Form 10KSB/A for EXTEN INDUSTRIES INC --------------------------------------------------------------------------------
17-Nov-2003
Annual Report
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, 2002, Compared to Year Ended November 30, 2001
Revenues. Total revenues increased to $804,538 for the fiscal year ended November 30, 2002 compared to $113,327 for the fiscal year ended November 30, 2001. These revenues came primarily from a collaborative research agreement between our MultiCell subsidiary and Pfizer Inc. which was entered into and completed during the fiscal year ended November 30, 2002. The research contract with Pfizer was to evaluate the efficacy of our liver cells for drug testing. We are negotiating a license agreement with Pfizer allowing them to continue to use the cell lines for research. In addition, MultiCell began to receive revenues from licensing fees and product sales that management expects will be part of a continuous revenue stream. Accordingly, due to the level of and the recurring nature of the revenue, the Company is no longer considered a development stage company for accounting purposes.
Operating Expenses. Total operating expenses increased to $2,241,310 for the fiscal year ended November 30, 2002 from $1,756,057 for the fiscal year ended November 30, 2001. The increase is primarily due to the inclusion of expenses from MultiCell that are not included in the prior year numbers that are being compared. The Company did not add personel to work on the research project for Pfizer. Responsibilities were simply shifted from one project to another. Such expenses include general and administrative expenses, research and development costs and depreciation and amortization.
The increase of $99,498 in general and administrative expenses for the fiscal year ended November 30, 2002 over the prior year is primarily attributable to salaries, benefits and operational expenses at MultiCell and Exten. The increase of $251,416 in research and development over the prior year expenses is attributable primarily to continued work on our engineered liver cell lines. In addition, the $134,339 increase in depreciation and amortization over the prior year is due to the additional amortization expense related to the amortization of the license agreement recorded in connection with the acquisition of MultiCell.
Other income/expense. Interest expense for the fiscal year ended November 30, 2002, was $124,464, which represents an increase of $30,876 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, 2002, was $74,731, as compared to $79,262 for the prior year. This decrease is attributable to interest earned 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, 2002, was $132,142, as compared to $25,163 for the prior year. The increase is due to increase of financing obtained during year 2002 and the impact of a full year's amortization of the debt discount related to 2001 financings. Minority interest in loss of subsidiary for the fiscal year ended November 30, 2002 was $12,334, as compared to $169,686 for the prior year. This decrease is due to the subsidiary's decrease in activity and resultant loss this year.
Net loss. Net loss for the fiscal year ended November 30, 2002, was $1,576,663, as compared to a net loss of $1,609,383 for the prior year, representing a decrease in net loss of $32,720. This decrease is attributable to the higher revenues attained during the year, as discussed in greater detail above, which was partially offset by greater expenses associated with the combined organizations.
Liquidity and Capital Resources
In the past, our cash needs have been managed primarily through the issuance of debt or equity securities. Although the parties (some of whom are related parties) have shown a commitment to our Company, and may therefore be willing to provide additional financing should be need it, we do not have formal commitments from any of these parties nor can we provide any assurance that these sources may continue to loan or invest monies, there is no certainty that such funds will be available in the future. The Company is maintaining a conservative fiscal policy until the Company signs new pharmaceutical agreements that are being aggressively pursued. The Company has had discussions with numerous companies interested in acquiring our engineered cells for research. Sales have begun and we believe that other discussions will be brought to a conclusion in the near future. The agreements may produce cash to use for operations and research.
The Company is also discussing agreements with various potential distribution partners. Such an agreement will involve a cash investment by the partner to MultiCell to obtain the rights to our cells. There are a number of companies that currently market products similar to the cell products that we have to our potential customers. These companies have the sales and distribution forces in place and could add our product maximizing the strengths of both companies. Our goal is to find partners that can help us in all segments of the markets. These could include, for example, pharmaceutical companies, contract toxicology labs, and industrial labs. The cash investments would be followed by sales and royalty revenues to maintain positive cash flow for the Company.
- The Company anticipates that the revenue generated by MultiCell, along with the potential cash investments by potential distribution partners will be sufficient for the Company to operate through fiscal 2003. To the extent that additional funds may be required, the Company hopes to be able to secure the needed funds through the sale of additional equity securities or debt, as noted above. In addition, where possible, the Company may continue to satisfy obligations through the issuance of additional common stock.
Research Agreements
In October 2002, MultiCell Technologies was awarded a Phase I Small Business Innovation Research (SBIR) grant from the National Institutes of Health (NIH) 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. At November 30, 2002, work had not yet commenced.
Notes Payable
As of November 30, 2002, the Company, or its subsidiary, Xenogenics, are in default on notes payable with a principal balance of $129,000. Through March 31, 2003, such lenders have not demanded payment and the Company continues to accrue interest on all notes payable.
During Fiscal Year 2002, the Company entered into 33 convertible promissory notes for a total of $547,500 with interest accruing at 10% per annum. The principal and interest are payable in 2005, three 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 5,170,000 common stock warrants convertible at $.10 per share. The Company initially increased additional paid-in capital by $127,236 based on the fair value of the warrants and reduced the carrying value of the convertible promissory notes payable by the same amount for the debt discount attributable to the fair value of the warrants. In addition, after the initial allocation of the loan proceeds to the relative fair value of the warrants and the notes in 2002, the fair value of the Company's common stock exceeded the effective conversion price of certain notes on their respective dates of issuance. Such excess, which represents beneficial conversion rights, totaled $39,837, which the Company recorded by increasing both the debt discount and additional paid-in capital by that amount. The debt discount attributable to the warrants and the beneficial conversion rights is being amortized to interest expense over the term of the convertible notes.
On April 1, 2002, the Company negotiated a Promissory Note with its legal counsel, Jeffers, Shaff & Falk, LLP, now named Falk, Shaff & Ziebell, LLP, for legal services rendered through March 31, 2002. The note is for $33,392 at 10% per annum and was due and payable June 30, 2002. The Company did not pay the note and renegotiated the terms the terms on February 1, 2003. The new note voids the previous note and its terms and starts a new note of $50,000 involving monthly payments beginning March 2003 until the note is paid in full.
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