Item 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . 4 Background of the Company . . . . . . . . . . . . . . . . . . . 4 Factors Which May Affect Future Results . . . . . . . . . . . . 5 Business of Exten. . . . . . . . . . . . . . . . . . . . . . . 8 Business of Xenogenex, Inc. . . . . . . . . . . . . . . . . 9 Patents & Proprietary Technology . . . . . . . . . . . . . . 9 Government Regulations . . . . . . . . . . . . . . . . . . . 9 Therapeutic Products . . . . . . . . . . . . . . . . . . . .10 Agreements for SYBIOL Development. . . . . . . . . . . . . .10 St. Louis University Health Sciences Center. . . . . . . . 10
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . .11
Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . .12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . .13
PART II - -------
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . .13
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS Results of Operations. . . . . . . . . . . . . . . . . . . . .14 Liquidity and Capital Resources . . . . . . . . . . .. . . . .16 Results of Operations - ADC. . . . . . . . . . . . . . . . . .16 Xenogenex, Inc.. . . . . . . . . . . . . . . . . . . . . . . .16
Item 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . .17
Item 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
PART III - --------
Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; REGISTRANT COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. . . . 17
Item 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 18 Non-Cash Compensation . . . . . . . . . . . . . . . . . . . . . . . 19
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 19 Stock Options Outstanding . . . . . . . . . . . . . . . . . . 22
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS20
Item 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . 23 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . 23 Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . 23 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 List of Subsidiaries. . . . . . . . . . . . . . . . . . . . . 25 Index of Exhibits . . . . . . . . . . . . . . . . . . . . . . 25
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND OF THE COMPANY
Between 1985 and 1990 the Company provided merchant banking services for small businesses. As compensation for these services the Company received both cash and common stock in the companies. The Company distributed shares of stock in some of these companies to its shareholders as dividends in kind. The Company distributed stocks in Import International, Inc., Olympus Technology Corporation, Inc., Multiphonics Corporation, Dionne, Inc., Sun Harbor Financial Resources, Inc., U.S. Environmental, SDI Holdings, Inc. and Access HealthNet.
In October of 1990 the Company's Board of Directors decided on a major change in the Company's business. Due to the difficulty of raising capital for its small business merchant banking clients, the Company decided to change its business emphasis to that of becoming a diversified company. The merchant banking would be combined on a smaller scale with more substantial companies. The Company's merchant banking experience would be primarily directed to the acquisition of varied business for the Company.
In November 1990, the Company acquired all of the capital stock of ADC Industries Corporation, Inc. ("ADC"), a precision product machining house specializing in the custom manufacture of storage tank valves. The acquisition of ADC was accounted for as a pooling of interest. On September 30, 1993, ADC ceased operations. The Company sold its interests in ADC and on November 29, 1993 ADC filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code.
In September of 1991 the Company acquired all of the outstanding stock of Xenogenex, Inc. ("Xenogenex"), formerly known as Ascot Close Research Institute, Ltd. At that time Xenogenex was funding research on xenogeneic transplants with a major West Coast medical center. Xenogenex had the rights to the commercial development of the research work.
In 1992, the Company acquired the rights to a hydraulic control technology with primary applications to computer control of hydraulic machine tools and to the control of helicopter rotor blades. The machine control is marketed under the name "Navigator 360"; the rotor control, in the early conceptual stage, is named the "Smart Head". In 1992, the Navigator 360 technology was sold to a company of which Malcolm D. Campbell is an officer.
On February 24, 1992 Exten purchased all rights to the technology for an innovative helicopter flight control system from the inventors. The concept, which involves loop hydraulic control of blade pitch, is known as the "Smart Head".
On May 19, 1992 Exten entered into a joint venture agreement with Navmatic Corporation for development of the Smart Head. Navmatic Corporation, which manufactures an unique electronic and mechanical interface for computer numerical control of hydraulic machine tools, and which employs the Smart Head inventors as consultants, has the technical ability and the business posture to pursue development of the concept. The Company has no plans to develop this technology. Under the joint venture agreement, a mechanical model to demonstrate the feasibility of the basic hydraulic control mechanisms proposed has been constructed and successfully operated.
In 1993, the Company divested itself of ADC Industries, Inc., leaving development of the synthetic bio-liver ("SYBIOL") through its subsidiary Xenogenex, Inc. as the Company's only proposed business.
ITEM 1a.
ITEM 1a. FACTORS WHICH MAY AFFECT FUTURE 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-KSB, prospective investors should carefully consider the following risk factors:
1. SIGNIFICANT AND REPEATED LOSSES. During fiscal 1995, the Company's most recent fiscal year, the Company's losses increased to ($3,076,538) from losses of ($1,351,477) in fiscal 1994. In addition, during fiscal 1992, 1993, and 1994 the Company lost ($880,844), ($1,355,531), and ($1,351,477) respectively. The Company faces all the risks inherent in a new business. The Company's Xenogenex subsidiary, is without any record of earnings and sales. There is no information at this time upon which to base an assumption that Xenogenex's business plans will either materialize or prove successful. There can be no assurance that any of the Company's business activities will result in any operating revenues or profits. Investors should be aware that they may lose all or substantially all of their investment.
2. QUALIFIED OPINION. The Company's certified public accountant issued a qualified opinion on the Company's financial statements for the year ended November 30, 1995 and the year ended November 30, 1994 and the year ended November 30, 1995 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 of its subsidiary, Xenogenex, Inc. from which the Company generates little or no stream of revenues and there can be no assurance that the Company will ever generate any revenues from Xenogenex, Inc. in the near future. As a result, the Company may continue to incur losses and any investor who purchases or acquires any shares of the Company's Common Stock will likely incur further substantial dilution and loss in the value of their investment.
4. SIGNIFICANT AND INCREASING CURRENT LIABILITIES. As of November 30, 1995, the Company had $743,629 in current debts and other obligations that are due and payable on or before November 30, 1996. Included in the amounts due by November 30, 1996 is $333,000 due in settlement of certain claims awarded Union Bank, $388,000 in loans payable in litigation, and the current portion of certain long term debt of $387,987 together with other current liabilities. Further, as of November 30, 1995, the Company had nearly 2.4 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 date, 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. This may result in an investor 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 may attempt to obtain a commitment from an underwriter for a private placement or public offering 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 any investor acquiring the Company's common stock.
6. NEGATIVE WORKING CAPITAL & NEGATIVE CASH FLOW. As of November 30, 1995, the Company had Total Current Liabilities of $743,629 and Total Current Assets of $315,593 with the result that the Company had negative working capital of ($428,036) as Total Current Liabilities exceeded Total Current Assets by that amount. While the Company's management seeks additional financing for the Company 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 1992, 1993, 1994, and 1995 fiscal years.
7. POTENTIAL DILUTION. Funding of the Company's proposed business plan will result in substantial and on-going dilution of the Company's existing stockholders. During 1995, the Company issued 16,189,748 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. DEFAULT ON INDEBTEDNESS. The Company is currently in default on its repayment of a certain loan totalling $333,000 (as of November 30, 1995) (the "Loan") with Union Bank and a former officer of the Company, Robert H. Goldsmith, asserts that the Company has defaulted on approximately $388,000 in promissory notes. While Union Bank has sued the Company and has aggressively sought repayment of the Loan, together with interest, and fees due with the result that Union Bank has obtained a judgement against the Company, the Company's management has attempted, without success to negotiate an acceptable payment program with Union Bank and there is no guarantee that the Company will be able to pay the monies required to settle this matter. In addition, the Company had over $994,480 in liabilities which included $743,629 in Total Current Liabilities due and payable on or before November 30, 1996. In the event that the Company is not able to generate additional cash from the sale of the Company's securities or otherwise obtain funds on some other basis, the Company will remain in default on its obligations and likely default on obligations to other creditors with the result that any investor in the Company's common stock will lose all or substantially all of their investment.
9. GOVERNMENT REGULATION AND PRODUCT APPROVALS. 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 U.S. will be subject to the rigorous testing and approval processes of the U.S. 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 may 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's subsidiary, Xenogenex, Inc.
10. 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.
11. COSTS OF LITIGATION. The Company is likely to incur significant costs for litigation in connection with a dispute with Robert H. Goldsmith, a past officer and director and other litigation. While the Company seeks to resolve this dispute on terms favorable to the Company, there can be no assurance that the Company will be successful or that the costs incurred will not exceed any benefits that the Company may derive from this litigation.
