10QSB 1 extenq0801.txt PREPARED BY: MHUEBOTTER@HOTMAIL.COM UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 for the quarter ended August 31, 2001. ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities 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 None ---- Securities registered pursuant to Section 12(g) of the Act: Title of each class Name of exchange on which registered Common Stock $0.01 per share OTC BB ---------------------------- ---------------------------- 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: 78,474,801 shares of Common Stock, $0.01 par value as of October 10, 2001 =============================================================================== TABLE OF CONTENTS
PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of August 31, 2001 and November 30, 2000 3 Condensed Consolidated Statement of Operations for the Three Months Ended August 31, 2001 and August 31, 2000 4 Condensed Consolidated Statement of Operations for the Nine Months Ended August 31, 2001 and August 31, 2000 5 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended August 31, 2001 and August 31, 2000 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Plan of Operation 9 PART II OTHER INFORMATION 10 Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4: Submission of Matters to a Vote of Security Holders 10 Item 5: Other Information 10 Item 6(a): Exhibits 10 Item 6(b): Reports on Form 8-K 10 SIGNATURES 10
- 2 - =============================================================================== PART I - FINANCIAL INFORMATION Item 1. Financial Statements EXTEN INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) as of August 31, 2001 and November 30, 2000
August 31, 2001 November 30, 2000 ------------ ------------ ASSETS CURRENT ASSETS Cash $ 2,526 $ 539,103 Accounts receivable 70,000 0 Notes Receivable 615,000 132,500 Interest Receivable 42,950 0 Prepaid Expenses 0 50,000 Restricted cash 750,000 0 ------------ ------------ TOTAL CURRENT ASSETS 1,480,476 721,603 PROPERTY AND EQUIPMENT, net 132,454 1,222 Real Estate Held For Sale 47,200 47,200 Patent Costs and other intangibles 56,299 46,605 ------------ ------------ TOTAL OTHER ASSETS 103,499 93,805 ------------ ------------ TOTAL ASSETS $ 1,716,429 $ 816,630 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts Payable $ 155,273 $ 13,411 Accrued Expenses 141,188 144,216 Notes Payable 535,000 509,460 ------------ ------------ TOTAL CURRENT LIABILITIES 831,461 667,087 LONG TERM NOTES PAYABLE 725,000 0 MINORITY INTEREST 50,057 158,581 ------------ ------------ TOTAL LIABILITIES 1,606,518 825,668 STOCKHOLDERS EQUITY (DEFICIT) Common Stock, $0.01 par value; 200,000,000 shares authorized; 74,342,098 issued & outstanding 791,748 735,865 Common stock subscribed 410,000 0 Stock subscription receivable (70,000) (81,500) Deferred Compensation Costs (9,625) (16,500) Additional Paid-in Capital 11,781,077 11,409,980 Accumulated Deficit (12,793,289) (12,056,883) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 109,911 (9,038) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,716,429 $ 816,630 ============ ============ The accompanying notes are an integral part of these financial statements
- 3 - =============================================================================== EXTEN INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the 3 Months Ended August 31, 2001 and August 31, 2000
Three Months Ended August 31, 2001 August 31, 2000 ------------ ------------ REVENUE Sales $ - $ - Royalties - - ------------ ------------ Total Revenue - - OPERATING EXPENSES General & Administrative 170,777 143,738 Consulting Fee Expense 72,969 19,325 Research and Development 45,595 40,441 Depreciation and Amortization 113 270 ------------ ------------ Total Operating Expenses 289,454 203,774 OTHER INCOME (EXPENSE) Interest, net 3,043 3,978 Minority interest in loss of subsidiary 30,270 94,397 ------------ ------------ Net Operating Loss Before Income Taxes (256,140) (105,399) Provision for Income Taxes 800 0 ------------ ------------ Net Income (Loss) $ (256,940) $ (105,399) ============ ============ Net Income (Loss) per Average Common Share $ (0.01) $ (0.01) ============ ============ Weighted Average Common Shares Outstanding 79,174,801 65,166,002 ============ ============ The accompanying notes are an integral part of these financial statements
- 4 - =============================================================================== EXTEN INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the Nine Months Ended August 31, 2001 and August 31, 2000
Nine Months Ended August 31, 2001 August 31, 2000 ------------ ------------ REVENUE Sales $ - $ - Royalties - - ------------ ------------ Total Revenue - - OPERATING EXPENSES General and Administrative 483,814 289,735 Consulting Fee Expense 237,458 141,702 Research and Development 122,804 112,894 Depreciation and Amortization 339 632 ------------ ------------ Total Operating Expenses 844,415 544,963 OTHER INCOME (EXPENSE) Interest, net 2,018 (6,676) Minority Interest in Loss of Subsidiary 108,524 94,397 ------------ ------------ Total Other Income (Expense) 110,542 87,721 ------------ ------------ Net Operating Loss Before Income Taxes (733,873) (457,242) Provision for Income Taxes 2, 533 - ------------ ------------ Net Income (Loss) $ (736,406) $ (457,242) ============ ============ Net Loss per Average Common Share $ (0.01) $ (0.01) ============ ============ Weighted Average Common Shares Outstanding 79,174,801 65,166,002 ============ ============ The accompanying notes are an integral part of these financial statements
