 - - ------------------------------------------------------------------------------- EXTEN INDUSTRIES, INC. PART I - FINANCIAL INFORMATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business: Exten Industries, Inc. ("Exten") is a holding company that is in the business of developing, through its subsidiary, Xenogenics Corporation ("Xenogenics"), an artificial liver technology, the SYBIOL(R) synthetic bio-liver. In 1993 ,the Company acquired all of the rights to the SYBIOL technology developed under its contract with a major west coast medical center. The rights to the technology were transferred to Xenogenics when it was formed in 1997. A patent application is currently pending on the process utilized by the SYBIOL device and the Company has received trademark protection for the SYBIOL registered trade name. Basis of consolidation: The consolidated financial statements include the accounts of Exten and its subsidiary (together the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates. Income taxes: The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed annually for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in future periods based on enacted laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Net loss per common share: Net loss per share is calculated using the weighted average number of outstanding common shares. Common stock equivalents, consisting of stock options outstanding, have not been considered because the impact of the assumed exercise of such options is antidilutive. In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS 128") which replaces the presentation of primary earnings per share required under previously promulgated accounting standards with a presentation of basic and diluted earnings per share on the face of the statement of operations for all entities with complex capital structures and provides guidance on other computational changes. SFAS 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Management believes that the adoption of SFAS 128 did not have a material impact on the Company's reported net loss per share. Other recent accounting pronouncements: In June 1997, the FASB issued Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130") and No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS 131") which could require the Company to make additional disclosures in its financial statements no later than for the fiscal year ending November 30, 1999. SFAS 130 defines comprehensive income, which includes items in addition to those reported in the statement of operations and requires disclosures about its components. SFAS 131 requires disclosures for each segment of a business and the determination of segments based on its internal management structure. Management believes that the adoption of SFAS 130 and SFAS 131 will not have a material impact on the Company's disclosures. 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. - 5 - - ------------------------------------------------------------------------------- In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use", which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. We do not expect that the adoption of SOP 98-1 will have a material impact on our financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 is effective for fiscal years beginning after June 15, 1999 and establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. We do not expect that the adoption of SFAS No. 133 will have a material impact on our financial statements. The FASB had issued certain other pronouncements as of November 30, 1998 that will become effective in subsequent periods; however, management does not believe that any of those pronouncements will affect any financial accounting measurements or disclosures the Company will be required to make. Basis of accounting: The Company uses the accrual method of accounting and prepares and presents financial statements that conform to generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Basis of presentation: The accompanying unaudited condensed financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of a normal recurring nature and considered necessary for a fair presentation, have been included. It is suggested that these financial statements are read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-KSB for the year ended November 30, 1999. The results of operations for the three month periods are not necessarily indicative of the operating results for the year ended November 30, 1999. For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year November 30, 1999. 2. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosures of cash flow information for the nine-month period ended February 29, 2000 (unaudited) and 1999 are summarized as follows: Three Months Ended February 29, 2000 February 28, 1999 (unaudited) ---------- ---------- Cash paid for interest and income taxes: Interest $ 11,109 $ 8,744 Income taxes $ 1,600 $ 800 3. EARNINGS PER SHARE Certain options granted and outstanding as of February 29, 2000 (unaudited) are antidilutive for the purposes of calculating primary and fully diluted earnings per share and therefore are not included in the earnings per share calculations. 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 February 29, 2000, the Company's accumulated deficit and stockholders' deficiency were ($11,797,888) and ($1,381,583) respectively, and its current liabilities exceeded its current assets by ($1,453,367). Additionally, even though the Company has been able to satisfy obligations for certain operating expenses by issuing shares of the Company's common stock, operating activities still resulted in negative cash flows aggregating ($514,564) in 1999. Furthermore, claims against the Company relating to loan guarantees, and amounts owed current and former suppliers continue to accumulate. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. - 6 - - ------------------------------------------------------------------------------- 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) The sales of shares of the company's common stock to and through Kestrel Equity Partners Ltd. and other means of raising additional capital through sales of preferred and common stock, the proceeds of which would be used to perfect the Company's patent position in its SYBIOL(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 non-productive assets. In addition, management is continually seeking other potential joint venture partners or merger candidates that would provide financial, technical and/or marketing resources to enable the Company to realize the potential value of its technology. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. 5. EXTINGUISHMENT OF DEBT During 1999 and 1998, the Company extinguished debts that had carrying values more or less than the fair value of the consideration transferred to the creditors and realized gains and losses as shown below, which were classified, in accordance with generally accepted accounting principles, as extraordinary items in the accompanying consolidated statements of operations: 1999 1998 ---------- ---------- Settlement of account payable 0 $ 30,000 Settlement of note payable (A) 0 $ (30,620) ---------- ---------- Totals 0 $ (620) ========== ========== (A) Pursuant to an agreement dated September 7, 1998, the Company extinguished a note payable and accrued interest thereon with an aggregate carrying value of $171,100 by agreeing to issue a total of 3,590,664 shares of common stock to the creditor with a total fair value of $201,720. Accordingly, the Company recognized a loss on the extinguishment of debt of $30,620 in 1998. The Company issued 400,000 shares to the creditor in 1998 and, accordingly, the accompanying 1998 consolidated statement of stockholders' equity reflects a credit of $24,000 for the fair value of those shares. Pursuant to the amended agreement the Company issued 22,369 shares of Preferred Series F Stock to the creditor during May 1999 and, accordingly, the accompanying consolidated balance sheet at August 31, 1999 reflects the issuance of the Preferred Stock. The Preferred Series F Stock is convertible into shares of Common Stock at a rate of 100 shares of Common for each share of Preferred Stock. The Company also issued 100,000 shares with a fair value of $6,000 to another creditor during 1998 as a settlement of a portion of a note payable with an equivalent carrying value and, accordingly, the Company did not recognize any gain or loss. The accompanying 1998 consolidated statement of stockholders' equity also reflects a credit of $6,000 for the fair value of those shares. 6. REAL ESTATE HELD FOR SALE Real estate as of February 29, 2000 consisted of a parcel of undeveloped land near the Grand Canyon. The land was originally purchased in February 1992 for $1,654,000 and written down to an estimated fair market value of $47,200 in 1995. (The current assessed cash value is $351,611.) The market may be experiencing an increase in land value and resale potential. The Company is currently in arrears on back taxes in the amount of $39,998.07. - 7 - - ------------------------------------------------------------------------------- ITEM 1a: FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS An investment in the Common Stock of the Company involves a high degree of risk. In addition to the other information contained in this Form 10-QSB, prospective investors should carefully consider the following risk factors: 1. SIGNIFICANT AND REPEATED LOSSES. During fiscal 1999, the Company's most recent fiscal year, the Company's losses were ($514,564) compared to losses of ($811,677) incurred during fiscal 1998. The Company faces all the risks inherent in a new business. The Company's Xenogenics subsidiary is without any record of earnings and sales. There can be no assurance that any of the Company's business activities will result in any operating revenues or profits, so shareholders might lose all or substantially all of their investment. Fiscal 1998 research and development costs were $145,940; fiscal 1999 research and development costs were $191,712. The R&D costs reflect the Company's research, development and pre-clinical trials of the Sybiol(R) synthetic bio-liver technology. The Company is continuing its research and development during Fiscal 2000. 2. QUALIFIED OPINION. The Company's independent public accountants issued a qualified opinion on the Company's financial statements for the years ended November 30, 1999 and 1998 with respect to uncertainties concerning the Company's ability to continue as a going concern. 3. LACK OF REVENUES. The Company's only active business is the research and development activities from which the Company currently generates no stream of revenues and there can be no assurance that the Company will ever generate any revenues in the near future. As a result, the Company may continue to incur losses shareholders could incur further substantial dilution and loss in the value of their investment. 4. SIGNIFICANT AND INCREASING CURRENT LIABILITIES & DEFAULT. As of November 30, 1999, the Company had $766,514 in current debts and other obligations that are due and payable on or before November 30, 2000. Included in the amounts due by November 30, 2000 is $ 77,590 in notes payable together with other current liabilities of $688,924. Further, as of November 30, 1999, the Company had over 4 times as many current liabilities as it had current assets. In the event that the Company is not able to generate sufficient cash resources to pay these and other current liabilities on or before their due dates, the Company will likely incur substantial additional costs and expenses and otherwise risk whatever claims creditors may assert against the Company in connection with any default thereby, which may result in shareholders losing all or substantially all of their investment. 