12. LIMITED MANAGEMENT. The Company currently has only one full time officer and two full-time employees. The Company's limited cash flow and financial resources do not allow the Company to increase or add to the Company's full time 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 conducted by its subsidiary, Xenogenex, Inc.
13. 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.
14. 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.
15. VALUATIONS & PRIOR ASSET ACQUISITIONS. The Company's current management has determined that the values accorded certain assets acquired in prior years be revalued to reflect lower carrying values in light of current market circumstances. While management believes that current carrying values for these assets more accurately reflect likely recovery values, there can be no assurance that the Company will not later revalue the Company's assets further.
16. POSSIBLE RULE 144 STOCK SALES. As of November 30, 1995, the Company had a substantial amount of 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 two years 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. Persons who are not affiliated with the Company and who have held their restricted securities for at least three years are not subject to the volume limitation. 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.
17. 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-tradeable 41 days after issuance. The shares registered on Form S-8 are immediately freely-tradeable. 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 the registration and sale of shares on an on-going basis.
18. 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.
BUSINESS OF EXTEN
The Company's only active business is the proposed research and development activities of its subsidiary, Xenogenex, Inc.
XENOGENEX, INC.
BUSINESS OF XENOGENEX, INC.
Xenogenex, Inc. ("Xenogenex") was incorporated in California on July 30, 1991 for the purpose of funding biotech research. On September 11, 1991 the Company signed a research contract with Cedars-Sinai Medical Center in Los Angeles, California. The research contract was for the genetic manipulation of human to pig target antigens and xenogeneic transplants. Xenogeneic transplants involve the use of donor organs from species other than humans. The major objective of the research was to discover a way to transplant organs (heart, liver, lung and kidney) from a pig into a human.
In March of 1993 Xenogenex received all the rights to a synthetic bio- liver ("SYBIOL") developed for Xenogenex under contract with Cedars-Sinai Medical Center. A patent application is presently pending on the process utilized by the SYBIOL device and the Company has applied for trademark protection for the SYBIOL tradename.
On August 31, 1995, the Company entered into a license agreement (the "GMI License") with GroupMed International, Inc. ("GMI"). Under the terms of the GMI License, the Company granted GMI the exclusive right and license to manufacture, market, and sell the technology and patents held by Xenogenex in Mexico, Central America, and South America. Subsequently, the Company terminated the GMI License due to lack of consideration.
In addition to the other information contained in this Form 10-KSB, prospective investors should carefully consider the following risk factors:
1. PATENTS AND PROPRIETARY TECHNOLOGY. Any proprietary protection of Xenogenex's technologies that the Company can obtain and maintain will be important to its proposed business. The Company has exchanged its U.S. patent application for a P.C.T. filing and has filed a patent application in China. 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.
2. INTENSE COMPETITION. Competition in Xenogenex's field from other biotechnology and pharmaceutical companies and from research and academic institutions is intense and is expected to increase. 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. Xenogenex 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 Xenogenex's trade secrets or disclose such technology, or that Xenogenex can meaningfully protect its rights to its unpatented trade secrets.
3. GOVERNMENT REGULATION. Xenogenex's present and proposed activities are subject to regulation by numerous governmental authorities in the United States and other countries. To the extent that the following 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 prospects of Xenogenex.
4. THERAPEUTIC PRODUCTS. Xenogenex's products will be subject to regulation in the U.S. 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.
AGREEMENTS FOR SYBIOL DEVELOPMENT
ST. LOUIS UNIVERSITY HEALTH SCIENCES CENTER
Xenogenex, entered into a sponsored research agreement with the St. Louis University Health Sciences Center to direct and document the research and development of its synthetic bio-liver, SYBIOL, into a clinical system.
Dr. Li was the Director of the Surgical Research Institute at St. Louis University and an internationally renowned expert in liver cell biology, toxicology and drug metabolism. Prior to joining SLU, he headed the Liver Biology Department at Monsanto Company in St. Louis. Dr. Li also served as Chief Scientific Officer of Xenogenex. St. Louis University Health Sciences Center is known for its excellence in providing medical care and medical research, especially in organ transplantation and artificial internal organ research. The medical center is one of the few institutions with a research institute dedicated to surgical research.
On November 30, 1995, the Company terminated its agreement with the St. Louis University Health Sciences Center and Dr. Albert Li and currently the Company is seeking the return of all documents and laboratory equipment. During the period of the sponsored research agreement, the Company spent approximately $452,000 on research and laboratory equipment.
CHINA JOINT VENTURE
The Company and a Hong Kong business group have formed a Hong Kong corporation, TECA International, Ltd., under a joint venture agreement. TECA, which is 18.60% owned by the Company, is required to provide funding for the next five years. TECA is licensed to produce and sell Xenogenex's synthetic bio-liver in Asia, Australia and New Zealand.
TECA has arranged, through a joint venture, for the manufacturing and distribution SYBIOL in China. A SYBIOL unit has been shipped to Number 301 Military Hospital in Beijing, China. The Company is not able to predict whether the venture in China will generate any revenues for the Company or whether it will be commercially viable. And although the Company believes the incidence of liver disease in Asia is far greater than in the United States, the Company has not conducted or received any third party research or evaluation of this market and there can be no assurance that the Company will gain any commercially profitable opportunities at any time in the near future.
Overall, the Company intends to continue to re-evaluate the SYBIOL technology, the commercial viability of the SYBIOL technology, and the financial feasibility of further investment in SYBIOL.
COMPETITION
Xenogenex is engaged in businesses characterized by extensive research efforts, rapid technological change, and intense competition. Competition can be expected to increase as technological advances are made and commercial applications broaden. The industries in which Xenogenex seeks to compete are characterized by substantial competition involving biotechnology and major bio- pharmaceutical, chemical and biological testing companies. Many of Xenogenex's existing and potential competitors have substantially greater financial, research and development, clinical, regulatory, marketing and production resources than those of Xenogenex and may be better equipped than Xenogenex 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 Xenogenex, thereby rendering some of Xenogenex's technologies and products and services under development less competitive or obsolete.
EMPLOYEES
EXTEN. As of May 10, 1996, Exten had two employees.
XENOGENEX. Xenogenex has no employees. The Company is managed by its officers and directors. The work of Xenogenex is carried out by contracts with third parties.
GENERAL. All of the above companies consider their relations with their employees to be excellent and none are subject to any union contracts.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY EXTEN
LEASE. Exten leases approximately 1,711 square feet of space, at $500 per month, in a modern office building. Exten's lease ends in August 31, 1997. Exten feels the space is adequate for the foreseeable future.
ARIZONA. On February 28, 1992 the Company exchanged 170,000 shares of common stock and 170 shares of preferred stock, convertible into 170,000 shares of common stock, for real estate in Arizona comprised of 240 buildable lots approximately 70 miles south of the Grand Canyon. This property is pledged to secure a $250,000 loan to Xenogenex, Inc., a subsidiary of the Company. In 1994 the Company sold four of these lots to pay property taxes. As a result and as of November 30, 1995, the Company owned 236 of these lots.
The Company is seeking to sell the Arizona property as part of an agreement with its creditors. However, there can be no assurance that the Company will successfully settle its creditors' claims or, if it is successful, that any settlement will be achieved on terms that are reasonable in light of the Company's current circumstances.
XENOGENEX
Xenogenex is provided offices and clerical services by its parent Exten and does not have separate offices. Xenogenex believes that this arrangement will be sufficient during the next twelve months.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
As of May 10, 1996, there were no pending legal proceedings involving the Company which, in the opinion of management, after discussion with legal counsel, were of a material nature except the following.
1. Union Bank Litigation
(1) Los Angeles County Superior Court, State of California (2) August 12, 1992 (3) Union Bank as plaintiff. Exten Industries, Inc. as a defendant. (4) Lawsuit to enforce a loan guarantee executed by Exten for a loan to its subsidiary ADC Industries, Inc. (5) Relief Sought: Monetary payment. Judgement entered against Exten Industries, Inc. on February 23, 1994 in the amount of $300,000. There are four other guarantors on this loan. The Company intends to aggressively pursue equitable indemnification from these parties. On July 20, 1994, the Company entered into a settlement with Union Bank that allows the Company to pay Union Bank $150,000 in full by November 30, 1995. If the Company does not pay $150,000 to Union Bank by February 2, 1996, then Union Bank is entitled to pursue the Company for the full $300,000 plus interest and other costs from the date of the February 23, 1994 judgement.
