<PAGE> 1
------------------------
OMB APPROVAL
------------------------
OMB Number: 3235-0420
Expires: May 31, 2000
Estimated average burden
hours per response: 3225
------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to _____________
Commission file number 0-28413
HYPERBARIC SYSTEMS
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
CALIFORNIA 77-0481056
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
1127 Harker Avenue, Palo Alto, CA 94301
(Address of principal executive offices) (Zip Code)
</TABLE>
Issuer's telephone number (650) 323-0943
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
None registered
-------------------------- --------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock OTCBB
---------------- --------------------------------------
(Title of class) (Name of exchange on which registered)
<PAGE> 2
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. No Revenues for the
fiscal year ending December 31 1999.
As of December 31, 1999, 6,394,966 shares of common stock were outstanding.
The aggregate market value of common shares of voting and non-voting common
shares held by non-affiliates, based on the average of the bid and asked price
of the common stock as of March 1, 2000, was $2,714,891.
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ]Yes [X ] No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. We have 6,715,562 shares of common
stock outstanding as March 6, 2000.
DOCUMENTS INCORPORATED BY REFERENCE [X] yes, 10-SB filed on December 8, 1999 and
amended on January 25, 2000.
Transitional Small Business Disclosure Format (Check one): Yes ____; No X___
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I.......................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS..............................................................1
(1) Form and year of organization 1
(2) Any bankruptcy, receivership or similar proceeding 3
(3) Status of any publicly announced new product or service 3
(4) Competitive business conditions 3
(5) Sources and availability of raw materials 4
(6) Dependence on one or a few major customers 5
(7) Patents and trademarks 5
(8) Need for any government approval 6
(9) Effect of existing or probable governmental regulations on the business. 7
(10) Estimate of the amount spent on research and development activities 7
(11) Costs and effects of compliance with environmental laws 7
(12) Employees 7
ITEM 2. DESCRIPTION OF PROPERTY..............................................................7
ITEM 3. LEGAL PROCEEDINGS....................................................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................8
PART II......................................................................................8
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................8
ITEM 6. MANAGEMENT'S PLAN OF OPERATION......................................................10
(1) Overview 10
(2) Liquidity and capital resources 10
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
(3) Going Concern 11
(4) Development plan 11
(5) Intellectual property 12
(6) Plant and Significant Equipment Requirements 12
(7) Changes in the Number of Employees 12
ITEM 7. FINANCIAL STATEMENTS................................................................13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.13
PART III....................................................................................13
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT...........................................................13
ITEM 10. EXECUTIVE COMPENSATION.............................................................16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................19
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................................................23
</TABLE>
ii
<PAGE> 5
PART I
Certain statements in this Form 10-KSB, constitute "forward-looking
statements." These forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements, expressed or implied by the
forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
(1) Form and year of organization
HyperBaric Systems was incorporated on February 26, 1998, in the State
of California, by the filing of Articles of Incorporation. The Articles of
Incorporation of the Company currently authorize the issuance of fifty million
(50,000,000) shares of common stock, no par value. On July 21, 1998 we amended
our Articles of Incorporation to increase the authorized number of shares of
Common Stock from 1 million to 10 million, and to effect a split of each share
of Common Stock then outstanding into 4 shares of Common Stock. On June 21, 1999
we amended our Articles of Incorporation to increase the authorized number of
shares of Common Stock from 10 million to 50 million.
THE PLEXLIFE SYSTEM FOR PRESERVATION OF PLATELETS AND BIOLOGICS
We are a developmental stage company whose principal business objective
is to develop and provide economical, non-toxic methods of biological material
preservation to the market place. We believe that our customers could include
hospitals, clinics, blood banks and similar organizations. We have not yet sold
any products or services or realized any operating revenues. We have been
entirely dependent to date on proceeds received in connection with private
placements.
Biologic material preservation is achieved by applying hydrostatic
pressure to the material using a proprietary container, process and solution to
prevent the cells from freezing under sub-zero temperatures. Each type of
biologic material will have varying solutions and processes that are specific to
the different cell types. On October 31, 1998 we filed a patent on a method and
apparatus for preserving biological materials, but this patent has not yet been
issued.
We are in development of our PlexLife System, which is a proprietary
technology for preserving platelets (a blood component), heart valves, tissues
and organs such as kidneys, hearts, livers, and lungs. We believe that our
technology represents a breakthrough in the storage and preservation of living
biological materials that promises to reduce the waste inherent in current
technologies, while simultaneously increasing the worldwide availability of
precious biological materials needed to save human lives. If the technology is
proven through further testing and granted FDA approval, it should be considered
unique and revolutionary in its ability to extend and maintain functionality of
these materials for much longer periods of time than is currently possible. We
are targeting blood banks, hospitals and tissue and organ banks as our main
customers in the worldwide markets.
During the initial months following our Company's incorporation, we
recruited key
1
<PAGE> 6
members of the management and technical team, conducted market research and
established the basic infrastructure and plan for our company.
On August 25, 1998 we established a branch office in Krasnoyarsk,
Russia, where the inventor, Vladimir Serebrennikov, resides. Mr. Serebrennikov
is our Technical Director of Research and Development for Preservation Systems.
Krasnoyarsk was chosen to take advantage of low cost technical expertise,
availability of low cost materials such as titanium, and also because two
members of the team, Mr. Serebrennikov and Leonid Babak, employees of our
Company, both reside there.
The Russian government has placed no restrictions on our ability to
operate our business, hire employees in Russia, and freely transport our assets
from Russia to the U.S. without any assessment or payments to the Russian
Federation. There are no material restrictions or regulations to which we are
subject in Russia as a result of our activities there. Conducting operations in
Russia does not affect Food and Drug Administration ("FDA") approval or our
proposed business activities in the United States, because no clinical trials
are or will be conducted there.
Initial non-clinical experiments and tests of platelet preservation and
other research and development activities are being conducted in Russia as well
as production of prototype and pre-production units. Such research includes
sub-zero storage of platelets utilizing our proprietary technology and process,
tests to measure the functional ability of platelets following storage, and the
development of new solutions for platelet preservation.
At December 31, 1999, $10,900 of the Company's assets related to this
facility. Total operating expenses incurred at this facility in 1999 and 1998
were $167,100 and $90,500, respectively.
OUR DISPOSABLE VENEREAL DISEASE TEST SYSTEM
On September 1, 1998, we entered into a purchase agreement with Paul
Okimoto, an officer and director of the Company, acquiring all patent rights
owned by Mr. Okimoto to a disposable venereal disease test device called
Phemtest. Mr. Okimoto received no cash payment in consideration for the
assignment of the above mentioned patents. The product, a disposable venereal
disease test device for women, was developed during the early 1980's and the
first patent application was filed in 1985. It is based on the pH level reading
of the vaginal tract to determine the presence of bacterial infection. A pH
reading of higher than 4.5 is an indication that a pathology exists and that the
patient should see a physician for precise diagnosis and treatment. The
prototype has a retractable tip that can be extended well into the vestibule of
the vagina.
The first patent (patent number 4,784,158) was granted on November 15,
1988 a second patent (patent number 4,945,921) was granted on August 7, 1990.
The 158 patent is for a vaginal testing applicator and method, and the 921
patent is for a body cavity specimen collecting and testing apparatus. Both
patents are valid for a period of 17 years from the date of grant. Over 5 years
remain on the first patent and 7 years on the second. There has been no
2
<PAGE> 7
previous attempt to produce a commercial unit or to market the product, except
by a company called MEDX which went out of business in 1985.
(2) Any bankruptcy, receivership or similar proceeding
We are not and never have been in bankruptcy, receivership or any other
similar proceedings.
(3) Status of any publicly announced new product or service
We are in development of our PlexLife System, which is a proprietary
technology for preserving platelets (a blood component), heart valves, tissues
and organs such as kidneys, hearts, livers, and lungs. We believe that our
technology represents a breakthrough in the storage and preservation of living
biological materials that promises to reduce the waste inherent in current
technologies, while simultaneously increasing the worldwide availability of
precious biological materials needed to save human lives. If the technology is
proven through further testing and granted FDA approval, it should be considered
unique and revolutionary in its ability to extend and maintain functionality of
these materials for much longer periods of time than is currently possible. We
are targeting blood banks, hospitals and tissue and organ banks as our main
customers in the worldwide markets.
On September 1, 1998, we entered into a purchase agreement with Paul
Okimoto, an officer and director of the Company, acquiring all rights to a
disposable venereal disease test device called Phemtest, for which Mr. Okimoto
owned the patents.
