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Saturday, February 07, 2004 10:45:09 AM
Form 10KSB on 6-Feb-2004 in part
http://biz.yahoo.com/e/040206/exti.ob10ksb.html
6-Feb-2004
Annual Report
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Annual Report on Form 10-KSB contains forward-looking statements that involve risks and uncertainties. These statements are based on certain assumptions that may prove to be erroneous and are subject to certain risks including, but not limited to, the Company's ability to complete and fund its research and development. The Company's actual results may differ significantly from the results discussed in the forward-looking statements.
Overview
Exten Industries, Inc. (the Company) (OTCBB-EXTI) is a Rhode Island based medical products holding company whose focus is on the production and application of immortalized human liver cells in the treatment of liver disease. MultiCell Technologies, Inc. (MultiCell), a wholly owned subsidiary of the Company, is a global leader in producing immortalized human liver cells (hepatocytes). Xenogenics Corporation (Xenogenics) is a majority owned subsidiary that is developing a proprietary bio-artificial liver support device that utilizes MultiCell's immortalized cells.
Hepatocytes are the most bio-chemically complex cells in the human body and play an important role in the use and creation of carbohydrates, amino acids, proteins, lipids and nucleic acids. The hepatocyte is also the major player in the activation or inactivation of foreign toxic substances (xenobiotics). Understanding how the human body will react to foreign substances entering the body is a major part of all pharmaceutical and chemical development. If a pharmaceutical company can understand how the liver reacts to a substance early in the new drug development cycle, potentially millions of development dollars and years of time can be saved.
______________________________________________________________________________
MultiCell's immortalized liver cells have demonstrated the ability to replace the need for continuous procurement and quality testing of primary cells from donated human livers and the use of animal cells. Expanded from MultiCell cell banks these cell lines have significant cost and quality control advantages over primary cell sources. MultiCell's proprietary human immortalized hepatic cell lines radically differ from other immortalized cell lines in that they regenerate while maintaining liver function. A prolific cell without function is of no value. These cell lines provide a consistent and functional resource for drug discovery and toxicology research, and can also be applied to liver tissue regeneration. Additionally, MultiCell's cell lines produce therapeutic proteins that we believe may ultimately be used in new medicines
In August, 2003, MultiCell signed an exclusive sales, manufacture and distribution agreement for the use of its cell lines by XenoTech, which is an unrelated party. The agreement, which is for a term of seven years, required XenoTech to make an initial payment of $800,000 to MultiCell in August 2003 for the right to distribute the cells and requires XenoTech to make royalty payments to MultiCell of 17.5% of net sales for the direct sale of its cells and 34% for any license agreements signed with pharmaceutical companies. XenoTech must bear all the costs for its manufacturing and sales activities and make specified minimum periodic royalty payments which total $18 million during the contract to maintain distribution exclusivity. XenoTech also made a $700,000 royalty prepayment in August 2003 as an advance against the minimum royalty payment of $800,000 for the first royalty period which will be 16 months. The subsequent 5 royalty periods will be 12 months and the last royalty period is 8 months. MultiCell will only receive cash payments initially for 25% of the royalties it earns under the agreement with the balance applied against the $700,000 royalty prepayment with the remaining periods being twelve months. MultiCell will repay the $700,000 by receiving 25% of each royalty dollar until it is repaid.
XenoTech has distribution agreements with numerous companies for a variety of pharmaceutical and laboratory products and also performs contract research for pharmaceutical companies. These services position XenoTech to distribute our cell lines. They utilize direct sales presentations, telemarketing, and direct mail to promote and sell our cells. Additionally, since they have a number of respected scientists and have developed compelling efficacy data for our cells, they frequently give presentations at conferences which help develop sales leads.