2. Goldsmith Litigation with Exten
(1) San Diego County Superior Court, State of California. (2) January 24, 1995. (3) Robert H. Goldsmith, former President of Exten Industries, Inc. as plaintiff. Exten Industries, Inc., as defendant. (4) Lawsuit for breach of employment contract, fraud and enforcement of security agreement. (5) Relief Sought: Damages, Declaration of rights and obligations, punitive damages, and costs of suit. The Company disputes the facts and has filed a cross-complaint for conversion, fraud, and breach of fiduciary responsibility.
3. Goldsmith Litigation with Xenogenex
(1) San Diego County Superior Court, State of California. (2) January 24, 1995. (3) Robert H. Goldsmith, former President of Exten Industries, Inc. as plaintiff. Xenogenex, Inc. as defendant. (4) Lawsuit for breach of promissory note. (5) Relief Sought: Damages and specific performance. The Company disputes the facts and has filed a cross-complaint against Mr. Goldsmith for fraud and conversion.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No meeting of the Company's shareholders was held in 1995.
PART III
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was traded on the Philadelphia Stock Exchange ("Exchange") from May 5, 1989 to June 14, 1994. From June 14, 1994 to the present, the Company's Common Stock has traded OTC (Electronic Bulletin Board).
At the Annual Meeting of Shareholders held on July 11, 1990 the shareholders approved a reverse split of the Common Stock. The shareholders voted to exchange 7 old shares for 1 new share. The reverse split was effective midnight, August 31, 1990. The Company had a subsequent reverse split of 1 for 2 effective August 10, 1991, and a 1 for 10 reverse split effective November 30, 1992.
The table below shows the closing sales prices for Exten Common Stock as reported by the Exchange. All prices have been adjusted to reflect a 1 for 7 reverse split of Exten's outstanding Common Stock on August 31, 1990 and the 1 for 2 reverse split on August 10, 1991 and the 1 for 10 reverse split on November 30, 1992.
Prices are not adjusted for six percent (6%) stock dividends for shareholders of record November 30, 1991 and November 30, 1992.
Calendar Year ended December 31, High Low ------ ----- First Quarter . . . . . . . . . . . . . . . . . 6.00 3.50 Second Quarter. . . . . . . . . . . . . . . . . 3.75 1.125 Third Quarter . . . . . . . . . . . . . . . . . 2.00 .938 Fourth Quarter . . . . . . . . . . . . . . . . 1.56 .75
First Quarter . . . . . . . . . . . . . . . . . 1.56 .75 Second Quarter. . . . . . . . . . . . . . . . . 1.19 .375 Third Quarter . . . . . . . . . . . . . . . . . .44 .0625 Fourth Quarter. . . . . . . . . . . . . . . . . .31 .1875
First Quarter . . . . . . . . . . . . . . . . . .33 .07 Second Quarter. . . . . . . . . . . . . . . . . .27 .15 Third Quarter . . . . . . . . . . . . . . . . . .25 .09 Fourth Quarter. . . . . . . . . . . . . . . . . .18 .07
No cash dividends have been paid on Exten Common Stock and no change of this policy is under consideration by the Board of Directors.
The payment of cash dividends in the future will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial requirements, and condition, opportunities for reinvesting earnings, business conditions, and other factors. The number of shareholders of record of Common Stock on November 30, 1995 was approximately 1,032.
ITEM 6.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
During the latter part of 1990 the Company revised its business plan and began its conversion from a merchant banker into a diversified company. In November of 1990 the Company acquired ADC Industries, Inc. a manufacturer of valves for storage tanks. In June of 1991 the Company acquired a 21% interest in Pacific International Indemnity, Ltd., on off-shore surplus line writer ("Pacific"). This transaction was rescinded in March 1992. During September of 1991 the Company acquired Xenogenex, Inc., a bio-medical research and development company. In 1992, the Company acquired hydraulic technology applicable to machine and helicopter rotor control. In 1992, the Company divested itself of the machine control technology. In 1993, the Company divested itself of its helicopter technology and sold its subsidiary, ADC Industries. The Company intends to focus its resources on further research and development efforts to be conducted within its subsidiary, Xenogenex.
RESULTS OF OPERATIONS
FISCAL 1995 VERSUS FISCAL 1994
During the year ending November 30, 1995 ("Fiscal 1995") the Company recorded total revenues of $6,654 primarily from rental revenues on certain real estate compared to $90,594 in revenues earned during the fiscal year ending November 30, 1994 ("Fiscal 1994"). Fiscal 1994's revenues were composed of $63,483 in royalties,, $25,123 in rents in rental revenues from real estate, and $1,988 in sales revenue.
During Fiscal 1995, the Company incurred $609,579 in Consulting Fees which were incurred primarily due to the Company's continued use and reliance on professional services from outside the Company.
In Fiscal 1995, the Company also incurred $1,043,543 in General and Administrative Expenses. This increased by nearly 59% in Fiscal 1994's level of $656,628 primarily due to increased administrative and consulting expenses.
Fiscal 1995 research and development costs declined by nearly 49% from $140,755 in Fiscal 1994 to $72,058 while depreciation expenses was $21,064 in Fiscal 1995 compared to $22,596 in Fiscal 1994. The decline in research and development costs during Fiscal 1995 reflected the Company's limited financial resources.
As a result, Total Operating Expenses in Fiscal 1995 were $1,746,244 compared to Total Operating Expenses of $1,403,671 in Fiscal 1994. This resulted in the Company recording a Loss from Continuing Operations of ($1,739,590) in Fiscal 1995 compared to a Loss from Continuing Operations of ($1,313,077) in Fiscal 1994.
For Fiscal 1995, the Company recorded a gain of $49,348 in connection with a liquidation of certain indebtedness compared to a similar gain of $83,027 in Fiscal 1994. Interest Expense declined by over 33% from $33,798 in Fiscal 1994 to $22,438 in Fiscal 1995.
The Company's Fiscal 1995 operations were greatly impacted by certain Other Income and Expenses. In Fiscal 1995, the Company's management re-evaluated the carrying value of the Company's real estate in Arizona given declining market trends in the market area and changing land use in surrounding real estate market adjoining the real estate parcels held by the Company. The Company plans to sell the Arizona real estate in connection with a contemplated settlement agreement with the Company's creditors. On this basis, the Company reduced the carrying value of the real estate from $1,617,667 to $354,000.
In addition, the Company reduced the carrying value of certain shares of GroupMed International, Inc. ("GMI") it received from GMI to reflect the limited liquidity and the current market value of the GMI stock it received in payment under a licensing agreement with GMI.
The Company also determined that the wrap notes and associated equity purchased during 1992 have an undeterminable value. The Company established a valuation allowance of $356,741 for the entire amounts relative to the wrap notes receivable and payable balances associated with the wrap notes in the amount of $356,741 for the year ended November 30, 1995. This increase for reserves of $356,741 has been reflected within general and administrative expenses for Fiscal 1995.
The Company also reduced the carrying value of its prior investment in helicopter control technology from $187,500 at the close of Fiscal 1994 to $0 at the close of Fiscal 1995. The Company has no plans to develop this technology. The Company also reduced the value of a timeshare investment from $9,000 at the close of Fiscal 1994 to $0 at the close of Fiscal 1995.
As a result of these re-evaluations of the carrying value of the Company's investments, the Company recorded an aggregate Loss on Disposition of Assets of $1,514,167 during Fiscal 1995 compared to a Loss on Disposition of Assets of $63,359 in Fiscal 1994. The Company also recorded a $60,000 gain from the sale of the License to GMI.
Other Income and Expenses resulted in the Company recording $1,336,148 in Total Other Expenses (net of other income) in Fiscal 1995 from Fiscal 1994's Total Other Expenses (net of other income) of $37,600.
As a result, the Company recorded a Loss Before Income Taxes of $3,075,738 in Fiscal 1995 or an increase of nearly 128% from the Loss Before Income Taxes of $1,350,677 recorded during Fiscal 1994. This resulted in the Company recording a Net Loss of ($3,076,538) in Fiscal 1995 compared to a Net Loss of ($1,351,477) in Fiscal 1994 with Fiscal 1995 total Losses Per Share of Common (computed with Common Stock Equivalents and fully diluted) of ($0.20) compared to ($0.23) for the same period during Fiscal 1994.