- 5 - =============================================================================== EXTEN INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) For the Nine Months Ended August 31, 2001 and August 31, 2000
Nine Months Ended August 31, 2001 August 31, 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (736,406) $ (457,242) Adjustments to Reconcile Net Loss to net Cash Used By Operating Activities Minority Interest (108,524) (94,397) Depreciation and Amortization 339 632 Vesting of Deferred Compensation Costs 6,875 0 Common stock issued for services 416,980 406,556 (Increase) Decrease in assets: Prepaid research 50,000 40,441 Accounts Receivable (112,951) 0 Other assets (9,694) (31) Increase (Decrease) in liabilities: Accounts Payable 141,862 (51,845) Accrued Expenses (3,028) (144,431) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (354,547) (300,317) CASH FLOWS FROM INVESTING ACTIVITIES Notes receivable (482,500) 0 Purchase of fixed assets (131,570) (1,086) Restricted cash for acquisition (750,000) 0 ------------ ------------ NET CASH PROVIDED (USED) IN INVESTMENT ACTIVITIES (1,364,070) (1,086) CASH FLOW FROM FINANCING ACTIVITIES Issuance of Common Stock 0 550,000 Common stock options exercised 10,000 48,000 Stock Subscriptions received 421,500 0 Increase in Long Term Debt, net 750,540 0 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 182,040 598,000 ------------ ------------ NET INCREASE (DECREASE) IN CASH (536,577) 296,597 CASH AT BEGINNING OF PERIOD 539,103 228 ------------ ------------ CASH AT END OF PERIOD $ 2,526 $ 296,825 ============ ============ The accompanying notes are an integral part of these financial statements
- 6 - =============================================================================== EXTEN INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS: EXTEN INDUSTRIES, INC. (the "Company") is a medical technology holding company. Its first subsidiary, Xenogenics Corporation, is developing an artificial liver technology, the SYBIOL(R) synthetic bio-liver. In 1993, the Company acquired all rights to the SYBIOL technology, which was developed under its contract with a major west coast medical center. The rights to the technology were transferred to Xenogenics on its formation 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. The Company is currently working toward a new generation device for liver failure treatment and an engineered cell line to work with it. An NIH grant was authorized in January 2001 to help fund joint research between Xenogenics, MultiCell Associates Inc. of Rhode Island (MultiCell) and Compact Membranes of Delaware. When the product redesign work with these research partners and Fallbrook Engineering is completed, the Company expects to resume testing at Loyola University Medical Center and other sites. The FDA approval process could take 3 to 5 years. Multicell, the Company's newly acquired subsidiary, produces engineered cell lines, has proprietary cell culturing processes, and can develop therapeutic plasma proteins. MultiCell is located in Warwick, RI. 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 considered necessary for a fair presentation have been included. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-KSB for the year ended November 30, 2000. The results of operations for the three-month periods are not necessarily indicative of the operating results anticipated for the fiscal year ending November 30, 2001. 2. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosures of cash flow information for the nine-month period ended August 31, 2001 (unaudited) and August 31, 2000 are summarized as follows:
Nine Months Ended August 31, 2001 August 31, 2000 ------------ ------------ Cash paid for interest and income taxes: Interest $ 0 $ 15,560 Income taxes $ 800 $ 1,600
NOTES RECEIVABLE As of November 30, 2000, in connection with a letter of intent to purchase 100% of the outstanding common stock of Lexicor Medical Technology, the Company advanced $600,000 for a note and warrants. The Company allocated $17,500 to the warrants resulting in a discount on the note. The note bears interest at 10% per annum. Principal and interest was due and payable on May 31, 2001. The note was automatically extended and accumulated interest is due and payable on November 30,2001. Thereafter interest payments are due quarterly and the principal and any and all remaining interest is due January 2, 2005. In the event of default, Lexicor must issue common shares to the Company equal to 51 percent of the issued and outstanding shares of Lexicor. The warrants entitle the Company to purchase up to 83,333 shares of Lexicor's common stock. Unpaid principal and accrued interest on this note may be converted at any time until paid in full into 83,333 shares of Maker's common stock at a price equal to $6.00 per share. As of April 17, 2001, in connection with a letter of intent to purchase Armstrong Industries, Inc., the Company advanced $15,000 to Armstrong. The note is due May 1, 2002. Interest is due from June 1, 2001 on the unpaid principal at the rate of 12% per annum. - 7 - =============================================================================== 3. GOING CONCERN MATTERS During fiscal years 2000 and 1999, the Company incurred net losses of ($640,678) and ($514,564), respectively. Management expects the Company to generate revenues in the near future. At August 31, 2001, the Company's accumulated deficit and stockholders' equity were $12,793,289 and $109,911 respectively, and its current assets exceeded its current liabilities by $649,015. 