5. NEED FOR ADDITIONAL FINANCING & LACK OF UNDERWRITING COMMITMENT. The Company's management recognizes that the Company needs to obtain additional external financing from the sale of the Company's debt, common stock, or preferred stock in order to support the Company and otherwise meet the Company's growing financial obligations. While the Company has obtained a commitment from Kestrel Equity Partners, Ltd. for a private placement of the Company's securities, there can be no guarantee that the Company will be successful. If the Company is not successful, the Company may suffer additional and continuing financial difficulties with consequent loss to shareholders. 6. NEGATIVE WORKING CAPITAL & NEGATIVE CASH FLOW. As of November 30, 1999, the Company had Total Current Liabilities of $766,513 and Total Current Assets of $171,312 with the result that the Company had negative working capital of ($595,201) as Total Current Liabilities exceeded Total Current Assets by that amount. The Company's management continues to seek additional financing for the Company and its subsidiary to complete its business plan, there can be no assurance that the Company will obtain any additional financing or, if it is obtained, that it can be obtained on terms reasonable in view of the Company's current circumstances. In addition, the Company has experienced negative cash flow for the 1998 and 1999 fiscal years. 7. POTENTIAL DILUTION. Funding of the Company's proposed business plan would result in substantial and on-going dilution of the Company's existing stockholders. During 1999, the Company issued 1,151,350 additional shares of its common stock in connection with its operations while incurring continuing and ever-increasing financial losses. While there can be no guarantee that the Company will be successful in raising additional capital, if the Company is successful in obtaining any additional capital, existing stockholders will incur substantial dilution. - 8 - - ------------------------------------------------------------------------------- 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. 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. - 9 - - -------------------------------------------------------------------------------- 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. The Commission has recently adopted regulations under such Act which define a penny stock to be any NASDAQ or non-NASDAQ equity security that has a market price or exercise price of less than $5.00 per share and allow for the enforcement against violators of the proposed rules. In addition, unless exempt, the rules require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule prepared by the Commission explaining important concepts involving a penny stock market, the nature of such market, terms used in such market, the broker/dealer's duties to the customer, a toll- free telephone number for inquiries about the broker/dealer's disciplinary history, and the customer's rights and remedies in case of fraud or abuse in the sale. Disclosure also must be made about commissions payable to both the broker/ dealer and the registered representative, current quotations for the securities, and, if the broker/dealer is the sole market maker, the broker/dealer must disclose this fact and its control over the market. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. While many NASDAQ stocks are covered by the proposed definition of penny stock, transactions in NASDAQ stock are exempt from all but the sole market-maker provision for (i) issuers who have $2,000,000 in tangible assets ($5,000,000 if the issuer has not been in continuous operation for three years), (ii) transactions in which the customer is an institutional accredited investor and (iii) transactions that are not recommended by the broker/dealer. In addition, transactions in a NASDAQ security directly with the NASDAQ market maker for such securities, are subject only to the sole market-maker disclosure, and the disclosure with regard to commissions to be paid to the broker/dealer and the registered representatives. Finally, all NASDAQ securities are exempt if NASDAQ raised its requirements for continued listing so that any issuer with less than $2,000,000 in net tangible assets or stockholder's equity would be subject to delisting. These criteria are more stringent than the proposed increase in NASDAQ's maintenance requirements. The Company's securities are subject to the above rules on penny stocks and the market liquidity for the Company's securities could be severely affected by limiting the ability of broker/ dealers to sell the Company's securities. 17. COMPETITION. The Company is engaged in businesses characterized by extensive research efforts, rapid technological change, and intense competition. Vitagen, HemoTherapies, Excorp and one German firm are some of the competitors in various stages of development. However there is no live-cell artificial liver device available on the US market. The Company believes it has significant advantages in methodology and mechanical structure which provide significant cost and other advantages over competitive technologies. The Company's device will be among those, which most closely replicate human liver functions, not just a blood-cleaning device. Competition can be expected to increase as technological advances are made and commercial applications broaden. The industries in which the Company seeks to compete are characterized by substantial competition involving biotechnology and major bio- pharmaceutical, chemical and biological testing companies. Many of the Company's existing and potential competitors have substantially greater financial, research