(4) Competitive business conditions
As a development stage company, we are entering a biological material
preservation market that is presently addressed by large companies with
extensive financial resources. Those companies include DuPont and Baxter, among
others. Additionally, smaller companies with which we may compete include
LifeCell for platelet preservation, Cerus for viral inactivation for platelets
and other blood products and Cryo Life for preserving heart valves by
cryo-preservation. We have limited funds with which to develop products and
services, and many of our competitors have significantly more resources than we
do. These companies are active in research and development of biological
material preservation, and we do not know the current status of their
development efforts. Most of the above competitors have significantly greater
financial resources, technical expertise and managerial capabilities than we
currently possess.
Prior to the formation of our company, Vladimir Serebrennikov, our
Technical Director of Research and Development, conducted independent research
over a ten-year period, involving research concerning the preservation of
biologic material using high pressure. After our Company was formed on February
26, 1998, the knowledge he gained was applied to the preservation of blood
platelets, a market focus of our Company. New methods were developed in the
container hardware design, processes and solutions for platelets, which continue
to evolve as we continue our research and development effort.
A patent covering the hardware design of the container, preservation
methodologies and processes was filed by us on October 31, 1998 followed by a
continuation-in-part (CIP), which
3
<PAGE> 8
was filed in February of 1999 covering our solutions and other preservation
methodologies. We expect that additional patents will follow for organ
preservation and other biologic material as such systems are developed. We are
hopeful that our patents and other intellectual property protection will enable
us to compete effectively.
Existing technology for storing platelets is comprised of rocking
platelets in plasma at room temperature. It is necessary to develop special
plastic bags with defined gas permeability that allows platelets to be stored
for up to 5 days.
Our technology preserves platelet membrane integrity and reduces
metabolic activities to very low rates, allowing prolonged storage times. We
believe that platelets stored using this technology will also have superior
function after transfusion, compared to platelets stored with the existing
methodology.
LifeCell Corporation is attempting to develop and obtain FDA approval
for extending the storage time of blood platelets using cryo-presevatives. Cerus
Corporation has developed a viral inactivation product for platelets that is
intended to eliminate or reduce viral testing requirements. This product is now
in clinical trials. These products if approved could have a material adverse
impact on the market for extending platelet storage times using our technology.
We believe that most, if not all, of our competitors use toxic chemicals such as
Dimethyl Sulfoxide (DMSO) to preserve platelets, and store organs and other
biologic material. It is our intent to achieve longer preservation of such
material and provide higher quality material by using non-toxic solutions and by
storing the biologic material below the freezing point of water, without
destroying the cellular integrity of the material. We also believe that our
approach will be inexpensive in comparison to alternative preservation methods
because the toxic solutions used by our competition must be removed from the
material before use in most cases. The solution we use for platelet preservation
is intended to be directly usable.
DISTRIBUTION, SALES AND CUSTOMERS
It is our intent to market our platelet preservation products to blood
centers and hospitals through established medical specialty dealers and
distributors or equipment manufacturers that currently supply products to the
market. Similar strategies will be employed for other future preservation
products. It is our plan to license the manufacturing, sales and distribution of
our Phemtest product to a manufacturer that sells feminine disposable products
to the market. As we are in the development stage of operations, we currently
have no customers and dependency on particular customers cannot be anticipated
at this time.
(5) Sources and availability of raw materials
Since we are in the development stage, we have not yet begun to
manufacture our products. Our products, as manufactured, should not use any
exotic or hard to find raw materials and we believe that suppliers can be
identified. We are constantly reviewing the materials used in the development
process, with particular attention to availability and future cost. We cannot
currently anticipate what the availability of materials and suppliers will be at
the time our products enter production.
4
<PAGE> 9
(6) Dependence on one or a few major customers
As we are in the development stage of operations, we currently have no
customers and dependency on particular customers cannot be anticipated at this
time.
(7) Patents and trademarks
On June 1, 1998, we were assigned the entire worldwide right, title and
interest in a preservation technology applicable to, but not limited to
platelets (a blood component), red blood cells, heart valves, tissue and organs.
This technology concerned all of the discoveries, concepts and ideas whether
patentable or not, invented and developed by Messrs. Leonid Babak and Vladimir
Serebrennikov, and was in exchange for 877,500 shares of common stock, to each,
valued at the time of issuance at $0.0025 per share.
At the time of assignment of this technology, it was unclear to the
Company which aspects, if any, of the technology, might be protectible by
patent, both within and without the United States, and which aspects of the
technology might be subject to other forms of protection, such as trade secret
protection. Since this assignment, the Company has been performing further
research and development on the technology assigned, and has filed one patent
application and a continuation in part, as described elsewhere herein. The
Company anticipates filing additional patents on other aspects of the technology
assigned by Messrs. Babak and Serebrennikov as additional inventions are reduced
to practice.
Messrs. Babak and Serebrennikov are employees of the Company and
stockholders of the Company. We applied for a U.S. Patent on October 31, 1998,
which covers the hardware design of the container, preservation methodologies
and processes. A continuation-in-part (CIP) was filed in February of 1999
covering our solutions and other preservation methodologies.
We filed an international application with the Patent Cooperation Treaty
based on our U.S. patent application, designating all countries and regions on
October 12, 1999. It is management's and counsel's belief that the patent and
its extensions will protect the current core technology and provide the Company
with a long-term competitive advantage in the market.
New processes for preserving platelets were developed by us, which we
have proceeded to patent. Although we have advice from legal council that our
methods for preserving platelets are patentable, there can be no assurance that
the Company will be granted a patent. If such patents are not granted, this
could have a material adverse effect on our ability to compete with other
companies that have much greater financial and technical resources than we
currently possess.
We purchased the patents for a product titled Phemtest from Paul
Okimoto, an officer and director, on September 1, 1998. The patents "VENEREAL
TESTING APPLICATOR AND METHOD", Patent Number 4,784,158, was issued November 15,
1988, and "BODY CAVITY SPECIMEN COLLECTING AND TESTING APPARATUS", Patent Number
4,945,921, was issued August 7, 1990. In the Purchase Agreement for the patents
we agreed to pay, and did pay,
5
<PAGE> 10
to the law firm of Flehr, Hohbach, Test and Herbert, $1,375 as a patent
maintenance fee to assure that the patents would remain in force. We also agreed
to pay Mr. Okimoto a royalty payment of 5% of gross sales of Phemtest for the
next five years. The first $16,000 in royalty payments are to be paid to a law
firm to be designated by Mr. Okimoto, the next $75,000 in royalties are to be
paid to Mr. Okimoto in shares of Common Stock of the Company, valued at $2.00
per share, and the remaining royalties to be paid to Mr. Okimoto, if any, are to
be paid in cash.
(8) Need for any government approval
The FDA and the European Union ("EU") have regulations for the
marketability of medical solutions and equipment. We have not developed our
products to the level where these approval processes can be started.
We believe that all of the products currently in development will
require FDA approval prior to marketing. Our initial products are at the
prototype development stage and preclinical testing. The Company intends to
submit its initial IND/IDE as soon as sufficient preclinical data is obtained.
IND refers to an Investigational New Drug Exemption and IDE refers to an
Investigational Device Exemption, both of which must be filed with the FDA prior
to conducting clinical trials on human subjects. The success completion of
clinical trials is the final step toward receiving FDA approval of our product
for marketing.
Our anticipated first product is a device to be utilized by blood
centers in the processing and storage of blood platelets. As such, the Company
must obtain regulatory approval from the FDA to market the medical device. In
addition, because the platelet product (stored in the medical device) is also a
regulated product, the Company must also obtain FDA approval for the platelet
product to be stored in the Company's device.
The Company intends to pursue 510(k) approval of its storage device,
although there is a possibility that the FDA could determine that an application
for a new device may be required. A 510(k) submission will require a showing of
"substantial equivalence" to one or more legally marketed devices. Regulatory
review of a 510(k) application should take a few months less than that for a new
device application. The Company believes that in either case the data required
would be approximately the same, preclinical and clinical data demonstrating
safety and efficacy.
In order for the Company to receive FDA 510(k) approval we believe that
we will need to show that platelets stored utilizing the Company's device must
be equivalent to platelets stored using currently approved methods. We would do
these utilizing laboratory tests of platelet function and results of a clinical
trial. If the Company determines that it will pursue new claims for platelets
stored using its device, more extensive clinical trials would be necessary. We
do not expect to pursue new claims initially, even if we believe that some may
be supported by our research.
We currently intend to file our initial IND/IDE in mid-year 2000.
Depending on the outcome of clinical trials and the claims submitted for
approval, we believe that it could take as long as two to four years to obtain
needed data, submit requests for marketing approval, and obtain regulatory
approval or denial.
Russian regulations governing patents and procedures for ownership of
patents have an effect on our Company to the extent that any patentable products
or ideas developed through the
6
<PAGE> 11
branch personnel will be the property of the Company as long as the agreement
with employees and outside sub-contract personnel stipulate that such inventions
shall be assigned to the Company. This is similar to U.S. law. It is our
practice to require that all personnel and outside contractors sign such an
agreement.