FISCAL 1994 VERSUS FISCAL 1993
During the fiscal year ending November 30, 1994 ("Fiscal 1994"), the Company recorded revenues of $90,594 compared to $76,414 in revenues for the fiscal year ending November 30, 1993 ("Fiscal 1993"). Nearly all of Fiscal 1994's revenues were due to the Company's receipt of $62,313 from an officer of the Company who repaid short swing profits on the purchase and sale of the Company's Common Stock and the Company's receipt of $25,123 in rental revenues from the Company's real estate holdings.
During Fiscal 1994 the Company also incurred $606,288 in consulting fees which represented an increase of about 41% from $429,522 in consulting fees during Fiscal 1993. During both Fiscal 1993 and 1994, the Company selectively paid consulting fees in cash and in shares of the Company's Common Stock (with the latter frequently registered on a Form S-8 Registration Statement to enable the payee to sell and transfer the shares in the open market). The increase in Consulting Fees arose primarily out of the increased need for consulting services to the Company and its subsidiary, Xenogenex, Inc. during the year.
In comparison, the Company reported 20.77% decline in General and Administrative Expenses during Fiscal 1994 as these costs decreased to $656,628 compared to $828,736 during Fiscal 1993. The decline in General and Administrative expenses was largely due to a reduction in of legal expenses and professional fees as the Company reduced legal and professional expenses by $242,373. For Fiscal 1994, these General and Administrative Expenses included $263,154 in legal expenses, $63,152 in directors' and officers' liability insurance premiums, $87,321 in salaries and wages, $24,908 in public relations costs, $22,906 in travel expenses, $22,596 in depreciation, $18,058 in accounting expenses, and payroll taxes of $11,748.
However, the Company also incurred $140,755 in Research and Development expenses in fiscal 1994 whereas the Company did not incur any Research and Development Expenses in fiscal 1993.
With a 41% increase in Consulting Fees, a 20.77% decline in General and Administrative Expenses, and $140,755 in Research and Development expenses, the Company recorded a 8.12% increase in Total Operating Expenses as the Company incurred $1,403,671 in Total Operating Expenses during Fiscal 1994 compared to $1,298,258 in Total Operating Expenses in Fiscal 1993.
As a result, the Company recorded a Loss from Continuing Operations of ($1,313,077) in Fiscal 1994 compared to a loss of ($1,221,844) in Fiscal 1993.
In addition, the Company also recorded Other Income and Expenses for both Fiscal 1994 and 1993. For Fiscal 1994 the Company recorded $83,027 in debt forgiveness income, $33,798 in Interest expenses (net of Interest Income), $17,000 in bad debt expenses, and $63,359 in losses on the sale of certain shares of Princeton Electronics stock and the sale of certain parcels of real estate in Arizona. By comparison for Fiscal 1993, the Company did not record any income from debt relief, $11,431 in interest income (net of interest expense), $60,451 in bad debt expenses, and $38,929 in losses on disposition of assets. As a result, the Total Other Expenses showed a 57.25% decline from $87,949 in Total Other Expenses for Fiscal 1993 to $37,600 in Total Other Expenses for Fiscal 1994.
The Company's Loss From Continuing Operations Before Income Taxes declined by 3.12% from a loss of ($1,309,793) in Fiscal 1993 to a loss of ($1,350,677) in Fiscal 1994.
In addition and for Fiscal 1993, the Company recorded a Loss from Discontinued Operations of ($197,722) as the Company discontinued operations of its then subsidiary, ADC Industries Corporation ("ADC"). Subsequently the Company sold ADC to EFM Venture Group, Inc., an entity owned by Edward F. Myers, then an officer and director of the Company, for $1,000 and thereby recognized a gain of $152,784. The Company had no comparable transactions in Fiscal 1994.
This resulted in the Company recording a Net Loss of ($1,351,477) in Fiscal 1994 compared to a Net Loss of ($1,355,531) in Fiscal 1993 with Fiscal 1993 total Losses Per Share of Common (computed with Common Stock Equivalents and fully diluted) of ($0.35) compared to ($0.23) for the same period during Fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES - THE COMPANY
Several steps have been taken by the Company to reduce its liabilities, reduce cash requirements, and raise capital. The Company has been negotiating with the bank and its vendor creditors to settle its liabilities. Exten is also negotiating with investment bankers for raising of additional capital. The Company is also considering merger with other entities. No assurances can be given that any such activity will prove successful. The Company will require substantial working capital to continued synthetic bio-liver development of Xenogenex, Inc. and there can be no guarantee that the Company will be successful in obtaining any such needed financing.
During Fiscal 1995, the Company took steps to control expenses and is attempting to reduce and negotiate outstanding indebtedness.
During Fiscal 1994, the Company disposed of four real estate parcels (out of 240 then owned) in a subdivision known as the Grand Canyon Subdivision in Coconino County, Arizona. The sale was undertaken to satisfy outstanding property taxes. While this resulted in the Company recording a $28,333 loss on these sales, the action served to conserve the Company's cash and liquid resources.
The Company has also continued to pay salaries, consulting fees, and in some cases, legal fees through the issuance of the Company's Common Stock with the subsequent registration of the shares so issued on Form S-8. The Company has been forced to take these steps to conserve the Company's cash and liquid resources.
RESULTS OF OPERATIONS - ADC
During 1993 the operations of ADC Industries Corporation ("ADC") were wound up and the assets of ADC were sold by Union Bank to satisfy a portion of a loan with that bank. Subsequently, ADC was sold and later filed for bankruptcy under Chapter 7.
XENOGENEX, INC.
Xenogenex is in the development stage and produces no revenue. However, Xenogenex incurred consulting and administrative costs in the last fiscal. Xenogenex will require substantial additional capital to continue its development of the synthetic bio-liver.
ITEM 7.
ITEM 7. FINANCIAL STATEMENTS
The full text of the Company's audited financial statements for the fiscal year ended November 30, 1995 begins on page 26 of this Report.
ITEM 8.
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Within the 24-month period prior to November 30, 1995, there has not been a change of accountants or a reported disagreement with accountants on any matter of accounting principles or practices or financial statement disclosure.
PART III
ITEM 9.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Directors and Executive Officers of the Company were as of May 10, 1996:
Name Age Position Date Elected ---- --- -------- ------------ W. Gerald Newmin 58 President, CEO, Chairman Secretary & Director 12-01-95
William R. Hoelscher 59 Vice President & Director 10-25-94
Larry Bedard 51 Director 12-08-95
W. GERALD NEWMIN was retained as a consultant to the Board of Directors of the Company in June 1995. As an accommodation to the Board, Mr. Newmin was elected Acting Secretary of the Corporation on July 13, 1995, and had signature authority on checks in the absence of an officer or director. On December 1, 1995, Mr. Newmin was elected Chairman, Chief Executive Officer, and President of the Company. Mr. Newmin is a principal of Newmin Associates, specializing in mergers and acquisitions and the operational management of troubled companies. Mr. Newmin currently serves on the Board of Directors and is an investor in four companies, one of which, SYS, is a publicly-traded (OTC) on the Electronic Bulletin Board.
Mr. Newmin is currently Chairman of the Board of the International Forum of Corporate Directors, a non-profit organization which promotes corporate governance, and which is composed of over 100 Board members from companies in San Diego and all over California. From 1991 to present. Mr. Newmin has been a consultant, investor, and a director of Greene International West, Inc., an industrial manufacturing company located in Oceanside, California. From 1993 to present, Mr. Newmin has been an investor and director of Occu-Med, Inc., a managed healthcare company located in Denver, Colorado. Since 1994, Mr. Newmin has been an investor and director of SYS, a defense systems company in San Diego, California. From 1984 to 1987, Mr. Newmin was President of HealthAmerica Corporation, which was the nation's largest publicly-held HMO management company at the time. From 1977 to 1984,, Mr. Newmin was President of International Silver Company,a diversified multi-national manufacturing company which he restructured. From 1973 to 1977, Mr. Newmin was Vice President and Western Regional Director for American Medicorp, Inc. In this capacity, he was responsible for the management of 23 acute care hospitals located throughout the Western United States. From 1962 to 1973, Mr. Newmin was employed by Whittaker Corporation. Mr. Newmin was instrumental in Whittaker's entry into both the United States and International healthcare markets. At Whittaker, Mr. Newmin held various senior executive positions, including those of Chief Executive Officer of Whittaker's Production Steel Company, Whittaker Textiles Corporation, Bertram Yacht Corporation, Narmco Materials Corporation, and Anson Automotive Corporation. Mr. Newmin holds a Bachelor's degree in Accounting from Michigan State University.
