10QSB 1 form10qsb022802.txt EXTEN INDUSTRIES, INC. 10-QSB 022802 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 February 28, 2002. ( ) 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) 425 W. Fifth Ave., Suite 201 ESCONDIDO, CALIFORNIA 92025 -------------------------------- (Address of principal executive offices) (760) 781-3916 -------------- (Issuer's telephone number, including area code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or such shorter period that the registrant was required to 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: 99,325,310 shares of Common Stock, $0.01 par value as of March 31, 2002. TABLE OF CONTENTS PAGE PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of February 28, 2002 and November 30, 2001 3 Condensed Consolidated Statement of Operations for the Three Months Ended February 28, 2002 and February 28, 2001 4 Condensed Consolidated Statement of Cash Flows for the Three Months Ended February 28, 2002 and February 28, 2001 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Plan of Operation 8 PART II OTHER INFORMATION 9 Item 1. Legal Proceedings 9 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. (a Development Stage Company) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) February 28, 2002 November 30, 2001 ----------------- ----------------- Current Assets: Cash and Cash Equivalents $ 50,620 $ 367,864 Accounts Receivable 0 40,000 Current Portion of Notes Receivable 15,000 15,000 Other Current Assets 41,412 83,528 --------------- --------------- Total Current Assets 107,032 506,392 --------------- --------------- Property and equipment, net 178,926 174,659 Other Assets: License Agreement 2,374,433 2,406,593 Notes Receivable, net 207,500 200,000 Other Assets 88,540 88,540 --------------- --------------- Total Other Assets 2,670,473 2,695,133 --------------- --------------- --------------- --------------- Total Assets $ 2,956,431 $ 3,376,184 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payables and Accrued Expenses $ 447,902 $ 353,007 Current Portion of Notes Payable 128,921 79,500 Deferred Income 318,750 417,125 Other Current Liabilities 8,164 11,552 --------------- --------------- Total Current Liabilities 903,737 861,184 --------------- --------------- Other Liabilities Notes Payable, net 858,875 832,713 Other Liabilities 53,365 36,349 --------------- --------------- Total Other Liabilities 912,240 869,062 --------------- --------------- Total Liabilities 1,815,977 1,730,246 Minority Interest 155,967 159,591 Commitments and Contingent Liabilities Stockholders' Equity: Common stock, $.01 par value; 200,000,000 shares authorized, 98,464,377 and 97,629,444 shares issued and outstanding at February 28, 2002 and November 30, 2001,respectively 984,643 976,294 Additional Paid-in Capital 14,368,876 14,269,569 Stock Subscriptions Receivable (70,000) (85,000) Deferred Compensation Costs (24,916) (8,250) Deficit Accumulated Prior to the Development Stage (10,084,284) (10,084,284) Deficit Accumulated During to the Development Stage (4,189,832) (3,581,982) --------------- --------------- Total Stockholders' Equity 984,487 1,486,347 --------------- --------------- Total Liabilities and Stockholders Equity $ 2,956,431 $ 3,376,184 =============== ===============
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EXTEN INDUSTRIES, INC. (a Development Stage Company) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the Three Months Ended February 28, 2002 and 2001 Three Months Ended February 28, 2002 February 28, 2001 ----------------- ----------------- Revenue $ 148,125 $ 0 ----------------- ----------------- Operating Expenses: General and Administrative 480,502 228,201 Research and Development 203,097 20,484 Depreciation and Amortization Expense 48,171 113 ----------------- ----------------- Total Operating Expenses 731,770 248,798 Operating Loss (583,645) (248,798) Other income (expense): Interest Expense (18,904) (34,866) Discount on Note Receivable Interest Income 15,928 22,425 Discount on Note Payable (26,662) ----------------- ----------------- Other Expense (29,638) (12,441) Minority Interest in Loss of Subsidiary 7,284 41,913 Net Loss Before Income Tax Provision (606,000) (219,326) Income Tax Provision 1,850 133 ----------------- ----------------- Net Loss $ (607,850) $ (219,459) ================= ================= Loss per share $ (0.01) $ (0.01) ----------------- ----------------- Average number of shares outstanding 97,748,720 73,686,502 ----------------- -----------------