The assignment of products developed or patents granted prior to any
payment by the Company for the development of a product would require approval
by the Russian government. Even though Mr. Serebrennikov holds some patents
individually which could relate to our technology, we have elected not to
purchase these existing patents held by Mr. Serebrennikov because they have
become public domain outside of Russia, and because we do not feel that they are
important to our business.
(9) Effect of existing or probable governmental regulations on the business.
As an approved medical device, the Company's storage product must be
manufactured according to Quality Systems Regulations ("QSR") and Good
Manufacturing Practices ("GMP"). We intend to be in compliance with these
regulations during product development. It is our plan to manufacture the
company's product devices through contract manufacturers experienced in the FDA
regulations and familiar with QSR requirements and whose facilities are in
compliance with QSR. We will audit all contract manufacturers to help assure
proper compliance. Components of the device are comprised of usual metals,
plastics, and electronic parts and should generate no unusual disposal streams.
(10) Estimate of the amount spent on research and development activities
From inception through December 31, 1999, our accumulated deficit is
$1,370,200, of which $300,800 has been a spent on research and development
activity
(11) Costs and effects of compliance with environmental laws
We have not incurred any costs in connection with the compliance with
environmental laws. Manufacture of the company's devices is not anticipated to
generate any unusual waste other than that typical for metals and plastics
fabrication. The device is intended to be used only by facilities that are
licensed in the handling of blood and related products. The device itself does
not produce additional waste products from its use, other than those already
being handled by such facilities. No additional environmental compliance issues
are anticipated.
(12) Employees
The Company presently has sixteen (16) full time employees, 5 in the
U.S. and 11 in Russia. The Company's employees are currently not represented by
a collective bargaining agreement, and the Company believes that its relations
with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
7
<PAGE> 12
The Company owns no real property and has no interest in any real
property. We have not yet entered into a lease on facilities in the United
States. Our principal address as reported herein is the residence of one of our
employees. Although the real estate leasehold market in California is highly
competitive, we believe that, as we require facilities in California we will be
able to find such available facilities at a reasonable cost.
We have been conducting platelet experiments at the Sacramento Blood
Foundation in Sacramento, California on a contract basis since April of 1999.
The experiments are conducted under our direction, but using the Foundation's
personnel. There are no long term contracts or commitments. We release a work
order authorizing such experiments prior to performing any work or experiments.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not aware of any threatened legal proceedings to which
the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ending December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since May 18, 1999, the Company's common stock has been traded on the
OTC Bulletin Board under the symbol "HYRB" and "HYRBE". The following table sets
forth, for the periods indicated closing prices for the common stock as reported
by the OTC Bulletin Board. The following quotations should not be construed to
imply that an established trading market exists for the common stock; trading to
date has been sporadic.
<TABLE>
<CAPTION>
1999 HIGH LOW
---- ---- ---
<S> <C> <C>
4th Quarter 1.75 0.75
3rd Quarter 2.28 0.59
2nd Quarter 1.00 0.25
</TABLE>
The market price for the Company's common stock has historically been
volatile. Significant volatility in the market price of shares of the Company's
common stock may arise in the future due to factors such as the Company's
developing business, historic losses and relatively low price per share. In
addition, future announcements concerning the Company or its
8
<PAGE> 13
competitors may have a significant impact on the market price of the common
stock. Such announcements might include financial results, the results of
testing, technological innovations, new commercial products, changes to
government regulations, developments concerning proprietary rights, or
litigation. As long as there is only a limited public market for the common
stock, the sale of a significant number of shares of common stock at any
particular time could be difficult to achieve at the market prices prevailing
immediately before such shares are offered, and the offering of a significant
number of shares of common stock at one time could cause a severe decline in the
price of the common stock.
There are currently approximately 958,200 shares of our common stock
which are freely tradable and which are held of record by approximately 17
people. The remaining 5,757,367 shares will become freely tradable in accordance
with the requirements of Rule 144, including the shares included in the table
below concerning certain recent private placements or sales of restricted
securities. Any shares held by an officer or director of the Company, which
would otherwise be freely tradable, will be subject to the resale limitations
under Rule 144. In general, under Rule 144, as currently in effect, a person, or
persons whose shares are aggregated, who has beneficially owned shares for at
least one year would be entitled to sell, within any three month period, that
number of shares that does not exceed the greater of one percent (1%) of the
then-outstanding shares of common stock and the average weekly trading volume in
the common stock during the four calendar weeks immediately preceding the date
on which the notice of sale is filed with the Securities and Exchange
Commission, provided certain manner of sale and notice requirements and public
information requirements are satisfied. In addition, affiliates of the Company
must comply with the restrictions and requirements of Rule 144, other than the
one-year holding period requirement, in order to sell shares of common stock. As
defined in Rule 144, an "affiliate" of an issuer is a person who, directly or
indirectly, through the use of one or more intermediaries controls, or is
controlled by, or is under common control with, he issuer. Under Rule 144(k), a
holder of "restricted securities" who is not deemed an affiliate of the issuer
and who has beneficially owned shares for at least two years would be entitled
to sell shares under Rule 144(k) without regard to the limitations described in
this paragraph.
The company's common stock is held by 96 individuals as of March 6,
2000. The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any security that 1) is priced under five
dollars, 2) is not traded on a national stock exchange or on NADSAQ, 3) may be
listed in the "pink sheets" or the NASD OTC Bulletin Board, 4) is issued by a
company that has less than $5 million in net tangible assets and has been in
business less than three years, or by a company that has under $2 million in net
tangible assets and has been in business for at least three years, or by a
company that has revenues of $6 million for 3 years.
Penny stocks can be very risky: penny stocks are low-priced shares of
small companies not traded on an exchange or quoted on NASDAQ. Prices often are
not available. Investors in penny stocks often unable to sell stock back to the
dealer that sold them the stock. Thus an investor may lose their investment. The
Company's common stock may be deemed to be a "penny stock" and thus will become
subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the common stock is listed on The
Nasdaq SmallCap Market. Consequently, the "penny stock" rules may restrict the
ability of broker/dealers to sell
9
<PAGE> 14
the Company's securities, and may adversely affect the ability of holders of the
Company's common stock to resell their shares in the secondary market.
No dividends have been declared or paid by the Company since inception.
ITEM 6. MANAGEMENT'S PLAN OF OPERATION.
(1) Overview
We have a very limited operating history and have no revenue to date.
Our prospects must be considered in light of the risks and uncertainties
encountered by companies in an early stage of development involving new
technologies and overcoming regulatory approval process requirements before any
revenue is possible.
We have experienced operating losses since our inception. These losses
resulted from the significant costs incurred in the development of the
technology and the establishment of our research and development facility.
Expenditures will increase in all areas in order to execute our business plan,
particularly in research and development and in gaining regulatory approval to
market our products in the U.S. and abroad.
During the next 12 months we will continue efforts on prototype
development and the generation of preclinical data. It is anticipated that we
will submit our first IND/IDE and begin clinical testing of our first product
for blood platelet storage. Research will commence on kidney preservation,
developing solutions that will operate under sub-zero temperature conditions.
We anticipate filing a second patent relating to platelet preservation
during the next twelve months of operation which should strengthen our
competitive position in the platelet preservation marketplace. We will also seek
strategic alliances with companies that have the capability to provide technical
and clinical expertise as well as financial and marketing expertise to leverage
our current expertise in these areas.
We also plan to relocate our current Branch facility in Russia to a more
suitable location to accommodate more equipment and personnel, as well as to
locate a central administrative facility in the U.S.
(2) Liquidity and capital resources
Since our inception, we have financed our operations through financing
from the founders and private investors, a public offering under Regulation D,
Rule 504 and private placements under Regulation D, Rule 505.
We anticipate continued growth in our operations and a corresponding
growth in our operating expenses and capital expenditures. The Company does not
anticipate any revenue from operations for the next 2 or 3 years. Therefore, the
success of the Company is dependent on funding from private placements. We
believe that the net proceeds of a private placement of $3 million in Common
Stock currently in process will be sufficient to meet anticipated cash
requirements for working capital and capital expenditures for 9 months if the
full amount of the offering is raised, although there is no assurance that the
full amount will, in fact, be received. In order to continue operations beyond
the 9-month period following the completion of this offering, we will seek
additional funds through other offerings of debt or equity securities, which
could result in additional dilution to stockholders. There is no assurance that
financing will be available on terms acceptable to the Company.
10
<PAGE> 15
Our operating plan for calendar year 2000 is focused on development of
our products. It is our estimate that a cash requirement of $3,288,000 is
required to support this plan. The expense estimates total $2,938,000 for
operating expenses and $350,000 for capital expenditures. The cost of legal and
accounting services associated with the filing of requisite reports under the
Securities and Exchange Act of 1934 will be paid out of current stock sales.