WILLIAM R. HOELSCHER was elected a Director on October 25, 1994. From August 1984 to the present, Mr. Hoelscher has been the owner of Hoelscher Engineering ("HEC"). HEC provides technical support to U.S. Elevator, other elevator companies, and consulting services to legal counsel in connection elevator litigation matters. Mr. Hoelscher also is part-time consultant to Cubic Corp and provides training seminars for Cubic's U.S. Elevator division in connection with elevator design. From July 1991 to the present, Mr. Hoelscher has been President of ETC Corp, a company involved in developing ideas and inventions. From August 1984 to July 1991, Mr. Hoelscher was Vice President, Secretary, and Treasurer of Tec-Matic Corp. - a company involved in building computer interface equipment for hydraulic milling machinery; and Mr. Hoelscher was also President of Photovoltaic Energy Development, Inc. - a company involved in the development of power inverters and other accessories for use in the conversion of solar and other natural energy. During this period Mr. Hoelscher was also President of Hypec Corp. - a company involved in the design and development of a thermal to electrical energy conversion unit. In July 1984 Mr. Hoelscher retired as Director of Research and Development at U.S. Elevator Corp. Mr. Hoelscher holds a B.S. Degree in Physics from San Diego State University (1959).
MR. LARRY BEDARD was elected a Director on December 8, 1995. From November 1992 to the present Mr. Bedard has been President and CEO of La Roca International, a merchant banking firm. From June 1987 to October 1992, Mr. Bedard was a self-employed entrepreneur engaged in personal entrepreneurial activities. From 1985 to May 1987 Mr. Bedard was Chairman, Director, and Partner of Pacific International Securities of Vancouver, British Columbia. From 1982 to 1985, Mr. Bedard was Senior Vice President and Director of Corporate Finance and Partner of Dominick & Dominick of Toronto, Ontario. Mr. Bedard studied at the University of Alberta.
As per item 405 of SEC Regulation SB it should be noted that during the fiscal year ended November 30, 1995, the Company has no record of the timely filing of Statements of Changes in Beneficial Ownership of Securities forms (Form 3 and Form 4) on one or more occasions by the following: none.
ITEM 10.
ITEM 10. EXECUTIVE COMPENSATION
During fiscal 1995, the Company paid the following compensation to the Company's Officers and Directors:
CASH COMPENSATION: Fiscal 1995 -----------
W. Gerald Newmin $0 William R. Hoelscher $0 Larry Bedard $0
STOCK COMPENSATION:
Officer Date of Issue Number of Shares - ------- ------------- ----------------
William R. Hoelscher 08-17-96 36,000 W. Gerald Newmin, President 07-12-95(1) 486,000
(1.) Date of initial issuance.
STOCK OPTION COMPENSATION
In addition to the cash and stock compensation reported above, the Company's Board of Directors voted to issue options to purchase shares of the Company's Common Stock (par value $0.01) to the following Officers and Directors of the Company in lieu of cash compensation during fiscal 1995:
ITEM 11.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 10, 1996, the Company's Directors, Officers and over 5% shareholders held beneficially the following shares of Common Stock or of beneficial interest. Numbers of shares have been adjusted for 1:7 reverse split effective August 31, 1990 and the reverse split of 1:2 August 10, 1991 and a reverse split of 1:10 on November 30, 1992.
Common % Name Title Shares Class1 - --------------------------------------------------------------------------------
W. Gerald Newmin(2) President, CEO, Chairman & Secretary 586,000 2.50%
William R. Hoelscher Director & Treasurer 972,000 4.14%(3)
Larry Bedard Director 0 0%
All Officers and Directors as a Group _________ _____ (3 persons) 1,558,000 6.64% ____________________ Footnotes:
(1) Based on 23,462,205 shares of the Company's Common Stock outstanding as of November 30, 1995 and stock option shares currently executable by officers, directors, and affiliates within 60 days of May 10, 1996 without including the effect of any other stock options.
(2) Includes shares held by Newmin & Associates, an entity owned by W. Gerald Newmin, the Company's President, CEO, Chairman and Secretary.
(3) Includes 800,000 shares underlying 800,000 options granted William Hoelscher.
STOCK OPTIONS OUTSTANDING:1
Amount of Exercise Expiration Name Position Stock Option Price Date - ---- -------- ------------ --------- ---------- Malcolm D. Campbell Past CFO, Secretary 300,000 $0.50 08/26/03 Arnold Hunsberger Former Director 400,000 $0.10 11/13/00 Arnold Hunsberger Former Director 400,000 $0.06 07/24/98 William R. Hoelscher Director 400,000 $0.10 11/13/00 William Hoelscher Director 400,000 $0.06 07/24/98
- -------------------- 1. Does not include options granted to other holders, totalling an additional 2,090,000 shares at exercise prices ranging from $0.10 to $0.50 per share.
All of the options expire on the date shown, and there is no provision in the grant for any extension of the exercise period beyond the expiration date shown above.
ITEM 12.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All share numbers in this section have been adjusted for the 1 for 7 reverse split effective August 31, 1990 and the 1 for 2 reverse split effective August 10, 1991 and the 1:10 reverse split effective November 30, 1992.
On February 24, 1992 the Company purchased certain helicopter technology from ETC Corporation for 50,000 shares of the Company's common stock (See "Business"). Mr. Arnold Hunsberger, who became a Company director on November 25, 1992 is an owner of ETC Corporation. The shares were valued at $5.00 per share.
On February 28, 1992, the Company exchanged 170,000 shares of common stock and 170 shares of preferred stock, convertible into 170,000 shares of common stock, for real estate in Arizona comprised of 240 buildable lots. The Company purchased the land from entities controlled by Mr. Louis Redondo. On April 30, 1992 Mr. Redondo became a member of the Company's Board of Directors. The shares were valued at an aggregate of $1,700,000.
The Company's Board of Directors on May 19, 1992 voted to issue to members of the Board of Directors options to purchase a total of 431,036 shares at $0.10 per share. These options may be exercised at any time prior to May 19, 1997.
On July 29, 1992 the Board of Directors voted to issue options to members of the Board to purchase a total of 3,600 shares of Xenogenex owned by the Company. The options are valid for five years from the time that Xenogenex is first publicly traded. The option price to be fifty percent (50%) of the initial public offering price. The Company valued these options at $0.75 per share.
On July 30, 1992 the Company sold 106,000 shares of common stock for $1.30 per share to St. Louis Fire and Marine. St. Louis Fire and Marine signed a note for $130,000 payable at $15,000 per month starting November 24, 1992. St. Louis Fire and Marine is controlled by Louis Redondo a past Company director.
On September 25, 1992 the Board of Directors voted to transfer a total of 125,000 shares of Xenogenex stock owned by the Company to members of the Company's Board of Directors as additional compensation. These shares were valued at $0.49 per share.
On January 12, 1993 the Board of Directors issued 25,000 shares of the Company's common stock to Carmine J. Bua, Esq., for legal services valued at $100,000.
On March 8, 1993 the Board issued to Malcolm D. Campbell, its president 50,000 shares of its common stock in lieu of salary. The shares were valued at $0.50 per share.
On April 20, 1993 the Board issued to Carmine J. Bua, Esq. 5,000 shares of its common stock for legal services. The shares were valued at $3.00 per share.
In May 7, 1993 the Company issued to Carmine J. Bua, Esq., 50,000 shares of common stock for legal services. The shares were valued at $1.75 per share.
On May 24, 1993 the Board issued to Malcolm D. Campbell, its president, 50,000 shares of common stock in lieu of salary. The shares were valued at $1.75 per share.
On August 26, 1993 Exten's Board of Directors awarded an option to its president, Malcolm D. Campbell, for 300,000 common shares exercisable at $0.50 until August 26, 1998.