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EXTEN INDUSTRIES, INC. (a Development Stage Company) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED) For the Three Months Ended February 28, 2002 and 2001 Three Months Ended February 28, 2002 February 28, 2001 ----------------- ----------------- Cash Flows from Operating Activities: Net Loss $ (607,850) $ (219,459) Adjustments to Reconcile Net Income (Loss) to Net Cash provided (used) by Operating Activities: Depreciation and Amortization 48,171 113 Accretion on Note Receivable (7,500) (8,750) Discount of Notes Payable 26,662 9,806 Common stock issued for services 82,737 Minority Interest in Loss from Subsidiary (7,284) (41,913) Vesting of Deferred Compensation Costs (16,666) 4,125 Changes in Assets and Liabilities Accounts Receivable 40,000 Other Current Assets 42,116 4,500 Accounts Payable and Accrued Expenses 94,895 116,541 Deferred Income (98,375) Other Liabilities 13,628 ----------------- ----------------- Net Cash Used by Operating Activities (389,466) (135,037) Cash Flows from Investing Activities: Advances for Notes Receivable (350,000) Purchase of Equipment (12,778) ----------------- ----------------- Net Cash Used by Investing Activities (12,778) (350,000) Cash Flows from Financing Activities: Proceeds from Notes Payable & Warrants 70,000 Proceeds from Exercised Options 10,000 Proceeds from Subscribed Stock 11,500 Proceeds on Subscriptions Receivable 15,000 ----------------- ----------------- Net Cash Provided by Financing Activities 85,000 21,500 ----------------- ----------------- Net Increase in cash and cash equivalents (317,244) (463,537) Cash and cash equivalents, beginning of year 367,864 539,103 ----------------- ----------------- ----------------- ----------------- Cash and Cash Equivalents, End of Period $ 50,620 $ 75,566 ================= ================= Noncash Transactions: Issuance of common stock warrants in connection with borrowings $ 21,000 $ - - -
5 EXTEN INDUSTRIES, INC. (a Development Stage Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS: Exten Industries, Inc. is a holding company focusing on the development of medical products and associated research and development activities. We have two subsidiaries, Xenogenics Corporation and MultiCell Associates, Inc. (together the "Company"). Xenogenics was incorporated in February 1997 to focus on the research and development of SYBIOL(R) technology. At the time of Xenogenics incorporation, the Company reentered into the development stage. In September 2001, the Company purchased MultiCell Technologies, Inc. (MultiCell), which was previously named MultiCell Associates, Inc. MultiCell develops and intends to commercialize immortalized hepatic (liver) cells, cell lines, and associated products to be used in diagnostic and therapeutic applications. These applications include cells that may be used by pharmaceutical companies for drug discovery and toxicology testing, cells that may be used for transplant, cells for use in Liver Assist Devices (LADs), and cell lines for therapeutic protein production. Xenogenics Corporation, a majority-owned subsidiary, is a developmental stage enterprise that owns all of the rights to the Sybiol(R) Bio-synthetic liver device for which a patent is pending in 15 countries, including the United States. The underlying concept of the device is that the artificial liver can act as a substitute liver for a patient whose own liver is healing from injury or disease or for use as a "bridging" device for transplant patients awaiting a donor organ. In cooperation with MultiCell, we are working on a new design for this device and a compatible engineered cell line to work with it. The company anticipates completing the system redesign and the preclinical work so as to be able to initiate Phase I human trials before the end of 2003. The regulatory approval process is expected to last from two to five years, which means that the Sybiol device will not be ready for the market before the end of 2005, at the earliest. BASIS OF PRESENTATION: The accompanying unaudited condensed consolidated 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/A for the year ended November 30, 2001. 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, 2002. 6 2. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosures of cash flow information for the three-month periods ended February 28, 2002 and February 28, 2001 are summarized as follows: (Unaudited) Three Months Ended February 28, 2002 February 28, 2001 ----------------- ----------------- Cash paid for interest and income taxes: Interest $ 6,243 $ 12,560 Income taxes $ 1,850 $ 0 3. GOING CONCERN MATTERS During fiscal years 2001 and 2000, the Company incurred net losses of ($1,609,383) and ($640,678), respectively. Management expects the Company to generate revenues in the near future. At February 28, 2002, the Company's accumulated deficit and stockholders' equity were $14,274,116 and $984,487 respectively, and its current assets exceeded its current liabilities by $796,705. 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 include: (1) raising additional capital through sales of preferred and common stock and convertible debt, and (2) 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 and to 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. NOTES PAYABLE During December 2001 and January 2002, the Company entered into two convertible promissory notes for a total of $70,000. Interest accrues at 10% per annum. The principal and interest are payable on November 1, 2004 and January 1, 2005, respectively. The lenders may convert the principal and any unpaid interest due into the company's common stock. The conversion price varies from $.10 to $.20 at maturity. Additionally, the company issued 700,000 common stock warrants convertible at $.10 per share. These warrants have been valued at $.03 and the face value of the notes has been discounted by $21,000. 