MultiCell is also developing cell-related platform technologies and products to treat a variety of liver diseases and has identified four clinically relevant applications for its cell-based products:
* High through-put screening assays for drug discovery, lead optimization,
and pharmacogenomic studies
* Production of natural therapeutic plasma proteins
* Cell transplantation to treat metabolic liver deficiencies
* Cellular component of liver assist devices used to treat patients
suffering from acute and chronic liver failure
Even with the new agreement with XenoTech, we have operated and will continue to operate by minimizing expenses. The largest expenses relate to personnel and to meeting the legal and reporting requirements of being a public company. By utilizing consultants whenever possible, and asking employees to manage multiple responsibilities, operating costs are kept low. Additionally, a number of employees and the board of directors receive company stock in lieu of cash as part of their compensation to help in the effort to minimize monthly cash flow.
We intend to gradually add scientific and support personnel. We want to add specialists for our key research areas.
These strategic additions will help us expand our product offerings leading us to additional revenues and profits. Of course as revenues increase, administrative personnel will be necessary to meet the added workload. Other expenses, such as sales and customer service, will increase commensurate with increased revenues.
The Application of Critical Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Research and Development - Company sponsored research and development costs related to future products and redesign of present products are expensed as incurred.
License Agreements - costs incurred to obtain license agreements are capitalized and amortized on a straight-line basis over the term of the respective agreement.
______________________________________________________________________________
Revenue Recognition - As of November 30, 2003, the Company's revenues have been generated primarily from contractual research activities and the sale of cells. Management believes such sources of revenue will be part of the Company's ongoing operations. The Company applies the guidance provided by Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended, (SAB 101). Under the provision of SAB 101, the Company recognizes revenue from commercial and government research agreements as services are performed, provided a contractual agreement exists, the contract price is fixed or determinable and the collection of the contracted amounts is probable. In situations where the Company receives payment in advance of the performance of services, such amounts are deferred and recognized as revenue as the related services are performed.
Stock-Based Compensation - Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation' provides for the use of a fair value based method of accounting for stock-based compensation. However, SFAS 123 allows an entity to continue to measure compensation costs related to stock and stock options issued to employees using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock issued to Employees. Entities electing to continue to use the intrinsic value method must make pro forma disclosures of net income or loss and earnings or loss per share as if a fair value method of accounting had been applied. The Company has elected to continue to account for its stock-based compensation to employees under APB 25. In accordance with the provisions of SFAS 123, all other issuances of common stock, stock options, warrants or other equity instruments to employees and non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured). Generally, the fair value of any options, warrant or similar equity instruments issued will be estimated based on the Black-Scholes option-pricing model.
Long-Lived Assets - Long-lived assets that do not have indefinite lives, such as property and equipment and license agreements, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses for assets to be held and used are then measured based on the excess, if any, of the carrying amounts of the assets over their fair values. Long-lived assets to be disposed of in a manner that meets certain criteria are stated at the lower of their carrying amounts or fair values less costs to sell and are no longer depreciated.
In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123 (SFAS 148). SFAS 148 amends FASB Statement No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. However, management does not expect the Company to make such a change. In addition, SFAS 148 amended the disclosure requirements of FASB Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has included the disclosures required by SFAS 148 in Note 10 to the Consolidated Financial Statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 was effective for interim periods beginning after June 15, 2003.
The adoption of these new pronouncements did not have or is not expected to have a material effect on the Company's consolidated financial position or results of operations.
Results of Operations.
The following discussion is included to describe our consolidated financial position and results of operations. The consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.
Year Ended November 30, 2003, Compared to Year Ended November 30, 2002
Revenues. Total revenues decreased to $365,166 for the fiscal year ended November 30, 2003 compared to $804,538 for the fiscal year ended November 30, 2002. These revenues came primarily from the sale of our cell lines to pharmaceutical companies and the rights payment and pre-royalty payment from XenoTech. Although MultiCell received a total of $1,500,000 in cash as part of the XenoTech Agreement, $800,000 is recognized as revenue over the life of the seven-year agreement and $700,000 is recognized as revenue over the first sixteen months of the agreement. We have negotiated a license agreement with Pfizer allowing them to continue to use our cell lines for research now that the collaborative research project that took place in 2002 has been completed.