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) sales of shares of the Company's common stock to and through Kestrel Equity Partners Ltd., which has resulted in $1,050,000 investment in the Company. (2) raising additional capital through sales of preferred and common stock and convertible debt and (3) continuing to use common stock to pay for consulting and professional services. In addition, management is continually seeking other potential joint venture partners or merger candidates that would provide financial, technical and/or marketing resources to enable the Company to realize the potential value of its technology. Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to: successfully accomplish the plans described in the preceding paragraph, secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. 4. REAL ESTATE HELD FOR SALE Real estate as of August 31, 2001 consisted of a parcel of undeveloped land, approximately 202 lots in the Grand Canyon subdivision in Valle Junction, AZ south of 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 property tax valuation is $351,611.) The Company is currently in arrears on back taxes in the amount of $49,726 and is evaluating the land's resale potential. 5. CONTINGENCIES Jack Schaps, trustee of A. Jack Schaps Estate Trust, filed suit against the Company and its legal counsel on February 13, 2001 in the Superior Court of California. Schaps, a stockholder of the Company, alleges that the defendants negligently lost, and failed to replace in a timely manner, his stock certificate for 625,000 shares of the Company's common stock that he had delivered to the Company for redelivery to Continental Stock Transfer Company, the Company's former transfer agent. Schaps is seeking $600,000 in damages for the loss in potential profits on the stock during the period in question. The Company believes that there are meritorious defenses to the claim and it intends to vigorously defend the lawsuit. In response, on April 13, 2001 the Company filed a cross-complaint against its legal Counsel, Continental Stock Transfer Company and Schaps. On June 17, 2001 the Company amended the cross- complaint to delete Schaps and filed a separate complaint on behalf of Xenogenics against Schaps alleging breach of fiduciary duty and rescission. 6. STOCK OPTIONS During the nine months ended August 31, 2001, officers, directors, consultants, advisory board members and employees of the Company and its subsidiaries were granted 2,700,000 stock options at a price of twelve cents per share. 7. SUBSEQUENT EVENTS On March 29, 2001, the Company signed a letter of Intent to acquire Multi-Cell. On September 13, 2001, the Company acquired all of the capital stock of MultiCell a company that develops liver cells, cell lines and associated products for use in diagnostic and therapeutic applications, pursuant to a Stock Purchase Agreement by and among the Company, Multi-Cell and Multi-Cell Associates, Inc. Irrevocable Trust (the "Trust") and the Estate of Hugo O. Jauregui (the "Estate" and together with the Trust, the "Multi-Cell Shareholders"). The purchase price for this acquisition was $2,200,000, of which $750,000 was paid in cash and the remaining $1,450,000 was paid by means of issuance of 12,083,334 shares of the Company's common stock to the MultiCell Shareholders. There was no pre-existing relationship between the Company and the Multi-Cell Shareholders. The sources of the funds that the Company paid for this acquisition were working capital in the amount of $50,000 and loans in the amount of $700,000 from eight individual lenders, including the Chief Executive Officer and the President of the Company. In addition the Company advanced MultiCell $70,000 for working capital in August, 2001. The foregoing description of the terms of the acquisition is qualified in its entirety by reference to the Stock Purchase Agreement referenced above. During August 2001, the Company entered into promissory notes totaling $725,000 from officers and shareholders of the company. The notes have a stated interest rate of 10 percent per annum and mature on 8/31/2004. Additionally, the Company issued 7.25 million warrants convertible to common stock equal to the principal amount due on these promissory notes. - 8 - =============================================================================== ITEM 2. MANAGEMENT'S PLAN OF OPERATION. This Quarterly Report on Form 10-QSB contains forward-looking statements that involve risks and uncertainties. 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 its research and development. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. PLAN OF OPERATION THE BUSINESS OF THE COMPANY'S SUBSIDIARY, XENOGENICS CORPORATION, is the research and development of the SybiolR liver support device. 