(3) Going Concern
We are in the second year of research and development, with an
accumulated loss during the development stage of $1,370,200. As of December 31,
1999 we are uncertain as to the completion date of this research and
development, or if a product will ever be completed as a result of this research
and development activity. We anticipate that the funds spent on research and
development activities will need to increase prior to completion of a product.
Additionally, we may not be able to secure funding, in the future, necessary to
complete our intended research and development activities.
Additionally, if we lose key personnel or are unable to attract and
retain additional qualified personnel we may not be able to successfully manage
the business and achieve our objectives.
These conditions give rise to substantial doubt about our ability to
continue as a going concern. Our continuation as a going concern is dependent
upon our ability to obtain additional financing from the sale of our common
stock, as maybe required, and ultimately to obtain profitability.
The Report of our Independent Certified Public Accountants contains a
paragraph regarding the Company's ability to continue as a going concern.
(4) Development plan
We have engaged Quintiles, Inc., an international regulatory consulting
firm, to assist with planning and managing the regulatory approval process. This
firm specializes in the design and implementation of regulatory strategies
including experiment design and monitoring. We have not made any payments to
Quintiles in the reported periods and are committed to pay only what is expended
on a work order basis. We are committed to pay $3,000 of a work order total
maximum of $20,000 for developing a detailed strategic development plan for our
platelet storage system. The remaining $17,000 will be paid as we authorize
additional work from Quintiles.
As an overall strategy, we intend to limit the system claims and to
progressively expand them as FDA and/or EU approval is granted for each
succeeding claim. We believe that this should provide a shorter time to market.
Development Phases
We have developed a 3-phase development strategy that considers FDA and
international approval processes.
- - Phase 1 Platelet Preservation - Solution Only
The plan starts with a platelet preservation product using the PlexLife
solution by itself. A
11
<PAGE> 16
solution development process is underway with the planned outcome of
platelets that can be stored under refrigeration for a period greater
than 7 days. These platelets are to be strong viable platelets with
little or no bacterial growth. Currently the industry stores platelets
at ambient temperature for a maximum of 5 days, a FDA imposed limit due
to historic bacterial infection of the platelets.
- - Phase 2 Platelet Preservation - Complete PlexLife System
This phase of development is to result in longer storage times for
platelets. The development will combine the use of solutions, sub-zero
temperature and high pressure. It is our goal to develop a storage
method that will preserve the viability of platelets with little or no
bacterial growth for a period greater than 13 days. This will provide
the medical community with a new and economical method for long-term
platelet storage thereby reducing the current loss of product.
- - Phase 3 Organs and Heart Valves
The third phase will incorporate storage of organs and heart valves.
This development will involve experiments with animal organs to
demonstrate our ability to harvest, store and transplant organs. The
goal is to achieve a level of physical condition and viability of these
organs that is equal to or superior to present storage methods and
storage times. The development process includes the development of
solutions, chambers and cooling methods. As the development experiments
are proven to be successful, higher life forms will be involved, until
the goal of human organ and heart valve preservation is obtained.
Governmental approval for human testing will be required for each of
these three phases of development. Our plan is to obtain the necessary approvals
for each stage.
(5) Intellectual property
We consider our intellectual property a key cornerstone and asset of our
business. As such, the intellectual property, which consists of applied-for
patents, trade secrets, copyrights and know-how will be both developed and
protected as a primary goal of the company. We plan to gain wide protection for
our intellectual property worldwide by patent and trademark filings in major
foreign markets as well as the careful protection of trade secrets through
contract and procedure. Information regarding our patents can be found elsewhere
in this document under Patents and Trademarks.
(6) Plant and Significant Equipment Requirements
It is our plan to purchase computer equipment, laboratory equipment and
office furniture over the next twelve month. The estimate for these expenditures
is $350,000. We do not expect to purchase any plant or significant equipment.
Our plan is to rent or lease facilities and any significant equipment necessary
during our development stage.
(7) Changes in the Number of Employees
12
<PAGE> 17
We anticipate that the growth of the company will require the addition
of several employees. We anticipate the number of employees will grow from our
present level of 16 employees to as many as 40 employees by the end of the year
2000. The addition of employees will be made on an as required basis.
ITEM 7. FINANCIAL STATEMENTS
See the Financial Statements listed in Item 13(a), which are
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no disagreement between the Company and its independent
accountants on any matter of accounting principles or practices or financial
statement disclosure since the Company's inception.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The names, addresses, ages and respective positions of the current
Directors and Officers of HyperBaric Systems are as follows:
<TABLE>
<CAPTION>
Name AGE POSITION
- ---- --- --------
<S> <C> <C>
Harry Masuda 55 President, Chief Executive
Officer, and a Director
Paul Okimoto 64 Chairman of the Board and
Executive Vice President
Ardeth Sealy 52 Chief Financial Officer,
Secretary
Rocky Umar 60 Vice President, Marketing
Larry Bryant 55 Vice President, Business
Development
</TABLE>
13
<PAGE> 18
<TABLE>
<S> <C> <C>
Dr. David Lucas 57 Scientific Director
George Tsukuda 55 Director
Leonid Babak 50 Branch Chief of Russian
Operations
Vladimir Serebrennikov 50
Technical Director of
Research and Development for
Preservation Systems
</TABLE>
In addition to the officers and directors listed above, the following persons
would also be deemed to be promoters and/or control persons of the Company, as
those terms are defined in the Rules and Regulations promulgated under the
Securities Act of 1933, as amended:
There is no family relationship between any Director or Executive
Officer of the company.
Set forth below are the names of all Directors and Executive Officers of
the Company: Unless otherwise indicated each director serves for one-year terms.
HARRY MASUDA, age 55, joined the Company on February 26, 1998, as the
Chief Executive Officer, President, and a Director of the Company. Mr. Masuda
has served as Director of the Company since February 26, 1998. Mr. Masuda is the
former president of several high tech companies including Piiceon, Inc., a
manufacturer of computer peripheral products for microcomputers. Mr. Masuda also
founded HK Microwave; a manufacturer of high frequency phase locked oscillators
used in cellular telephone base stations, later acquired by Dynatech
Corporation. Mr. Masuda received his BSEE and MSEE from San Jose State
University. Mr. Masuda has been president of HyperBaric Systems since February
1998, was a Business Consultant from October 1997 to February 1998, and was
President of International Web Exchange from July 1995 to October 1997.
PAUL OKIMOTO, age 64, joined the Company on February 26, 1998 as
Executive Vice President and a Director of the Company. Mr. Okimoto has been
Executive Vice President of HyperBaric Systems since February 26, 1998, and was
President of Sanhill Systems from 1991 to January 1998.
ARDETH SEALY, age 52, joined the Company on January 1, 1999, as the
Chief Financial Officer and Secretary of the Company. Mr. Sealy was formerly the
Vice President of Finance and Administration for several Dynatech Corporation
subsidiaries and for Capsco Sales, an electronic component distributor. Mr.
Sealy has been Chief Financial Officer for HyperBaric Systems since January
1999, and was a Financial Consultant from November 1995 to December 1998, and VP
Finance and Administration for Qualimetrics from 1992 to October 1995.
14
<PAGE> 19
ROCKY UMAR, age 60, joined the Company on May 10, 1998, as Vice
President of Marketing. Mr. Umar served as Senior Executive for Product
Management, Marketing and Sales at Cogar Corporation, and was responsible for
acquisitions, marketing and sales, and planning for Singer Company, Business
Machines Division. Mr. Umar was also CEO of Witek, Inc. a wireless technology
company. Mr. Umar has been Vice President of Marketing for HyperBaric Systems
since May 1998, and was an Information Systems Consultant from 1993 to April
1998.
LARRY BRYANT, age 55, joined the Company on August 9, 1999, as Vice
President, Business Development. Mr. Bryant served as Chief Strategic Officer of
Surgica, a medical device company, and Chief Strategic Officer and Director of
Investor Relations for Intracom. Mr. Bryant has been Vice President, Business
Development since August 1999, and was Chief Strategic Officer of Surgica from
July 1999 to August 1999 (part time). Mr. Bryant has been Chief Strategic
Officer and Director of Investor Relations for Intracom from September 1997 to
August 1999. He was a business consultant form January 1995 to September 1997.
Mr. Bryant left our company on December 28, 1999.
DR. DAVID LUCAS, Ph.D., age 57, joined the Company on January 1, 1999,
as Scientific Director. Dr. Lucas obtained BA and Ph.D. degrees at Duke
University and did postdoctoral work at Harvard Medical Center. His doctoral
degree is in Microbiology and Immunology. He was a faculty member at the
University of Arizona for 16 years where he taught medical students and graduate
students. Previous industry positions were as Director of Research for American
Qualex, an immunochemicals company; Vice President of Protein Technology, where
he developed veterinary biologic products; Vice President for Research and
Technology Transfer at Children's Hospital Oakland; and President of PediaPharm
Corporation, a development stage pharmaceutical products company. Dr. Lucas has
been Scientific Director for HyperBaric Systems since December 1998, and was
President of PediaPharm from 1994 to October 1998, and worked at PdiaPharm part
time thereafter.