______________________________________________________________________________
Operating Expenses. Total operating expenses decreased to $1,973,137 for the fiscal year ended November 30, 2003 from $2,241,310 for the fiscal year ended November 30, 2002. The decrease is primarily due to the reduction of expenses associated with consolidating facilities and reducing personnel at the beginning of the fiscal year. These reduced expenses are reflected in selling, general and administrative expenses, research and development costs and depreciation and amortization.
The decrease of $200,793 in selling, general and administrative expenses for the fiscal year ended November 30, 2003 over the prior year is primarily attributable to reduced staff and operational expenses at MultiCell and Exten. The decrease of $66,531 in research and development compared to the prior year expenses is attributable primarily to lab personnel reductions. Depreciation and amortization did not change materially.
Other income/expense. Interest expense for the fiscal year ended November 30, 2003, was $205,144, which represents an increase of $80,680 over the prior fiscal year. This increase is attributable to interest expense incurred on the funds borrowed for the acquisition and operation of MultiCell, as well as other new notes payable which were not outstanding during the prior year. Interest income for the fiscal year ended November 30, 2003, was $63,971, as compared to $74,731 for the prior year. This decrease is attributable to less interest paid on notes receivable from loans made in prior years and during the current fiscal year. The amortization of the discount on notes payable for the fiscal year ended November 30, 2003, was $251,351, as compared to $132,142 for the prior year. The increase is due to acceleration of the discount due to note conversions during the fiscal year. Minority interest in loss of subsidiary for the fiscal year ended November 30, 2003 was $1,067, as compared to $12,334 for the prior year. This decrease is due to the subsidiary's decrease in activity and resultant decrease in its loss this year.
Net loss. Net loss for the fiscal year ended November 30, 2003, was $1,984,053, as compared to a net loss of $1,576,663 for the prior year, representing an increase in net loss of $407,390. This increase is attributable primarily to the lower revenues attained during the year as we transitioned into commercialization of our cell lines, which was only partially offset by greater expense reductions associated with consolidation and personnel reductions.
Liquidity and Capital Resources
Our cash needs have been managed primarily through the issuance of debt or equity instruments. During the last quarter of the fiscal year, the Company received $1,500,000 cash from XenoTech for the rights to distribute our cell lines and prepayment of royalties. This cash along with royalties, substantially improved the Company's liquidity position. The additional royalties we will now begin to receive from these sales by XenoTech may be large enough to cover our cash requirements for ongoing operations. The Company is maintaining a conservative fiscal policy until it can ascertain the level of royalty payments above the annual minimums. Additionally, the Company is discussing additional equity investments. However, there can be no assurance that the Company will be able to successfully acquire the necessary capital to continue its ongoing research efforts.
During Fiscal Year 2003, thirty-five Promissory Notes, with a carrying value of $945,500 in principal and $117,655 of interest were converted into 7,588,422 shares of Exten Common Stock. The notes were converted at $.07, $.10, $.15, and $.20 per share depending on the amount of time that the note was held by the creditor. Additionally, 2,443,166 incentive and non-qualified stock options were exercised by employees and directors generating $270,763 in cash for the Company.
Research Agreements
In October 2002, MultiCell Technologies was awarded a Phase I Small Business Innovation Research (SBIR) grant from the National Institutes of Health to study the production of therapeutic plasma proteins by immortalized, non-tumorigenic human hepatocytes. The aim of the SBIR award is to compare the function of MultiCell's hepatocyte-derived products to recombinant and plasma-derived therapeutic plasma proteins. The grant is for $133,000 and will be paid over the grant period of one year as the work is performed.
Notes Payable
During Fiscal Year 2003, the Company received a total of $184,981 from thirteen convertible promissory notes with interest accruing at 10% per annum. The principal and interest are payable from three to five years after the inception of the notes. The lenders may convert the principal and any unpaid interest due into the Company's common stock. The conversion price varies from $.10 to $.20 per share. Additionally, the Company issued 2,216,250 common stock warrants exercisable at $.10 per share should the notes be converted. The Company did not increase additional paid-in capital based on the fair value of the warrants or reduce the carrying value of the convertible promissory notes payable. At the time of issuance, the fair value of the warrants was $0.
http://biz.yahoo.com/e/040206/exti.ob10ksb.html
6-Feb-2004
Annual Report
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Annual Report on Form 10-KSB contains forward-looking statements that involve risks and uncertainties. These statements are based on certain assumptions that may prove to be erroneous and are subject to certain risks including, but not limited to, the Company's ability to complete and fund its research and development. The Company's actual results may differ significantly from the results discussed in the forward-looking statements.