and development, clinical, regulatory, marketing and production resources than those of the Company and may be better equipped than the Company to develop, manufacture and market competitive therapeutic products or testing services. These companies may develop and introduce products and services competitive with, superior to, or less costly than those of the Company, thereby rendering some of the Company's technologies and products and services under development less competitive or obsolete. There are established companies and firms which have significantly greater financial and personnel resources, technical expertise and experience than the Company. In view of the Company's limited financial resources and management availability, the Company may continue to be at significant competitive disadvantage vis-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. - 10 - - ------------------------------------------------------------------------------- 18. PATENTS AND PROPRIETARY TECHNOLOGY. Any proprietary protection that the Company can obtain and maintain will be important to its proposed business. A patent application is presently pending on the process utilized by the SYBIOL(R) artificial liver device under the Patent Cooperative Treaty Protection in 15 countries. The SYBIOL(R) mark is registered in the United States Patent and Trademark Office, number 2,048,080. The patent positions of bio- pharmaceutical and biotechnology firms, as well as academic and other research institutions, are uncertain and involve complex legal and factual questions. Accordingly, no firm predictions can be made regarding the bio- pharmaceutical and biotechnology patents or whether the Company will have the financial resources to aggressively protect its rights. 19. THERAPEUTIC PRODUCTS. The Company's products will be subject to regulation in the US by the Food and Drug Administration ("FDA") and by comparable regulatory authorities in foreign jurisdictions. The products produced will be classified as "biologics" regulated under the Public Health Service Act and the Federal Food, Drug and Cosmetic Act. Development of a therapeutic product for human use is a multi-step process. First, animal or in vitro testing must establish the potential safety and efficacy of the experimental product in a given disease. Once the product has been found to be reasonably safe and potentially efficacious in animals, suggesting that human testing would be appropriate, an Investigational New Drug ("IND") application is submitted to the FDA. FDA approval is necessary before commencing clinical investigations. That approval may, in some circumstances, involve substantial delays. Clinical investigations typically involve three phases. Phase I is conducted to evaluate the safety of the experimental product in humans, and if possible, to gain early evidence of effectiveness. Phase I studies also evaluate various routes, dosages and schedules of product administration. The demonstration of therapeutic benefit is not required in order to complete Phase I successfully. If acceptable product safety is demonstrated, the Phase II studies are initiated. The Phase II trials are designed to evaluate the effectiveness of the product in the treatment of a given disease and, typically, are well controlled closely monitored studies in a relatively small number of patients. The optimal routes and schedules of administration are determined in these studies. As Phase II trials are successfully completed, Phase III studies will be commenced. Phase III studies are expanded, controlled and uncontrolled trials which are intended to gather additional information about safety and efficacy in order to evaluate the overall risk/benefit relationship of the experimental product and provide an adequate basis for physician labeling. These studies also may compare the safety and efficacy of the experimental device with currently available products. It is not possible to estimate the time in which Phase I, II and III studies will be completed with respect to a given product, although the time period is often as long as several years. Following the successful completion of these clinical investigations, the preclinical and clinical evidence that has been accumulated is submitted to the FDA as part of a product license application ("PLA"). Approval of the PLA or IND is necessary before a company may market the product. The approval process can be very lengthy and depends upon the time it takes to review the submitted data and the FDA's comments on the application and the time required to provide satisfactory answers or additional clinical data when requested. In addition to the regulatory framework for product approvals, the Company is and may be subject to regulation under state and federal law, including requirements regarding occupational safety, laboratory practices, the use, handling and disposition of radioactive materials, environmental protection and hazardous substance control, and may be subject to other present and possible future local state, federal and foreign regulation, including future regulation of the biotechnology field. RESEARCH AGREEMENTS FOR SYBIOL(R) DEVELOPMENT A. LOYOLA UNIVERSITY MEDICAL CENTER, CHICAGO US research on the efficacy of the SYBIOL(R) device is being conducted at Loyola University Medical Center, Chicago, IL, by a team of bioartificial liver researchers including John Brems, MD, FACS, Chairman of Xenogenics' Scientific Advisory Board, James Filkins, Ph.D., and Professor David Van Thiel, MD, FACP, also Xenogenics Scientific Advisory Board members and noted hepatological experts. The company's research and development efforts commenced in 1998 with the signing of the Loyola research agreement and the commencement of research activities by their scientific staff. - 11 - - ------------------------------------------------------------------------------- Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-QSB contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Factors Affecting Future Operating Results." FORWARD-LOOKING INFORMATION - GENERAL The following information contains certain forward-looking statements that anticipate future trends or events. These statements are based on certain assumptions that may prove to be erroneous and are subject to certain risks including, but not limited to, the Company's ability to complete and fund it research and development. Accordingly, actual results may differ, possibly materially, from the predictions contained herein. Although the Company cannot accurately anticipate the effects of inflation, the Company does not believe inflation has had or is likely to have a material effect on its results of operations or liquidity. The Company's quarterly operating results vary significantly depending on the occurrence of funding and the involvement of Company personnel in these endeavors. The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period. OVERVIEW Business of Exten Industries, Inc. - ---------------------------------- As of February 29, 2000, the Company's only active business is the proposed research and development activities of SYBIOL(R) artificial liver technology. Business of Xenogenics Corporation - ---------------------------------- Xenogenics Corp. ("Xenogenics") was incorporated in Nevada on April 30, 1997 for the purpose of funding and conducting biotech research. In June 1997, Exten Industries, Inc. transferred all assets and rights to the Sybiol(R) synthetic bio-liver technology to the new Xenogenics Corporation, at that time a wholly-owned subsidiary ( now majority-owned) so as to better fund and continue the research with the artificial liver technology. A patent application is presently pending on the process utilized by the SYBIOL(R) artificial liver device. The Company has received notice that the Sybiol trademark (US Trademark Application Serial No. 74/522,603) has been registered by the United States Patent and Trademark Office. RESULTS OF OPERATIONS Three Months Ended February 29, 2000 Compared to Three Months Ended February 28, 1999: During the 3 months ended February 29, 2000, the Company incurred $294,842 in consulting fees compared to $ 62,500 for the 3 months ended February 28, 1999. This increase in consulting fees was due to the Company's use of outside consultants for administrative activities and the reliance on the roles filled by outside consultants. During the 3 months ended February 29, 2000, the Company incurred $72,588 in general and administrative expenses. This increased from $62,686 for the 3 month period ended February 28, 1999. This increase was due to an increase in executive salaries (which have been accrued and not paid), support functions, and legal and accounting and other ancillary expenses. As a result, total operating expenses for the 3 month period ended February 29, 2000 were $ 380,084 compared to $190,319 for the 3 month period ended February 29, 2000. This resulted in the Company recording a loss from operations of ($380,084) for the 3 month period ended February 29, 2000 compared to a loss from operations of ($190,319) for the comparable period in 1998, or an increase of approximately 100%. LIQUIDITY AND CAPITAL RESOURCES The Company continues to effect transactions that reduce its liabilities and cash requirements, and raise capital. The Company has negotiated with certain vendors and creditors to settle its liabilities. During Fiscal 1998 and 1999 the Company took additional steps to control expenses to permit management to focus its energies on the Company's proposed business. - 12 - - ------------------------------------------------------------------------------- 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 commitment from Kestrel Equity Partners Ltd. of Dallas, Texas. The Company may consider forming an alliance or completing a merger with one or more other entities. There can be no assurances that the Company will be successful in obtaining any additional financing or in otherwise completing any joint venture, alliance, merger, or other transaction or, if the Company is successful in completing any such transaction, that it can be completed on terms that are reasonable in view of the Company's current circumstances. The Company continues to pay directors fees, consulting fees, and in some cases, legal and professional fees through the issuance of the Company's Common Stock with the subsequent registration of the shares so issued on Form S-8. The Company has been forced to take these steps to conserve the Company's cash and liquid resources. PART II OTHER INFORMATION Item 1: Legal Proceedings NONE Item 2: Changes in Securities NONE Item 3: Defaults Upon Senior Securities NONE Item 4: Submission of Matters to a Vote of Security Holders 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 On February 29, 2000 the Company reported on Form 8-K the dismissal of its former auditors, J. H. Cohm, LLP and the engagement of its current auditors, Logan Throop & Co. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report be signed on its behalf by the undersigned thereunto duly authorized. EXTEN INDUSTRIES, INC. (Registrant) Date: 04/14/00 By: /s/ W. Gerald Newmin W. Gerald Newmin Chairman, Chief Executive Officer Date: 04/14/00 By: /s/ Jerry Simek Jerry Simek Director, President and Chief Operating Officer - 13 - - ------------------------------------------------------------------------------- EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS NOV-30-1999 DEC-01-1999 FEB-29-2000 (616) 0 0 0 0 83,015 1,192 0 170,376 1,535,806 0 0 0 495,000 (1,381,583) 170,376 0 0 0 380,084 0 0 11,109 (380,084) 1,600 (381,684) 0 0 0 (381,684) .00 .00
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