On August 26, 1993 the Board issued to Carmine J. Bua, Esq., its then vice president, 100,000 shares of common stock for legal services. The shares were valued at $0.75 per share.
On September 23, 1993 the Board issued to Carmine J. Bua, Esq., its then vice president, 563,000 of the Company's common stock for legal services. The shares were valued at $0.50 per share.
On January 4, 1994, the Company's Board of Directors approved a loan of $250,000 to the Company's subsidiary, Xenogenex, Inc. by the Company's then President and CEO, Robert H. Goldsmith through the R. H. Goldsmith Living Trust. The Board also approved a Consulting Agreement with Goldsmith providing for the issuance of 288,333 shares of the Company's Common Stock for consulting services. These shares were valued at $0.875 per share with 144,167 shares to be issued on January 1, 1996 and 144,166 to be issued on January 1, 1997. All of these shares were valued at $0.875 per share.
On March 1, 1994, the Company's Board of Directors approved the issuance of: (i.) 94,476 shares of the Company's common stock to Malcolm D. Campbell, then an officer and director of the Company, in lieu of payment of $62,000 in cash salary payments; and (ii.) 38,095 shares of the Company's Common Stock to Robert H. Goldsmith, the Company's then President, in lieu of cash salary payments. All of these shares were valued at $0.65 per share.
On June 14, 1994, the Company's Board of Directors authorized the issuance of 160,000 shares of the Company's Common Stock to Carmine J. Bua, Esq., then an officer of the Company in exchange for legal services. The legal services were valued at $80,000.
On July 29, 1994, the Company's Board of Directors authorized the issuance of 10,000 shares of the Company's Common Stock to Arnold Hunsberger, then an officer and Director of the Company and 6,667 shares of the Company's Common Stock to Ken Krul, then a Director of the Company. The shares issued to Mr. Hunsberger were valued at $1,250 and the shares issued to Mr. Krul were valued at $8,333.
On October 25, 1994, the Company's Board of Directors approved an employment agreement with the Company's then President, Kevin G. Smith. Under the terms of the agreement, Mr. Smith receives 40,000 shares of the Company's Common Stock for each month of his employment for a period of up to twelve months from and after November 1, 1994. In addition, the Company also granted Mr. Smith the right to receive 250,000 Shares of the Company's common stock upon the Company's acceptance of the first three months of Mr. Smith's employment from November 1, 1994 and an additional 250,000 shares of the Company's Common Stock for an additional three months of employment from March 1, 1995. The Company is obligated to register (on Form S-8) all shares issued to Mr. Smith so as to ensure that the shares are freely-tradeable. All of the shares issued to Mr. Smith are valued at $0.10 per share.
On January 10, 1995, the Company's Board of Directors voted to: (i.) issue 500,000 shares of the Company's Common Stock to Kevin G. Smith, the Company's then President, in exchange for services rendered to the Company; and (ii.) 710,000 shares of the Company's Common Stock to Margaret Rawlinson for consulting services rendered. All of these shares were valued at $0.10 per share and the Company registered Mr. Smith's Shares on Form S-8 and Ms. Rawlinson's shares pursuant to Regulation S. In addition, the Company's Board of Directors voted to issue 350,000 shares of the Company's Common Stock to William E. Daniel in exchange for services rendered to the Company. These shares were valued at $0.10 per share and the Company registered the Shares on Form S-8.
On February 7, 1994, the Company's Board of Director's granted Robert H. Goldsmith, then President of the Company, an option to purchase a total of 1,000,000 shares of common stock at a price of eighty-one and one-quarter cents ($.8125) per share exercisable for the period beginning February 8, 1994 and ending February 7, 2004 for cash payment or a promissory note payable within ninety (90) days. On April 1, 1994 the option was exercised and one million (1,000,000) shares of the Company's common stock was issued. The shares were not paid for within the ninety (90) days set forth in the option agreement. As a result, the Company established a receivable for the amount due the Company for this exercised option. The Board also approved the issuance of 1,000,000 shares of the Company's Common Stock to Mr. Goldsmith subject to Mr. Goldsmith earning these shares for future services to be rendered to the Company and certain other conditions. These shares were valued at $0.8125 per share.
On April 7, 1995, the Company's Board of Directors voted to issue the following shares for services rendered to the Company: (i.) 200,000 shares to the Company's then President, Kevin G. Smith; (ii.) 150,000 shares to William E. Daniel; (iii.) 56,250 shares to Arnold Hunsberger, a then Director of the Company; and (iv.) 112,500 shares to William R. Hoelscher, a Director of the Company. All of these shares were valued at $0.15 per share. Subsequently, on August 17, 1995, Mr. Hunsberger and Mr. Hoelscher returned 56,250 and 112,500 shares respectively, in exchange for the grant an option to each of them, by the Company's Board of Directors on August 17, 1996.
On April 24, 1995, the Company's Board of Directors voted to issue the following shares for services rendered to the Company: (i.) 480,000 shares to the Company's then President, Kevin G. Smith; (ii.) 90,000 shares to Steven Broderson; (iii.) 180,000 shares to William E. Daniel; and (iv.) 75,000 shares to Craig J. Shaber, Esq. for legal services. All of these shares were valued at $0.19 per share.
On July 13, 1995, the Company's Board of Directors voted to issue 200,000 shares of the Company's Common Stock to Newmin Associates, an entity owned by the Company's President, for consulting services. These shares were valued at $0.109 per share.
On July 24, 1995, the Company's Board of Directors took the following actions:
(i.) granted Edward F. Myers, a former officer and director, an option to purchase 400,000 shares of the Company's Common Stock at an exercise price of $0.10 per share upon shipment of the second SYBIOL unit to China and upon satisfaction of other terms of a consulting agreement with the Company;
(ii.) granted Edward F. Myers, a former officer and director, an option to purchase 400,000 shares of the Company's Common Stock at an exercise price of $0.06 per share in payment of all monies past due and owing to Mr. Myers;
(iii.) issued 240,000 shares of the Company's Common Stock (valued at $0.10 per share) to Edward F. Myers, a former officer and director, in exchange for services rendered;
(iv.) issued 250,000 shares of the Company's Common Stock to Malcolm D. Campbell, a former officer and director, in exchange for $30,936.15 owed to him;
(v.) granted Arnold Hunsberger an option to purchase 400,000 shares of the Company's Common Stock at $0.10 per Share and to expire on November 13, 2000 and an option to purchase 400,000 shares of the Company's Common Stock at $0.06 per Share and to expire on July 24, 1998; and
(vi.) granted William Hoelscher an option to purchase 400,000 shares of the Company's Common Stock at $0.10 per Share and to expire on November 13, 2000 and an option to purchase 400,000 shares of the Company's Common Stock at $0.06 per Share and to expire on July 24, 1998.
On August 17, 1995, the Company's Board of Directors took the following actions:
(i.) issued 236,000 shares of the Company's Common Stock to W. Gerald Newmin, the Company's President, CEO, Chairman, and Secretary in exchange for services valued at $28,910;
(ii.) issued 52,000 shares of the Company's Common Stock to Arnold Hunsberger, a director of the Company in exchange for services valued at $6,370;
(iii.) issued 36,000 shares of the Company's Common Stock to William R. Hoelscher, a director of the Company in exchange for services valued at $4,410;
(iv.) granted Arnold Hunsberger, a then director, an option to purchase 400,000 shares of the Company's Common Stock at an exercise price of $0.06 per share at any time for a period of three years in exchange for Mr. Hunsberger's return of 412,500 shares of the Company's Common Stock to the Company;
(v.) granted William R. Hoelscher, a director, an option to purchase 400,000 shares of the Company's Common Stock an exercise price of $0.06 per share at any time for a period of three years in exchange for Mr. Hoelscher's return of 465,000 shares of the Company's Common Stock to the Company; and
(vi.) issued 720,000 shares of the Company's Common Stock to Margaret Rawlinson in exchange for consulting services valued at $0.14 per share.
On September 18, 1995, the Company's Board of Directors took the following actions:
(i.) issued 1,000,000 shares of the Company's Common Stock to Ben Johnson in exchange for investment banking services valued at $120,000;
(ii.) granted Edward F. Myers, a former officer and director an option to purchase 300,000 shares of the Company's Common Stock an exercise price of $0.10 per share at any time for a period of three years;
(iii.) issued 136,000 shares of the Company's Common Stock to W. Gerald Newmin, subsequently, the Company's Chairman and President, in exchange for services rendered; and
(iv.) issued 100,000 shares of the Company's Common Stock to Carmine J. Bua, Esq., in exchange for legal services.