Overview
Exten Industries, Inc. (the Company) (OTCBB-EXTI) is a Rhode Island based medical products holding company whose focus is on the production and application of immortalized human liver cells in the treatment of liver disease. MultiCell Technologies, Inc. (MultiCell), a wholly owned subsidiary of the Company, is a global leader in producing immortalized human liver cells (hepatocytes). Xenogenics Corporation (Xenogenics) is a majority owned subsidiary that is developing a proprietary bio-artificial liver support device that utilizes MultiCell's immortalized cells.
Hepatocytes are the most bio-chemically complex cells in the human body and play an important role in the use and creation of carbohydrates, amino acids, proteins, lipids and nucleic acids. The hepatocyte is also the major player in the activation or inactivation of foreign toxic substances (xenobiotics). Understanding how the human body will react to foreign substances entering the body is a major part of all pharmaceutical and chemical development. If a pharmaceutical company can understand how the liver reacts to a substance early in the new drug development cycle, potentially millions of development dollars and years of time can be saved.
______________________________________________________________________________
MultiCell's immortalized liver cells have demonstrated the ability to replace the need for continuous procurement and quality testing of primary cells from donated human livers and the use of animal cells. Expanded from MultiCell cell banks these cell lines have significant cost and quality control advantages over primary cell sources. MultiCell's proprietary human immortalized hepatic cell lines radically differ from other immortalized cell lines in that they regenerate while maintaining liver function. A prolific cell without function is of no value. These cell lines provide a consistent and functional resource for drug discovery and toxicology research, and can also be applied to liver tissue regeneration. Additionally, MultiCell's cell lines produce therapeutic proteins that we believe may ultimately be used in new medicines
In August, 2003, MultiCell signed an exclusive sales, manufacture and distribution agreement for the use of its cell lines by XenoTech, which is an unrelated party. The agreement, which is for a term of seven years, required XenoTech to make an initial payment of $800,000 to MultiCell in August 2003 for the right to distribute the cells and requires XenoTech to make royalty payments to MultiCell of 17.5% of net sales for the direct sale of its cells and 34% for any license agreements signed with pharmaceutical companies. XenoTech must bear all the costs for its manufacturing and sales activities and make specified minimum periodic royalty payments which total $18 million during the contract to maintain distribution exclusivity. XenoTech also made a $700,000 royalty prepayment in August 2003 as an advance against the minimum royalty payment of $800,000 for the first royalty period which will be 16 months. The subsequent 5 royalty periods will be 12 months and the last royalty period is 8 months. MultiCell will only receive cash payments initially for 25% of the royalties it earns under the agreement with the balance applied against the $700,000 royalty prepayment with the remaining periods being twelve months. MultiCell will repay the $700,000 by receiving 25% of each royalty dollar until it is repaid.
XenoTech has distribution agreements with numerous companies for a variety of pharmaceutical and laboratory products and also performs contract research for pharmaceutical companies. These services position XenoTech to distribute our cell lines. They utilize direct sales presentations, telemarketing, and direct mail to promote and sell our cells. Additionally, since they have a number of respected scientists and have developed compelling efficacy data for our cells, they frequently give presentations at conferences which help develop sales leads.