GEORGE TSUKUDA, age 55, joined the Company on February 26 1998 as a
Director. Mr. Tsukuda was self-employed as a psychotherapist working primarily
with children doing play therapy. Since terminating his practice, he has worked
full-time on completing his doctoral dissertation in clinical social work
through Smith College School of Social Work in Northhampton, Massachusetts. Mr.
Tsukuda received his Ph.D. in August of 1998. Mr. Tsukuda was a Freelance Writer
from August 1998 to the present, performed Doctoral dissertation research in
clinical social work from September 1996 to August, 1998, and was a
psychotherapist from 1987 to September, 1996.
LEONID BABAK, age 50, joined the Company on February 26, 1998, as Branch
Chief of Russian Operations. Mr. Babak graduated with a degree in physics and
mathematics from Krasnoyarsk State University in Russia. He has held various
positions within the University and the Geophysics department for the Metallurgy
Ministry. He also was president of Krasnoyarsk Marketing, and a trading company
called Sibina TK. Mr. Babak has been Branch Chief, Russian Operations for
HyperBaric Systems since February, 1998, was President of Sibina TK from 1997 to
February, 1998, and was President of Krasnoyarsk Marketing from 1992 to 1997.
VLADIMIR SEREBRENNIKOV, age 50 joined the Company on February 26, 1998,
as Director, Research and Development of Preservation Systems. He received a
degree in physics from Krasnoyarsk State University in Russia and a doctoral
degree in physics from the same university, specializing in high hydrostatic
pressure research. He taught physics at the same
15
<PAGE> 20
University for a number of years and published numerous scientific papers
related to high-pressure research phenomenon. Dr. Serebrennikov received a
number of patents related to high-pressure storage of biological material at low
temperatures. Dr. Serebrennikov has been Director, Research and Development of
Preservation Systems for HyperBaric Systems since February 1998, and was Doctor
and Professor, Krasnoyarsk State University, Physics from 1993 to 1998.
All Directors of the Company hold office until the next annual meeting
of the shareholders and until their successors have been elected and qualified.
The Board of Directors elects the Officers of the Company. Mr. Bryant
left our company on December 28, 1999.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Certain directors, officers or beneficial owners of more than 10% of the
Company's common stock, including Harry Masuda, YN Faarkaghyn Shiaght Lorne
House Trust Limited (Paul Okimoto), Leonid Babak, Vladimir Serebrennikov and Max
Tanner, will file Form 5 or basis reports required by Section 16(a) of the
Exchange Act soon.
ITEM 10. EXECUTIVE COMPENSATION.
Our first year of operation ended December 31, 1998. As a start-up
company, executive compensation has been limited. No executive officer has
received compensation in an amount equal to or in excess of $100,000. Executive
officers did not receive any bonus amounts. All non-employee directors of the
Company do not receive compensation, but are reimbursed for direct expenses
related to their duties.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Compensation Award(s) Options/SARs Payouts Compensation
Position Year($) Salary($) Bonus ($) ($) (#) ($) ($)
- -------- ------- --------- ----- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. Masuda 1999 $66,000 $0 $0 N/A N/A N/A N/A
CEO, Pres.
</TABLE>
16
<PAGE> 21
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities % of Total Options/SARs Exercise or
Underlying Options/SARs Granted to Employees in Fiscal Base Price Expiration
Name Granted (#) Year ($/Sh) Date
---- ----------- ---- ------ ----
<S> <C> <C> <C> <C>
H. Masuda
CEO, Pres. 0 0 0 N/A
</TABLE>
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Shares
Acquired Number of Securities Underlying Value of Unexercised In-the
on Value Unexercised Options/SARs at Money Options/SARs at FY-End
Exercise Realized FY-End (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --- --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
H. Masuda No Exercises
CEO, Pres.
</TABLE>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payouts Under
Non-Stock Priced-Based Plans
(a) (b) (c) (d) (e) (f)
Number of Shares,
Units or Other Performance or Other Period Threshold Target Maximum
Name Rights (#) Until Maturation or Payout ($ or #) ($ or #) ($ or #)
---- ---------- -------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
H. Masuda NO AWARDS
CEO, Pres.
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the outstanding shares of common stock of
the Company owned of record or beneficially by each person who owned of record,
or was known by the Company to own beneficially, more than 5% of the Company's
common stock on December 31,
17
<PAGE> 22
1999. All of the per share numbers are calculated to include the effect of a
split of 1 share into 4 shares, effective July 21, 1998 (the "Split"). The
company is in the process of a private placement offering and has included the
current effect of such offering on ownership in the following tables.
<TABLE>
<CAPTION>
==========================================================================
PRINCIPAL SHAREHOLDER'S NAME AND NUMBER OF SHARES PERCENT OF
ADDRESS OWNED(1) OUTSTANDING SHARES
==========================================================================
<S> <C> <C>
Harry Masuda(2) 921,300(4) 13.7%
1127 Harker Avenue
Palo Alto, CA 94301
YN Faarkaghyn Shiaght Lorne 917,500 13.7%
House Trust Limited(3)
669 35th Street
Richmond, CA 94805
Leonid Babak 877,500 13.1%
31 Apt. 16 Novaja Zarja St.
Krasnoyarsk, Russia 66028
Vladimir Serebrennikov 877,500 13.1%
1A Apt 53 Academgorodok
Krasnoyarsk, Russia 66036
Max C. Tanner 700,000 10.4%
2950 E. Flamingo Rd., Suite G
Las Vegas, NV 89121
CEDE & Co. 376,200 5.6%
P.O. Box 222
Bowling Green Station
New York, NY 10274
- --------------------------------------------------------------------------
All Officers and Directors
as a Group (3 persons) 2,012,400(4) 30.0%
- --------------------------------------------------------------------------
</TABLE>
(1) Restricted stock. Reflects July 1998 four for one stock split.
(2) An officer and/or director of the Company.
(3) Paul Okimoto, an officer and director of the Company, acted as
Trustee in receiving and forwarding the shares of HyperBaric
Systemsto YN Faarkaghyn
18
<PAGE> 23
Shiaght Lorne House Trust Limited, for the benefit of Mark
Tameichi Okimoto, Michael Akira Okimoto, Eric Yoshiro Okimoto,
Daryl Takashi Okimoto, Mary T. Hernandez and Betty Yamaguchi.
The permanent Trustee is Ronald Buchanan of Lorne House
Management Ltd.
(4) Includes Mr. Masuda's purchase of 2,800 shares on September 8,
1998 and purchase of 1,000 shares on November 10,1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain initial shareholders of the Company were issued an aggregate of
4,371,600 shares of restricted common stock, valued at an aggregate of $78,645.
These initial shares of restricted common stock were issued as follows:
<TABLE>
<CAPTION>
SHAREHOLDER SHARES
- ----------- ------
<S> <C>
Harry Masuda(1) 917,500
YN Faarkaghyn Shiaght Lorne House Trust Limited(2) 917,500
George Tsukuda(3) 153,600
Leonid Babak(4) 877,500
Vladimir Serebrennikov(5) 877,500
Victor Ivashin(6) 320,000
Natalia Lazouto(7) 88,000
John Webley(8) 80,000
</TABLE>
(1) Mr. Masuda, an officer and director of the Company, was
issued 877,500 shares, on February 26, 1998, valued at
$0.0025 per share, for services rendered in organizing
and planning the initial business structure and for his
over all business expertise and consultation. Mr. Masuda
paid $0.25 per share for additional 40,000 shares, July
18, 1998.
(2) Paul Okimoto, an officer and director of the Company,
acted as Trustee to YN Faarkaghyn Shiaght Lorne House
Trust Limited, for the benefit of Mark Tameichi Okimoto,
Michael Akira Okimoto, Eric Yoshiro Okimoto, Daryl
Takashi Okimoto, Mary T. Hernandez and Betty Yamaguchi,
was issued 877,500 shares on February 26, 1998 valued at
$0.0025 per share, for services rendered in organizing
meetings with potential business partners and providing
business contacts. Mary T. Hernandez, and Betty
Yamaguchi, were each issued 20,000 shares, valued at
$0.0025 per share, for services rendered, which shares
are held in this trust, February 26, 1998, a transfer to
the trust was made in September 1998. The permanent
19
<PAGE> 24
Trustee is Ronald Buchannan of Lorne House Management
Ltd.