The shares issued to Mr. Newmin and Mr. Bua were valued at $0.14 per share.
On November 13, 1995, the Company's Board of Directors voted to issue the following shares of the Company's Common Stock in payment for services rendered to the Company: 225,000 shares and 100,000 shares to W. Gerald Newmin and William Hoelscher, respectively. These shares were valued at $0.12 per share. The Company's Board of Directors also granted William Hoelscher and a former Director, Arnold Hunsberger, each an option to purchase up to 400,000 shares of the Company's Common Stock at an exercise price of $0.10 per share. Both options expire on November 13, 2000.
No current Officer or Director of the Company has been indebted to the Company or any of its subsidiaries in an amount in excess of $60,000.
ITEM 13.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Exhibit Description - ----------- -------------------
10 Compensation/Stock Option Agreement
24 Consent of Harlan & Boettger
27 Financial Data Schedule
REPORTS ON FORM 8-K ITEM REPORTED
On March 30, 1995 the Company filed a report on Form 8-K relating to the Company's late filing of its 1994 Form 10-KSB.
On July 11, 1995 the Company filed a report on Form 8-K relating to the resignation of the Company's then President, Kevin G. Smith and the Company's entering into a consulting agreement with Newmin Associates, an entity owned by W. Gerald Newmin.
On September 29, 1995 the Company filed a report on Form 8-K relating to the grant of a license to GroupMed International.
On November 15, 1995 the Company filed a report on Form 8-K relating to a report and audit conducted by the Company's auditors, Harlan and Boettger, as of August 31, 1995.
On December 6, 1995 the Company filed a report on Form 8-K relating to the election of W. Gerald Newmin as Chairman, President and CEO of the Company.
On December 13, 1995 the Company filed a report on Form 8-K relating to the election of Larry Bedard as a Director of the Company.
HARLAN & BOETTGER Certified Public Accountants 12626 High Bluff Drive, Suite 200 San Diego, California 92130 (619) 755-8113
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF EXTEN INDUSTRIES, INC. AND SUBSIDIARY:
We have audited the accompanying consolidated balance sheet of Exten Industries, Inc. (a Delaware corporation) and its subsidiary (Note A) as of November 30, 1995 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Exten Industries, Inc. and subsidiary as of November 30, 1995, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note M to the consolidated financial statements, the Company's default on certain loan agreements, recurring losses, decreases in working capital, and negative cash flows raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note M to the consolidated financial statements. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
/s/ Harlan & Boettger
San Diego, California February 15, 1996
HARLAN & BOETTGER Certified Public Accountants 12626 High Bluff Drive, Suite 200 San Diego, California 92130 (619) 755-8113
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Exten Industries, Inc. San Diego, California
We have audited the consolidated balance sheets of Exten Industries, Inc. and its subsidiaries as of November 30, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Exten Industries, Inc. and its subsidiaries as of November 30, 1994, and the results of their operations and cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying 1994 consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 25 to the consolidated financial statements, the Company's default on certain loan agreements, recurring losses, decreases in working capital, and negative cash flows raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 25 to the consolidated financial statements. The 1994 consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
/s/ Harlan & Boettger
March 20, 1995
EXTEN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
EXTEN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
EXTEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The consolidated financial statements includes the accounts of Exten Industries, Inc. and its 90 percent owned subsidiary Xenogenex, Inc. (together "the Company"). Minority interest represents the 10 percent minority shareholders' proportionate interest in the equity of the subsidiary. Investments in affiliated companies where the Company has the ability to exercise significant influence, are accounted for by the equity method. The Company's share of affiliates' earnings is included in the current periods profit and loss. All significant intercompany balances and transactions are eliminated.
REVENUE RECOGNITION
The Company generally recognizes revenue when services are provided over the terms of the consulting contracts entered into and from sales related to various license agreements.
BASIS OF ACCOUNTING
The Company's policy is to use the accrual method of accounting and to prepare and present financial statements which 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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets ranging from five to ten years. Maintenance, repairs and minor renewals are charged to operations as incurred. Major replacements or betterments are capitalized when property and equipment are retired or otherwise disposed, the related cost and accumulated depreciation are eliminated and any gain or loss is reflected in current years income or loss.
RESEARCH AND DEVELOPMENT
Research and development costs, consist principally of laboratory, design and development costs devoted to creating the liver technology are expensed as incurred.
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
REAL ESTATE
Real estate held for sale has been considered impaired due to the Company's operating conditions and the Company's ability to fully recover the original carrying value of the asset. The basis as of November 30, 1994 of the property includes the allocation of original purchase price and other costs of development as incurred (see Note E). Real estate taxes and interest costs have been capitalized during the development period.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of various assets for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for net operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current year presentation.
NET LOSS PER COMMON SHARE
Net loss per share is calculated using the weighted average outstanding common and common stock equivalent shares. Company stock equivalents consist of all options granted at prices below fair market value in the previous twelve months which are considered to be outstanding for all periods presented.
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
B. NOTES RECEIVABLE:
Notes receivable as of November 30, 1995 and 1994 consist of:
1995 1994 -------- -------- Notes receivable with interest rates ranging from 9.5 to 10.0 percent. Each note has an underlying note payable whereby the note receivable and note payable are considered a wrap note unit. (See Notes F and K) $ -- $2,449,872
Trust deeds, secured by real property, interest rate of10.5%, interest only monthly payments of $150, balance due April 1995. -- 18,998
Note receivable, from Teca International, Ltd. (Teca), a related party, non-interest bearing, no formal repayment date. (Note D) 83,000 83,000
83,000 2,551,870
Less current portion -- 245,025 -------- ----------
$ 83,000 $2,306,845 -------- ---------- -------- ----------
C. RECEIVABLE FROM RELATED PARTY:
On February 7, 1994 the Company granted to a former President of the Company an option to purchase a total of one million (1,000,000) shares of common stock at a price of eighty-one and one-quarter cents ($.8125) per share exercisable for the period beginning February 8, 1994 and ending February 7, 2004 for cash payment or a promissory note payable within ninety (90) days.
On April 1, 1994 the option was exercised and one million (1,000,000) shares of the Company's common stock was issued. The shares were not paid for within the ninety (90) days set forth in the option agreement. As a result, a receivable has been established for the amount due the Company for this exercised option.
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
D. PROPERTY AND EQUIPMENT:
Property and equipment as of November 30, 1995 and 1994 consists of:
E. INVESTMENTS:
Investments as of November 30, 1995 and 1994 are as follows:
During January, 1994, the Company, together with an unaffiliated entity, formed Teca International, Ltd. (Teca), under Hong Kong laws. The business purpose of Teca is to manufacture, market and sell in Asia, Australia and New Zealand clinical devices licensed from Xenogenex, Inc. The Company's investment as of November 30, 1995 represents its 18.6% interest in Teca, which is accounted for under the equity method of accounting.
During 1992, the Company issued shares of its common stock for all the rights, title, interest in the helicopter control technology recorded on its books. The Company as of November 30, 1995 has considered the helicopter control technology to be impaired as described within Statement Financial Accounting Standard (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Company believes that changes in operating conditions raise doubt about the Company to fully recover the carrying value of the helicopter control technology and therefore has decided to write off the helicopter technology for the current period.
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
E. INVESTMENTS (CONTINUED):
During August, 1995 the Company entered into a license agreement with GroupMed International (GMI), a publicly traded company, to manufacture, market, use, distribute and sell the Company's artificial liver technology in Mexico, Central and South America. In exchange for the license agreement, the Company received 250,000 share of GMI common stock and an ongoing royalty payment. The Company recorded the investment in GMI stock at the trading value on the date of execution ($4.00 per share), less a discount of $400,000 due to the restricted nature of the shares held by the Company.
As of November 30, 1995 GMI stock was trading at a price of $0.40 per share. The Company therefore adjusted the value of the investment accordingly to market value with a discount of 40% which approximates $40,000. Additionally, the Company has entered into negotiations for the rescission of the license agreement with GMI and the Company's return of the restricted shares for the liver technology agreement. The Company will continue to offer GMI the opportunity to purchase the license agreement for proper monetary payment if GMI so desires.