MultiCell is also developing cell-related platform technologies and products to treat a variety of liver diseases and has identified four clinically relevant applications for its cell-based products:
* High through-put screening assays for drug discovery, lead optimization,
and pharmacogenomic studies
* Production of natural therapeutic plasma proteins
* Cell transplantation to treat metabolic liver deficiencies
* Cellular component of liver assist devices used to treat patients
suffering from acute and chronic liver failure
Even with the new agreement with XenoTech, we have operated and will continue to operate by minimizing expenses. The largest expenses relate to personnel and to meeting the legal and reporting requirements of being a public company. By utilizing consultants whenever possible, and asking employees to manage multiple responsibilities, operating costs are kept low. Additionally, a number of employees and the board of directors receive company stock in lieu of cash as part of their compensation to help in the effort to minimize monthly cash flow.
We intend to gradually add scientific and support personnel. We want to add specialists for our key research areas.
These strategic additions will help us expand our product offerings leading us to additional revenues and profits. Of course as revenues increase, administrative personnel will be necessary to meet the added workload. Other expenses, such as sales and customer service, will increase commensurate with increased revenues.
The Application of Critical Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Research and Development - Company sponsored research and development costs related to future products and redesign of present products are expensed as incurred.
License Agreements - costs incurred to obtain license agreements are capitalized and amortized on a straight-line basis over the term of the respective agreement.
______________________________________________________________________________
Revenue Recognition - As of November 30, 2003, the Company's revenues have been generated primarily from contractual research activities and the sale of cells. Management believes such sources of revenue will be part of the Company's ongoing operations. The Company applies the guidance provided by Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended, (SAB 101). Under the provision of SAB 101, the Company recognizes revenue from commercial and government research agreements as services are performed, provided a contractual agreement exists, the contract price is fixed or determinable and the collection of the contracted amounts is probable. In situations where the Company receives payment in advance of the performance of services, such amounts are deferred and recognized as revenue as the related services are performed.
Stock-Based Compensation - Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation' provides for the use of a fair value based method of accounting for stock-based compensation. However, SFAS 123 allows an entity to continue to measure compensation costs related to stock and stock options issued to employees using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock issued to Employees. Entities electing to continue to use the intrinsic value method must make pro forma disclosures of net income or loss and earnings or loss per share as if a fair value method of accounting had been applied. The Company has elected to continue to account for its stock-based compensation to employees under APB 25. In accordance with the provisions of SFAS 123, all other issuances of common stock, stock options, warrants or other equity instruments to employees and non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured). Generally, the fair value of any options, warrant or similar equity instruments issued will be estimated based on the Black-Scholes option-pricing model.
Long-Lived Assets - Long-lived assets that do not have indefinite lives, such as property and equipment and license agreements, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses for assets to be held and used are then measured based on the excess, if any, of the carrying amounts of the assets over their fair values. Long-lived assets to be disposed of in a manner that meets certain criteria are stated at the lower of their carrying amounts or fair values less costs to sell and are no longer depreciated.
In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123 (SFAS 148). SFAS 148 amends FASB Statement No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. However, management does not expect the Company to make such a change. In addition, SFAS 148 amended the disclosure requirements of FASB Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has included the disclosures required by SFAS 148 in Note 10 to the Consolidated Financial Statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 was effective for interim periods beginning after June 15, 2003.
The adoption of these new pronouncements did not have or is not expected to have a material effect on the Company's consolidated financial position or results of operations.
Results of Operations.
The following discussion is included to describe our consolidated financial position and results of operations. The consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.
Year Ended November 30, 2003, Compared to Year Ended November 30, 2002
Revenues. Total revenues decreased to $365,166 for the fiscal year ended November 30, 2003 compared to $804,538 for the fiscal year ended November 30, 2002. These revenues came primarily from the sale of our cell lines to pharmaceutical companies and the rights payment and pre-royalty payment from XenoTech. Although MultiCell received a total of $1,500,000 in cash as part of the XenoTech Agreement, $800,000 is recognized as revenue over the life of the seven-year agreement and $700,000 is recognized as revenue over the first sixteen months of the agreement. We have negotiated a license agreement with Pfizer allowing them to continue to use our cell lines for research now that the collaborative research project that took place in 2002 has been completed.