(3) Mr. Tsukuda, a director of the Company, was issued
60,000 shares, valued at $0.0025 per share on February
26, 1998, for services rendered in organizing meetings
with potential business partners and providing general
business consultation services. Mr. Tsukuda paid $.25
per share for an additional 60,000 shares, April 6,
1998. For his investment of $15,000, Mr. Tsukuda was
issued a warrant to purchase 50,000 shares of restricted
common stock of the Company at $0.375 per share,
expiring March 24, 2000. He purchased 9,600 shares at a
price of $0.25 per share on July 17, 1998 and 64,000 at
$0.25 on July 18, 1998.
(4) Mr. Babak was issued 877,500 shares, valued at $0.0025
per share, February 26, 1998, for the entire worldwide
right, title and interest in and to his invention of
technology for preserving and transporting biologic and
non-biologic material.
(5) Mr. Serebrennikov was issued 877,500 shares, valued at
$0.0025 per share, February 26, 1998, for the entire
worldwide right, title and interest in and to his
invention of technology for preserving and transporting
biologic and non-biologic material.
(6) Mr. Ivashin was issued 320,000 shares, valued at $0.0025
per share, for technical consultation services rendered,
February 26, 1998.
(7) Ms. Lazouto was issued 88,000 shares, valued at $0.0025
per share, for translation services rendered, February
26, 1998.
(8) Mr. Webley was issued 80,000 shares, valued at $0.0025
per share, for business consultation services rendered.
The Company issued the following options to purchase an aggregate of
1,092,500 shares of restricted common stock at an exercise price of $0.01 to
$1.62 per share, market value at date of grant, to the following individuals.
<TABLE>
<CAPTION>
OPTION HOLDER NUMBER OF SHARES GRANT DATE EXPIRATION DATE
- ------------- ---------------- ---------- ---------------
<S> <C> <C> <C>
Rocky Umar (1) 200,000 7/21/98 5/09/03
Luis Toledo(2) 200,000 7/21/98 5/27/03
Ardeth Sealy (1) 40,000 7/21/98 6/15/03
50,000 11/27/98 11/26/03
60,000 6/25/99 6/24/04
40,000 10/29/99 10/1/04
David Lucas 75,000 1/1/99 12/31/03
75,000 6/25/99 6/24/04
</TABLE>
20
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
Eric Slayton 40,000 7/21/98 6/23/03
Vince Yalon 40,000 7/21/98 6/24/03
Mike Strong 40,000 10/1/98 9/30/03
Group of 13 Individuals 232,500 7/21/98 to 7/21/03 to
7/5/99 7/5/04
</TABLE>
(1) An officer and/or director of the Company.
(2) Dr. Toledo is an internationally recognized authority on
organ transplantation and preservation. He is currently
a director of the Michigan Transplant Institute and sits
on BioPreserve's Advisory Board as well as the Company's
Advisory Board.
On July 21, 1998, we completed a one into four stock split.
On July 21, 1998, we issued to Max C. Tanner, counsel to the Company,
600,000 shares at $0.25 per share for services rendered and cash for an
aggregate amount of $149,400.
On May 10, 1998, we entered into an Employment Agreement with Rocky Umar
whereby Mr. Umar is employed as the Vice President of Marketing for a minimum
term of one year and the Company pays Mr. Umar a salary ranging from $2,000 per
month to $10,000 per month, depending upon performance. This Agreement includes
the payment by the Company of a commission equal to 1% of sales in excess of
$1,500,000 during a consecutive six-month period, not to exceed a $100,000
commission per 12-month period. Mr. Umar has been granted an option to purchase
200,000 shares of restricted common stock at $.025 per share pursuant to the
Company's Statutory Incentive Stock Option Plan. Further, Mr. Umar is eligible
for a bonus of up to $5,000 after the first year of employment, for the sole
purpose of exercising the stock options.
On June 1, 1998, we entered into an Employment Agreement with Vladimir
Serebrennikov whereby Mr. Serebrennikov is employed as the Technical Director of
Preservation Systems for a minimum one-year term. The Company pays Mr.
Serebrennikov $400 per month, which salary may be adjusted, with a bonus of
$25,000 upon the successful completion of project milestones according to the
Employment Agreement. On June 1, 1998, the Company also entered into an
Agreement of Assignment of Patent and Technology with Mr. Serebrennikov. Mr.
Serebrennikov assigned to the Company the entire worldwide right, title and
interest in and to Mr. Serebrennikov's technology for preserving and
transporting biologic and non-biologic material and in and to all of the
discoveries, concepts and ideas whether patentable or not. Pursuant to this
Agreement on Assignment of Patent and Technology, Mr. Serebrennikov received
877,500 shares, valued at $0.0025 per share, of the Company's restricted common
stock, as stated above. The amount which Mr. Serebrennikov was to be paid in
these transactions was arrived at by negotiations between Mr. Serebrennikov and
Mr. Masuda, President and CEO of our Company.
21
<PAGE> 26
On June 1, 1998, we entered into an Employment Agreement with Leonid
Babak whereby Mr. Babak is employed as the Branch Chief of Russian Operations
for a minimum one-year term. The Company pays Mr. Babak $400 per month, which
salary may be adjusted, with a bonus of $5,000 upon the successful completion of
project milestones according to the Employment Agreement. On June 1, 1998, the
Company also entered into an Agreement of Assignment of Patent and Technology
with Mr. Babak. Mr. Babak assigned to the Company the entire worldwide right,
title and interest in and to Mr. Babak's technology for preserving and
transporting biologic and non-biologic material and in and to all of the
discoveries, concepts and ideas whether patentable or not. Pursuant to this
Agreement on Assignment of Patent and Technology, Mr. Babak received 877,500
shares, valued at $0.0025 per share, of the Company's restricted common stock,
as stated above. The amount that Mr. Babak was to be paid in these transactions
was arrived at by negotiations between Mr. Babak and Mr. Masuda, President and
CEO of our Company.
On May 28, 1998, we entered into a Consultant Agreement with Dr. Luis
Toledo, whereby Dr. Toledo was appointed to the Company's advisory board and is
a consultant for a minimum term of one year. Also pursuant to the Agreement, the
Company pays Dr. Toledo a commission equal to 5% of all sales within the organ
transplant market for a five-year period from the date of the agreement, so long
as Dr. Toledo remains a consultant and advisory board member. Such commission is
limited to a total of $1,000,000. Further, Dr. Toledo has been granted options
to purchase 200,000 shares of restricted common stock of the Company at $.025
per share pursuant to the Company's Non-Statutory Incentive Stock Option Plan.
Further, Dr. Toledo is eligible for a bonus of up to $5,000 after the first year
as a consultant and advisory board member up to the expiration of the stock
options for the sole purpose of exercising the stock options.
On June 24, 1998, we invited Eric Slayton, President of Global
Healthcare, to be a member of the advisory board. The Company has granted to Mr.
Slayton an option to purchase 40,000 shares of restricted common stock of the
Company at $.025 per share pursuant to the Company's Non-Statutory Incentive
Stock Option Plan.
On September 1, 1998 we entered into a purchase agreement with Paul
Okimoto, an officer and director of the Company, acquiring all rights to a
disposable venereal disease test device called Phemtest, for which Mr. Okimoto
owned two patents. The Company paid to the law firm of Flehr, Hohbach, Test and
Herbert, $1,375 for the patent maintenance fee, a fee imposed to maintain the
patent in good standing and preventing the patent from becoming public domain,
This maintenance fee was due immediately upon the transfer of the patent right
to the Company. Such maintenance fees become due the fourth, eighth, and twelfth
year during the life of the patent. The Company also agreed to pay Mr. Okimoto a
royalty payment of 5% of gross sales of Phemtest for the next five years. Mr.
Okimoto has directed the Company to pay the law firm of Flehr, Hohbach, Test and
Herbert the first $16,000 of royalties earned. The $16,000 was for legal
expenses incurred in securing the patents. These expenses were incurred from
1985 to 1989. The amounts payable to Mr. Okimoto and the timing and method of
such payments resulted from our acceptance of a proposal put forward by Mr.
Okimoto
September 8, 1998, we sold 1,000,000 common shares, raising $239,400
under
22
<PAGE> 27
Regulation D, Section 504, a public offering. On September 17, 1998, we filed
information to conform to Rule 15c2-11(a)(5) of the Securities Exchange Act of
1934, as amended.
On August 9, 1999, we entered into an employment agreement with Larry
Bryant. Mr. Bryant was employed as our Vice President, Business Development for
a minimum term of 90 days, until his departure on December 28, 1999. His
agreement called for a salary of $1,800 per week.
From August 1 through October 6, 1999, Mr. Masuda loaned the company
$24,200. Mr. Tsukuda has loaned the Company $5,000 during the same period. The
loans are due during June 30, 2000, and are scheduled to be re-paid with a 10%
annual interest rate. Mr. Tsukuda received a warrant to purchase 2,500 shares of
common stock at a price of $1.50; the warrant expires August 31, 2001.