As of November 30, 1995 the company has written off $9,000 investment in timeshare. The Company believes that the timeshare has a net realizable value equal to zero and is properly accounting for the disposal as a loss.
F. REAL ESTATE HELD FOR SALE:
Real estate as of November 30, 1995 and 1994 consists of:
1995 1994 --------- -----------
Real estate - Grand Canyon area $ 354,000 $ 1,671,667 --------- -----------
$ 354,000 $ 1,671,667 --------- ----------- --------- -----------
The Company believes that changes in operating conditions raise doubts about the company's ability to fully recover the carrying value of the real estate held for sale. It has been determined that the carrying value of the land will not be fully recovered, and therefore the asset is considered to be impaired under the requirements of SFAS 121.
The Company believes that there has been a significant decrease in the asset's market value in light of the Company's current operations and managements estimate of fair market value has changed because of the change in the lands use. The Company intends on the sale and disposition of the real estate in the most profitable and cost effective manner. Management of the Company believes that an impairment loss of approximately $1,300,000 should be recognized on the real estate held.
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
G. NOTES PAYABLE:
Notes payable at November 30, 1995 and 1994 consist of the following:
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
G. NOTES PAYABLE (CONTINUED):
A former President filed suit against the Company in January, 1995 seeking damages, declaratory relief and punitive damages arising out of the Company's alleged failure to pay the promissory notes, breach of employment contract and fraud. The Company is negotiating payment terms associated with the mediated judgement and settlement. The former President has subsequent to year end filed another injunction against the Company in the state of Arizona relative to the real estate for sale as satisfaction for the amounts due him. Approximately $350,000 of amount owed to the former President has common stock held in escrow by the Company relative to the obligation under the mediated judgement and settlement.
As of November 30, 1995, the Company is in default on its repayment of the loan agreement with a commercial bank. The bank received a judgement against the Company for $333,000, and for fees associated with the collection of the loans. The fees are estimated at $35,000, and are included in the accompanying financial statements as an accrued expense.
H. SUBSCRIPTIONS RECEIVABLE:
During the twelve months ended November 30, 1995, the Company sold under various stock purchase agreements 2,000,000 shares of its common stock and received promissory notes for $165,000. The notes call for payment to be made within 6 months of issuance, including interest accrued.
Accordingly, the subscribed stock is reflected in the accompanying financial statements as of November 30, 1995 as a separate component of stockholders equity, net of any subscriptions receivable.
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
I. INCOME TAXES:
The Company's total deferred tax asset as of November 30, 1995 is as follows:
------------ Net operating loss carryforwards $ 1,900,000 Valuation allowance (1,900,000) ------------
Net deferred tax asset $ -- ------------ ------------
As of November 30, 1995 the Company had net operating loss carryforwards before any limitations which expires as follows:
Year Ending November 30, Federal ------------ ----------- 2004 $ 259,000 2005 $ 56,000 2006 $ 931,000 2007 $ 820,000 2008 $ 1,584,000 2009 $ 1,580,000
J. STOCKHOLDERS' EQUITY:
STOCK FOR SERVICES
During the twelve months ended November 30, 1995, the Company authorized and issued approximately 11,000,000 shares of common stock in exchange for consulting, payroll, directors fees and other services provided.
Approximately 1,600,000 shares authorized and issued during the year ended November 30, 1995 is for future services to be performed under contractual agreements. The $160,000 is included as a prepaid expense as of November 30, 1995.
In April 1994 1,000,000 shares of common stock was issued to a former President of the Company as part of his employment agreement. The compensation of 1,000,000 shares was subject to certain conditions. Subsequent to termination it was determined that the conditions for the issuance of the common stock were not met. The Company is in the process of obtaining the 1,000,000 shares of common stock. The shareholder has agreed to return these shares and, accordingly, these shares are not included in the common stock outstanding.
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
J. STOCKHOLDERS' EQUITY (CONTINUED):
STOCK OPTIONS
The Company has granted common stock options to various individuals, officers and directors of the Company in return for various services rendered to the Company.
Changes during the twelve months ended November 30, 1995, of common stock options was as follows:
Shares Price Range ----------- -------------
Outstanding at November 30, 1994 590,000 $.10 - $.50
Granted 3,200,000 $.06 - $.10
Exercised 200,000 $0.06
Outstanding at November 30, 1995 3,790,000 $.10 - $.50
K. COMMITMENTS AND CONTINGENCIES:
The Company leases its office space under a year to year operating lease.
The Company has been named as defendant in several legal proceedings and litigation arising in the ordinary course of business. Significantly all of these proceedings are a result of non payment of accounts payable and notes payable. In the opinion of management, the outcome of such proceedings and litigation will not materially affect the company's results of operations or financial position. Based upon the opinion of legal counsel, all amounts represented in the legal proceedings and litigation have been reflected in the accounts payable and notes payable of the Company as of November 30, 1995.
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
L. WRAP NOTES:
As of November 30, 1995, the Company has determined that the wrap notes (Notes B & F) and associated equity purchased during 1992 have an undeterminable value. The Company believes that a valuation allowance should be established for the entire amounts relative to the wrap notes receivable and payable balances. The Company has recognized the loss associated with the wrap notes in the amount of $356,741 for the year ended November 30, 1995. This increase for reserves of $356,741 has been reflected within general and administrative expenses in the accompanying consolidated statement of operations for the year ended November 30, 1995.
M. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information for the years ended November 30, 1995 and 1994 are summarized as follows:
1995 1994 --------- ---------
Cash paid for interest and income taxes:
Interest $ 14,752 $ 27,982 Income taxes $ 800 $ 800
Noncash investing and financing activities: Sale of Sybiol license $(60,000) $ --
EXTEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
N. GOING CONCERN:
The Company has had recurring losses from operations, and as of November 30, 1995, the Company's current liabilities exceeded its current assets by approximately $400,000. In addition, the Company had negative cash flows for the year ended November 30, 1995 and significant continuing losses. Furthermore, a judgement against the Company, as one of five guarantors arising out of a loan obtained from a bank on the repayment of three loans, has been received in the amount of $333,000 (See Note G), the Company has a mediated judgement against itself from a former officer and director for approximately $388,000 and the Company is in arrears on accounts with creditors. These factors create an uncertainty as to the Company's ability to continue as a going concern.
Several steps have been taken by the Company to reduce its liabilities, reduce its cash requirements, and raise capital. The Company is considering merging with other entities, and has been negotiating with the bank and creditors to settle its liabilities outstanding. The Company has also entered in various agreements to pay for services from consultants and others with common stock of the Company.
The ability of the Company to continue as a going concern is dependent upon its ability to settle the bank judgement, mediated judgement, and accounts payable to its creditors, its endeavors to seek additional sources of capital, and its attaining future profitable operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
O. SUBSEQUENT EVENTS
During February, 1996 the Company received notice that it was in default on the wrap notes (Notes B & F) and that payment was due in the amount of $135,000 to the holders of the notes. Numerous discussions with experts in the real estate field has left the Company to determine that at the present time proper accounting would require that the wrap notes be written off to a net realizable value of zero.
P. ADJUSTMENT TO 1994
Subsequent to the issuance of the 1994 financial statements the Company discovered that a stock option granted of 1,000,000 shares of common stock granted to a former President of the Company had been exercised on April 1, 1994. Accordingly, the Company has adjusted stockholders' equity $812,500 as a result of this transaction. (See Note C)
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 16th day of May 1996.
EXTEN INDUSTRIES, INC.
By: /s/ W. GERALD NEWMIN -------------------------- W. Gerald Newmin President, CEO, Chairman, and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ----
/s/ W. GERALD NEWMIN - --------------------- W. Gerald Newmin President, CEO, Chairman & Secretary 05/16/96
/s/ WILLIAM R. HOELSCHER - -------------------------- William R. Hoelscher Director & Treasurer 05/16/96
/s/ LARRY BEDARD - ----------------- Larry Bedard Director 05/16/96
LIST OF SUBSIDIARIES
As of May 10, 1996, the registrant had one subsidiary, Xenogenex, Inc.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit - ----------- ----------------------
10 Compensation/Stock Option Agreement
24 Consent of Harlan & Boettger
27 Financial Data Schedule