5. CONTINGENCIES In March 2002, the Company was served with a lawsuit filed by George Colin alleging that the Company had defaulted in its interest payments to Mr. Colin due pursuant to a $50,000 convertible loan entered into in October 2001. The lawsuit was filed in the Superior Court of California, in the County of Orange. The lawsuit alleges that the Company's defaults result in the loans conversion rate being reduced to from $0.07 to $0.01 per share. The lawsuit seeks specific performance of Mr. Colin's election to convert the loan and unspecified damages. The Company refutes the allegations and believes that it has a meritorious defense to the claims. The Company intends to vigorously defend the lawsuit. 7 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 Exten Industries, through its subsidiaries Xenogenics and MultiCell Technologies, is dedicated to providing solutions to the medical community for some of its most pressing needs. These solutions include improved treatment options for chronic liver disease, better research tools for the pharmaceutical industry, naturally derived complex proteins for chronic and acute therapies, and stem cells for cellular transplantation. We believe our patents and proprietary technologies strongly position us for market success. However, improving the quality of life of patients and participating in their therapy ultimately drives us to succeed. We acquired MultiCell Associates, Inc. (MultiCell) of Warwick, RI, subsequently renamed MultiCell Technologies, Inc., during September 2001. They will continue to operate as a stand alone subsidiary in Rhode Island. MultiCell has been a research company existing on government and private grants. Its main source of revenue, a National Institute of Standards and Technology, expired on December 31, 2000. From that time until the acquisition, MultiCell existed through private contract revenues and was not pursuing additional government contracts. This affected year to year revenues. Following our acquisition of MultiCell, we have begun to pursue new government grants to continue many of our research efforts, however the focus of the company is to commercialize some of its products as quickly as possible. MultiCell has developed a unique immortalized human liver cell line and has redesigned the Xenogenics Sybiol liver assist device to optimize the interface between this cell line and the proprietary device. This cell line, when used in the Sybiol device, is expected to eliminate variability in patient treatment and limit the risks associated with primary or porcine hepatocytes. The proper combination of cells and device have been lacking in prior attempts to address this market. We believe that the control of both the immortalized cell line and the liver assist device offer the best opportunity for successful introduction of a product. These immortalized cells also offer pharmaceutical companies the potential for a consistent source of human liver cells for drug discovery, toxicology testing and pharmacokinetic studies. Today, these companies must rely on an inconsistent supply of human liver cells gotten from donated organs that cannot be transplanted or rat liver cells. These options place severe limitations on research. On November 1, 2001, MultiCell entered into a collaborative research agreement with Pfizer, Inc., pursuant to which Pfizer has agreed to pay $724,500 to validate the efficacy of MultiCell's immortalized liver cells in four different experimental models. These cells, if effective, could replace the current hepatocytes used by Pfizer as well as other pharmaceutical companies. We will focus on introducing these immortalized cells to domestic and international pharmaceutical companies with the objective of becoming an industry standard for research. It is important to realize that since these cells will only be used within the lab for research, no FDA approval is necessary for commercialization. Additionally, MultiCell has begun research projects related to adult liver stem cells and naturally occurring liver cell derived proteins. These areas, while longer range research projects, offer extraordinary opportunities. Potentially, therapeutic products, requiring FDA approvals, could be developed. Due to their ability to replicate, stem cells offer great promise in the treatment of genetic and acquired chronic liver diseases. We are focusing exclusively on adult stem cells which naturally exist in everyone and avoid the issues associated with fetal and embryonic stem cells. Hepatocytes are the most biochemically active cells in the body. They naturally create simple as well as complex proteins that are essential to everyone's health and function. Certain complex proteins, if acquired from natural sources such as cells in culture, would be very desirable. We plan to continue our research into culturing certain complex proteins for therapeutic uses. We plan to develop data for both of these areas so as to be able to pursue partnerships with pharmaceutical companies for the final development and the sales and distribution of the products. 