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. The Scientific Advisory Board consists of experts who are able to give guidance and counsel to the Company on scientific and medical matters. Scientific Advisory Board members also include Dr. Donald Cramer, DVM, and Ph.D., director of Transplantation Research at Children's Hospital in Los Angeles; Dr. David Van Thiel, M.D., Director of Liver Transplantation at Loyola; Amy Friedman, M.D., Chief, Liver Transplantation, Yale-New Haven Hospital; and Dr. Alessandra Colantoni, Research Associate, Liver Transplant Service, Loyola University. Xenogenics Corporation has a Research and Development Agreement and a Supplier Agreement with MultiCell of Warwick, RI, under which Multi-Cell will supply a unique engineered porcine liver cell line and optimize the interface between this cell line and Xenogenics' proprietary SybiolR liver treatment device. The use of this cell line is expected to eliminate variability in patient treatment and limit the viral risks associated with primary liver cells obtained directly from animal organs. A grant from the National Institutes of Health was awarded in January 2001 to fund joint research on the device by Xenogenics, MultiCell, and Compact Membranes Inc of Delaware. On September 13, 2001 the Company acquired all of the capital stock of MultiCell for an aggregate purchase price of $2,200,000. The Company continues to seek financing for Xenogenics to fund ongoing R&D. It expects to have additional funding in place within the next 12 months. Funding received in fiscal year 2000 and in fiscal year 2001 to date was from Kestrel Equity Partners Ltd. and individual investors. Cash on hand is expected to be sufficient for current needs. In order to continue to fund operations, R&D and growth, the Company is exploring various opportunities such as: obtaining financing from multiple sources, mergers, acquisitions or other business combinations and alliances. MULTICELL'S BUSINESS FOCUS is on cells and proteins. MultiCell is a noted cell research firm with unique expertise in developing functional cells and cell lines, especially liver derived cells for diagnosis and treatment of liver diseases. It has been granted several patents on its immortalized hepatocytes or engineered liver cells. MultiCell has developed a proprietary non- tumorigenic DNA-engineered porcine hepatocyte cell line. A next key project is to develop such an engineered non-tumorigenic human cell line. MultiCell also has engineered and patented cell lines with applications in therapeutic protein production. The Company had signed a Letter of Intent to acquire Lexicor Medical Technologies Inc. of Boulder CO, which was subsequently terminated on April 9, 2001. The Company had also signed a Letter of Intent to acquire MediQuip International and Sterling Medical Technologies, Inc. of Dallas, TX, which was subsequently terminated June 27, 2001. During fiscal year 2000 and to date in fiscal year 2001, the Company has continued to control costs. The Company continues to effect transactions that reduce its liabilities and cash requirements while it continues to raise capital. 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. - 9 - =============================================================================== PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS Jack Schaps, trustee of A. Jack Schaps Estate Trust, filed suit against the Company and its legal counsel on February 13, 2001 in the Superior Court of California. Schaps, a stockholder of the Company, alleges that the defendants negligently lost, and failed to replace in a timely manner, his stock certificate for 625,000 shares of the Company's common stock that he had delivered to the Company for redelivery to Continental Stock Transfer Company, the Company's former transfer agent. Schaps is seeking $600,000 in damages for the loss in potential profits on the stock during the period in question. The Company believes that there are meritorious defenses to the claim and it intends to vigorously defend the lawsuit. In response, on April 13, 2001 the Company filed a cross-complaint against its legal Counsel, Continental Stock Transfer Company and Schaps. On June 17, 2001 the Company amended the cross- complaint to delete Schaps and filed a separate complaint on behalf of Xenogenics against Schaps alleging breach of fiduciary duty and rescission. ITEM 2: CHANGES IN SECURITIES NONE ITEM 3: DEFAULTS UPON SENIOR SECURITIES On November 30, 2000, the Company entered into a promissory note for $500,000 at the interest rate of ten percent annually. The Company failed to make the first scheduled interest payment on the note which was due on February 28, 2001, which constituted a default under the note. On May 11, 2001, the Company entered into a settlement agreement to either pay the note holder an amount in cash equal to the principal plus all accrued interest by November 30, 2001 or issue that number of registered shares of its common stock that equals the sum of the remaining principal and interest payments on the note as determined by an agreed formula for calculating the fair market value of the stock by September 30, 2001. The amount that the Company currently owes the note holder as of the date of this report is $500,000 principal plus interest due of $25,000 as of 8/31/01. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE ITEM 5: OTHER INFORMATION: NONE ITEM 6(A): EXHIBITS NONE ITEM 6(B): REPORTS ON FORM 8-K NONE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report be signed on its behalf by the undersigned thereunto duly authorized. EXTEN INDUSTRIES, INC. (Registrant) Date: 10/12/01 By: /s/ W. Gerald Newmin W. Gerald Newmin Chairman, Chief Executive Officer Date: 10/12/01 By: /s/ Gregory F. Szabo Gregory F. Szabo President, Chief Operating Officer and Treasurer - 10 - ===============================================================================