On October 28, 1999, we entered into an employment agreement with Ardeth
Sealy. Mr. Sealy is employed as the Chief Financial Officer and Secretary for a
minimum term of one year. Company pays Mr. Sealy a salary ranging from $6,000
per month to $9,200 per month. Mr. Sealy has been granted three options to
purchase 150,000 shares of restricted common stock priced at $0.25, $0.50 and
$1.62 per share pursuant to a Stock Option Plan. Further, Mr. Sealy is eligible
for a bonus of $1,000 after January 1, 2000. Prior to January 1, 1999, Mr. Sealy
preformed consulting services to the Company and Mr. Sealy was granted an option
to purchase 40,000 shares of restricted common stock priced at $0.025 per share
pursuant to the Company's Non-Statutory Incentive Stock Option Plan.
On January 5, 2000 the Company issued to its legal council one warrant
to purchase 10,000 shares of its common stock at an exercise price of $1.50 per
share. The warrant shall expire on September 21, 2004. This warrant has been
issued to receive favorable payment terms.
In January 2000, options to purchase 72,000 shares of common stock were
exercised resulting in $4,500 of proceeds to the Company. In January 2000, the
Company sold 140,200 shares of its common stock, for an aggregate amount of
$210,300 and issued 70,100 warrants under the terms of the private placement
offering. As of February 1, 2000, this private placement offering had expired
and was replaced by a new private placement as discussed below.
Beginning February 2, 2000, the Company undertook a private placement,
under Regulation D, Rule 505 pursuant to which it offered to sell 2,000,000
shares of common stock at $1.50 per share. Each two shares have a warrant to
purchase an additional share of common stock at $2.50 per share through 2002.
During the period from February 2, 2000 through March 6, 2000, 108,430 shares of
common stock were sold for an aggregate amount of $162,645 and 54,215 warrants
were issued under the terms of this private placement
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) We filed our registration statement Form 10 SB 12g/a on
December 8, 1988 as amended on January 25, 2000 which
23
<PAGE> 28
contained all exhibits that would have been filed with this
filing.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION LOCATION
- -------------- ----------- --------
<S> <C> <C>
3(i) Articles of Incorporation Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 2.1)
3(ii) Bylaws Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 2.2)
4 Instruments defining the Incorporated by reference to Exhibit to the
rights of holders, incl. Registrant's Form 10-SB Registration Statement
Indentures. filed on December 8, 1999 (No. 3)
4.1 Stock Purchase Agreement for Incorporated by reference to Exhibit to the
Founders (Common Stock) Registrant's Form 10-SB Registration Statement
February 26, 1998 filed on December 8, 1999 (No. 3.1)
4.2 Representation Letter for Incorporated by reference to Exhibit to the
Founders Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 3.2)
4.3 Stock Purchase Agreement - Incorporated by reference to Exhibit to the
Private Placement Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 3.3)
4.4 Subscription Agreement - Incorporated by reference to Exhibit to the
Regulation D, Rule 504 Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 3.4)
4.5 Subscription Agreement - Incorporated by reference to Exhibit to the
Regulation D, Rule 506 Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 3.5)
9 Voting trust agreement Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 5) and as
amended January 25, 2000, (No. 9)
10 Material contracts Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6) and as
amended January 25, 2000, (No. 10)
10.1 Assignment of Phemtest Patent Incorporated by reference to Exhibit to the
and Technology Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.1) and as
amended January 25, 2000, (No. 10.1)
10.2 Phemtest Patents, US Incorporated by reference to Exhibit to the
4,945,921 and US 4,787,158 Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.2) and as
amended January 25, 2000, (No. 10.2)
</TABLE>
24
<PAGE> 29
<TABLE>
<S> <C> <C>
10.3 Assignment of Patent and Incorporated by reference to Exhibit to the
Technology - Vladimir Registrant's Form 10-SB Registration Statement
Serebrennikov filed on December 8, 1999 (No. 6.3) and as
amended January 25, 2000, (No. 10.3)
10.4 Assignment of Patent and Incorporated by reference to Exhibit to the
Technology - Leonid Babak Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.4) and as
amended January 25, 2000, (No. 10.4)
10.5 Consultant Agreement - Dr. Incorporated by reference to Exhibit to the
Luis Toledo Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.5) and as
amended January 25, 2000, (No. 10.5)
10.6 Employment Contract - R. Umar Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.6) and as
amended January 25, 2000, (No. 10.6)
10.7 Employment Contract - L. Incorporated by reference to Exhibit to the
Bryant Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.7) and as
amended January 25, 2000, (No. 10.7)
10.8 Non-Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Plan Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.8) and as
amended January 25, 2000, (No. 10.8)
10.9 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Plan Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.9) and as
amended January 25, 2000, (No. 10.9)
10.10 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - R. Umar, Registrant's Form 10-SB Registration Statement
5/10/98 filed on December 8, 1999 (No. 6.10) and as
amended January 25, 2000, (No. 10.10)
10.11 Non-Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - A. Sealy, Registrant's Form 10-SB Registration Statement
7/21/98 filed on December 8, 1999 (No. 6.11) and as
amended January 25, 2000, (No. 10.11)
10.12 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - A. Sealy, Registrant's Form 10-SB Registration Statement
11/27/99 filed on December 8, 1999 (No. 6.12) and as
amended January 25, 2000, (No. 10.12)
10.13 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - A. Sealy, Registrant's Form 10-SB Registration Statement
6/25/99 filed on December 8, 1999 (No. 6.13) and as
amended
</TABLE>
25
<PAGE> 30
<TABLE>
<S> <C> <C>
January 25, 2000, (No. 10.13)
10.14 Indemnification Agreements of Incorporated by reference to Exhibit to the
Directors and Officers Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.14 thru 6.19)
and as amended January 25, 2000, (No. 10.14
thru 10.19)
10.15 Employment Agreement - Leonid Incorporated by reference to Exhibit to the
Babak Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.20)
10.16 Employment Agreement - Incorporated by reference to Exhibit to the
Vladimir Serebrennikov Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.21)
10.17 Employment Agreement - Ardeth Incorporated by reference to Exhibit to the
Sealy Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.21)
10.18 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - A. Sealy, Registrant's Form 10-SB Registration Statement
10/1/99 filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.22)
10.19 Warrant to Purchase Shares of Incorporated by reference to Exhibit to the
Common Stock - The Corporate Registrant's Form 10-SB Registration Statement
Law Group filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.23)
11 Statement re: computation of Incorporated by reference to Part 2, Item 7 of
per share earnings this filing
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-k, no reports on Form 8-k where filed during the quarter
ending December 31, 1999.
26
<PAGE> 31
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
================================================================================
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Balance sheet F-3
Statements of operations F-4
Statements of shareholders' equity (deficit) F-5
Statements of cash flows F-6
Notes to financial statements F-7 - F-25
</TABLE>
F-1
<PAGE> 32
Report of Independent Certified Public Accounts
The Board of Directors and Shareholders of HyperBaric Systems
We have audited the accompanying balance sheet of HyperBaric Systems (a
development stage company referred to as the "Company") as of December 31, 1999
and the related statements of operations, shareholders' equity (deficit), and
cash flows for the year ended December 31, 1999 and for the period from February
26, 1998 (date of inception) to December 31, 1998. We have also audited the
statements of operations, shareholders' equity (deficit) and cash flows for the
period from February 26, 1998 (date of inception) to December 31, 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HyperBaric Systems as of
December, 31, 1999, and the results of its operations and its cash flows for the
year ended December 31, 1999, for the period from February 26, 1998 (date of
inception) to December 31, 1998, and the period from February 26, 1998 (date of
inception) through December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company is
a development stage company with a significant loss to date, a working capital
deficiency and a shareholders' deficit. These conditions raise substantial
doubts about the ability of the Company to continue as a going concern.
Management's plans with regard to these matters are also described in Note 1.
The financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amount and
classification of liabilities that might result from the outcome of this
uncertainty.