______________________________________________________________________________
Operating Expenses. Total operating expenses decreased to $1,973,137 for the fiscal year ended November 30, 2003 from $2,241,310 for the fiscal year ended November 30, 2002. The decrease is primarily due to the reduction of expenses associated with consolidating facilities and reducing personnel at the beginning of the fiscal year. These reduced expenses are reflected in selling, general and administrative expenses, research and development costs and depreciation and amortization.
The decrease of $200,793 in selling, general and administrative expenses for the fiscal year ended November 30, 2003 over the prior year is primarily attributable to reduced staff and operational expenses at MultiCell and Exten. The decrease of $66,531 in research and development compared to the prior year expenses is attributable primarily to lab personnel reductions. Depreciation and amortization did not change materially.
Other income/expense. Interest expense for the fiscal year ended November 30, 2003, was $205,144, which represents an increase of $80,680 over the prior fiscal year. This increase is attributable to interest expense incurred on the funds borrowed for the acquisition and operation of MultiCell, as well as other new notes payable which were not outstanding during the prior year. Interest income for the fiscal year ended November 30, 2003, was $63,971, as compared to $74,731 for the prior year. This decrease is attributable to less interest paid on notes receivable from loans made in prior years and during the current fiscal year. The amortization of the discount on notes payable for the fiscal year ended November 30, 2003, was $251,351, as compared to $132,142 for the prior year. The increase is due to acceleration of the discount due to note conversions during the fiscal year. Minority interest in loss of subsidiary for the fiscal year ended November 30, 2003 was $1,067, as compared to $12,334 for the prior year. This decrease is due to the subsidiary's decrease in activity and resultant decrease in its loss this year.
Net loss. Net loss for the fiscal year ended November 30, 2003, was $1,984,053, as compared to a net loss of $1,576,663 for the prior year, representing an increase in net loss of $407,390. This increase is attributable primarily to the lower revenues attained during the year as we transitioned into commercialization of our cell lines, which was only partially offset by greater expense reductions associated with consolidation and personnel reductions.
Liquidity and Capital Resources
Our cash needs have been managed primarily through the issuance of debt or equity instruments. During the last quarter of the fiscal year, the Company received $1,500,000 cash from XenoTech for the rights to distribute our cell lines and prepayment of royalties. This cash along with royalties, substantially improved the Company's liquidity position. The additional royalties we will now begin to receive from these sales by XenoTech may be large enough to cover our cash requirements for ongoing operations. The Company is maintaining a conservative fiscal policy until it can ascertain the level of royalty payments above the annual minimums. Additionally, the Company is discussing additional equity investments. However, there can be no assurance that the Company will be able to successfully acquire the necessary capital to continue its ongoing research efforts.
During Fiscal Year 2003, thirty-five Promissory Notes, with a carrying value of $945,500 in principal and $117,655 of interest were converted into 7,588,422 shares of Exten Common Stock. The notes were converted at $.07, $.10, $.15, and $.20 per share depending on the amount of time that the note was held by the creditor. Additionally, 2,443,166 incentive and non-qualified stock options were exercised by employees and directors generating $270,763 in cash for the Company.
Research Agreements
In October 2002, MultiCell Technologies was awarded a Phase I Small Business Innovation Research (SBIR) grant from the National Institutes of Health to study the production of therapeutic plasma proteins by immortalized, non-tumorigenic human hepatocytes. The aim of the SBIR award is to compare the function of MultiCell's hepatocyte-derived products to recombinant and plasma-derived therapeutic plasma proteins. The grant is for $133,000 and will be paid over the grant period of one year as the work is performed.
Notes Payable
During Fiscal Year 2003, the Company received a total of $184,981 from thirteen convertible promissory notes with interest accruing at 10% per annum. The principal and interest are payable from three to five years after the inception of the notes. The lenders may convert the principal and any unpaid interest due into the Company's common stock. The conversion price varies from $.10 to $.20 per share. Additionally, the Company issued 2,216,250 common stock warrants exercisable at $.10 per share should the notes be converted. The Company did not increase additional paid-in capital based on the fair value of the warrants or reduce the carrying value of the convertible promissory notes payable. At the time of issuance, the fair value of the warrants was $0.
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