8 Research continues in our Xenogenics subsidiary on the Sybiol Synthetic Bio-Artificial Liver Device. We are at a point where data must be developed to validate the efficacy of the redesigned system in conjunction with the MultiCell liver cells. Our plan is to conclude this study as quickly as possible and present the data to large pharmaceutical and medical device companies with the intention to partner with someone for future product development. A plan to move the product through human clinical trials will be presented to the FDA for approval at that time. We believe that we have a very strong Scientific Advisory Board. John Brems, MD, Chairman of the Advisory Board oversees Loyola University's liver transplant program and has been intimately involved with the Company's technology. He has recruited a team of many of the world's foremost liver doctors and scientists. Scientific Advisory Board members include Sangeeta Bhatia, MD, and PhD., Assistant Professor of Bioengineering at University of California San Diego in La Jolla, CA; Dr. Donald Cramer, BS, DVM, and Ph.D., Director of Transplantation Research at Children's Hospital in Los Angeles; Dr. David Van Thiel, MD Director of Liver Transplantation at Loyola; Amy Friedman, MD, Chief, Liver Transplantation, Yale-New Haven Hospital, Dr. Alessandra Colantoni, Research Associate, Liver Transplant Service, Loyola University also serves on the Scientific Advisory Board. We anticipate that over the next two years we will need approximately $3 million to complete development of certain products from MultiCell and to begin clinical trials on other products, and $1 million for working capital and general corporate purposes. Some portion of this funding could come from successful commercialization of the MultiCell products or additional research agreements. We will increase our administrative resources to support the hiring of an estimated 6 additional employees that will enable us to expand our research and product development capacity. We intend to expand our product offering by completing ongoing development projects and by opportunistically acquiring or merging with companies that generate revenues and using such profits to cover our operating needs, selling shares of our common stock to investors, and continuing to use our common stock to pay for consulting and professional services. We also anticipate the need for additional financing in the future in order to fund continued research and development, proceed with clinical trials and to respond to competitive pressures. We believe that our future cash requirements may be fulfilled by product sales, the sale of additional equity securities, debt financing and/or the sale or licensing of our technology. We cannot guarantee, however, that any future funds required will be generated from operations or from the aforementioned or other potential sources. We do not have any binding commitment with regard to future financing. If adequate funds are not available or not available on acceptable terms, we may be unable to fund expansion, develop or enhance products and services or respond to competitive pressures, any of which could have a material adverse effect on our business, results of operations and financial condition. We continue to effect transactions that reduce our liabilities and cash requirements while we continue to raise capital. We continue to pay directors fees, consulting fees, and in some cases legal fees through the issuance of our Company's Common Stock with the subsequent registration of the shares so issued on Form S-8. Our Company has been forced to take these steps to conserve the Company's cash. PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS 9 In March 2002, the Company was served with a lawsuit filed by George Colin alleging that the Company had defaulted in its interest payments to Mr. Colin due pursuant to a $50,000 convertible loan entered into in October 2001. The lawsuit was filed in the Superior Court of California, in the County of Orange. The lawsuit alleges that the Company's defaults result in the loans conversion rate being reduced to from $0.07 to $0.01 per share. The lawsuit seeks specific performance of Mr. Colin's election to convert the loan and unspecified damages. The Company refutes the allegations and believes that it has a meritorious defense to the claims. The Company intends to vigorously defend the lawsuit. 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 Exten, alleged that the defendant negligently lost, and failed to replace in a timely manner, his stock certificate for 625,000 shares of common stock that he had forwarded to the Company to be delivered to the Company's former transfer agent. On February 25, 2002, Schaps agreed to a settlement and the lawsuit was finalized in March 2002. This settlement has no impact on the financial position of the Company. 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: In March 2002, the Company entered into a three year lease for office and laboratory facilities in Warwick, RI. The company will pay lease payments totaling approximately $70,000 to $75,000 a year for this facility. 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: 04/10/02 By: /s/ W. Gerald Newmin Date: 04/10/02 By: /s/ Gregory F. Szabo ------------------------ ------------------------ W. Gerald Newmin Gregory F. Szabo Chairman, Chief Executive Officer President, Chief Operating Officer and Treasurer
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