/s/ BDO Seidman, LLP
San Jose, California
February 22, 2000
F-2
<PAGE> 33
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
December 31, 1999
- --------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 9) $ 52,100
Prepaid expenses and other assets 3,300
- --------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 55,400
PROPERTY AND EQUIPMENT, net (Note 2) 3,100
- --------------------------------------------------------------------------------------
$ 58,500
======================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable (Note 5) $ 5,000
Accounts payable - trade 128,900
Accrued expenses (Note 3) 104,000
Shareholder payables (Note 4) 113,200
- --------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 351,100
- --------------------------------------------------------------------------------------
COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS (Notes 4, 9 and 10)
SHAREHOLDERS' DEFICIT (Notes 4, 6, 7 and 10):
Common stock, no par value; 1,077,600
50,000,000 shares authorized;
6,395,000 shares issued and outstanding
Deficit accumulated during the development stage (1,370,200)
- --------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIT (292,600)
- --------------------------------------------------------------------------------------
$ 58,500
======================================================================================
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE> 34
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Period from February 26, 1998
(Date of Inception) to
---------------------------------
Year Ended
December 31, December 31, December 31,
1999 1998 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
General and administrative:
Stock based compensation (Note 7) $ 296,500 $ -- $ 296,500
Other general and administrative expenses 510,500 163,500 674,000
- ----------------------------------------------------------------------------------------------------------
Total general and administrative 807,000 163,500 970,500
Research and development 212,500 88,300 300,800
Sales and marketing 52,100 20,800 72,900
- ----------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS 1,071,600 272,600 1,344,200
- ----------------------------------------------------------------------------------------------------------
OTHER EXPENSE (INCOME):
Interest income (600) (1,400) (2,000)
Interest expense 26,400 -- 26,400
- ----------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE (INCOME) 25,800 (1,400) 24,400
- ----------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES 1,097,400 271,200 1,368,600
INCOME TAX EXPENSE (NOTE 8) 800 800 1,600
- ----------------------------------------------------------------------------------------------------------
NET LOSS $(1,098,200) $ (272,000) $(1,370,200)
==========================================================================================================
BASIC AND DILUTED LOSS PER SHARE $ (0.18) $ (0.06)
=======================================================================================
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES 6,171,300 4,905,500
OUTSTANDING
=======================================================================================
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE> 35
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Period from February 26, 1998 (date of Common Stock Development
inception) to December 31, 1999 Shares Amount Stage Total
=============================================================================================================================
<S> <C> <C> <C> <C>
BALANCES, February 26, 1998 (date of inception) -- $ -- $ -- $ --
Issuance of common stock in February 1998 for founders'
services (Note 4) 4,058,000 10,200 -- 10,200
Issuance of common stock for cash in April, July and
December 1998 (Note 4) 413,600 118,400 -- 118,400
Issuance of common stock in September 1998 in REG D
offering, net of offering cost of $10,600 (Notes 4
and 6) 1,000,000 239,400 -- 239,400
Issuance of common stock in September 1998 for cash
paid and services, net of offering cost of $149,400
(Note 4) 600,000 600 -- 600
Net loss -- -- (272,000) (272,000)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 1998 6,071,600 368,600 (272,000) 96,600
- -----------------------------------------------------------------------------------------------------------------------------
Issuance of common stock and warrants for cash during
1999, net of offering costs of $163,100 (Note 6) 287,200 379,500 -- 379,500
Exercise of stock options in August 1999 (Note 4) 31,000 400 -- 400
Issuance of common stock for services in May and
December 1999 5,200 7,800 -- 7,800
Warrants issued in August and September 1999 in
connection with debt securities (Notes 4 and 5) -- 24,800 -- 24,800
Stock based compensation relating to options and
warrants (Note 7) -- 296,500 -- 296,500
Net loss -- -- (1,098,200) (1,098,200)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCES, December 31, 1999 6,395,000 $1,077,600 $(1,370,200) $ (292,000)
=============================================================================================================================
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE> 36
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
For the Period From
February 26, 1998
Year Ended (Date of Inception) to
December 31, December 31, December 31,
1999 1998 1999
===============================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,098,200) $(272,000) $(1,370,200)
Adjustments to reconcile net loss to net cash used
in operating activities:
Stock based compensation 296,500 -- 296,500
Professional services rendered in exchange for 7,800 10,200 18,000
stock
Depreciation 600 -- 600
Amortization of discount on notes payable 24,800 -- 24,800
Changes in current assets and liabilities:
Prepaid expenses and other assets (2,300) (1,000) (3,300)
Accounts payable - trade 117,400 11,500 128,900
Accrued expenses 97,200 6,800 104,000
Related party wages and accrued interest 69,600 12,900 82,500
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (486,600) (231,600) (718,200)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,700) (1,000) (3,700)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 379,900 358,400 738,300
Proceeds from borrowing on notes payable 64,200 -- 64,200
Principal payments on notes payable (28,500) -- (28,500)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 415,600 358,400 774,000
- ---------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (73,700) 125,800 52,100
CASH AND CASH EQUIVALENTS, beginning of period 125,800 -- --
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 52,100 $ 125,800 $ 52,100
===============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 1,600 $ -- $ 1,600
Cash paid for interest $ 200 $ -- $ 200
===============================================================================================================
See accompanying notes to financial statements.
</TABLE>
F-6
<PAGE> 37
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF The Company
SIGNIFICANT
ACCOUNTING HyperBaric Systems (a development stage company referred
POLICIES to as the "Company") was incorporated on February 26,
1998 under the laws of the state of California. The
business purpose of the Company is to develop the
technology for preservation of certain biologic
material, including platelets (a blood component), red
blood cells, heart valves, tissue and organs. The
Company is in the second year of its research and
development activities. The Company's goal is to develop
the technology to extend and maintain functionality of
these materials for much longer periods of time than is
currently possible. The Company's research facility is
located in Krasnoyarsk, Russia.
GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared
on a going concern basis, which contemplates the
realization of assets and the satisfaction of
liabilities in the normal course of business. The
Company is in the development stage, has no operating
revenue and incurred a net loss of approximately
$1,098,200 for the year ended December 31, 1999. The
Company is in the second year of research and
development, with an accumulated loss during the
development stage of $1,370,200, a shareholders' deficit
of $292,600 and a working capital deficiency of
$295,700. As of December 31, 1999, management is
uncertain as to the completion date or if the product
will be completed at all.
These conditions give rise to substantial doubt about
the Company's ability to continue as a going concern.
These financial statements do not include adjustments
relating to the recoverability and classification of
reported asset amounts or the amount and classification
of liabilities that might be necessary should the
Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent
upon its ability to obtain additional financing or sale
of its common stock as may be required and ultimately to
attain profitability.
Management's plan, in this regard, is to complete a
private placement of 2,000,000 shares of common stock at
$1.50 per share (Note 10). Each two shares will have a
warrant to purchase an additional share of common stock
at $2.50 per share. The anticipated proceeds to the
Company will be $2,640,000, net of offering costs.
Management believes this amount will be sufficient to
finance the continuing research for the upcoming year.
However, there is no assurance that the private
placement will be completed.
F-7
<PAGE> 38
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Stock Split
On July 21, 1998, the Company completed a four for one
stock split. All shares and per share data have been
restated to reflect the stock split.
Use of Estimates
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 the reported
amounts of expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. The Company places its cash and cash
equivalents with high quality institutions. At times,
such funds may be in excess of the Federal Deposit
Insurance Corporation limit of $100,000.
Equipment
Equipment is stated at cost, net of accumulated
depreciation. Depreciation is provided on the
straight-line method over five years.
Research and Development Costs
Research and development expenditures are charged to
expense as incurred.
Income Taxes
The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards (SFAS)
No. 109. Under SFAS No. 109, deferred tax liabilities
or assets at the end of each period are determined using
the tax rate expected to be in effect when taxes are
actually paid or recovered. Valuation allowances are
established when necessary to reduce deferred tax assets
to the amount expected to be realized.
F-8
<PAGE> 39
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
New Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS
No. 133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance
sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to
match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or
(ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
The Company has not entered into derivatives contracts
either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect
adoption of the new standard on January 1, 2001 to
affect its financial statements.
Stock Based Compensation
The Company applies Accounting Principles Board (APB)
No. 25, Accounting for Stock Issued to Employees, and
Related Interpretations in accounting for stock options
issued to employees. Under APB Opinion No. 25, employee
compensation cost is recognized when the estimated fair
value of the underlying stock on date of grant exceeds
the exercise price of the stock option. For stock
options and warrants issued to non-employees, the
Company applies SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the recognition of
compensation cost based upon the fair value of stock
options at the grant date using the Black-Scholes option
pricing model.
F-9
<PAGE> 40
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Fair Values of Financial Instruments
The following methods and assumptions were used by the
Company in estimating its fair value disclosures for
financial instruments:
Cash and cash equivalents:
The carrying amount reported in the balance
sheet for cash and cash equivalents approximates
fair value.
Short term debt:
The fair value of short-term debt approximates
cost because of the short period of time to
maturity.
Net Loss Per Common Share
The Company computes net loss per share in accordance
with SFAS No. 128, Earnings per Share. ("SFAS No. 128")
and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic
net loss per share is computed by dividing the net loss
available to common shareholders for the period by the
weighted average number of shares of common stock
outstanding during the period. The calculation of
diluted net loss per share gives effect to common stock
equivalents, however, potential common shares are
excluded if their effect is antidilutive. Potential
common shares are excluded to repurchase rights and
incremental shares of common stock issuable upon the
exercise of stock options and warrants. For the years
ended December 31, 1999 and 1998, options and warrants
to purchase 1,325,300 and 205,000 shares of common
stock, respectively, were excluded from the computation
of diluted earnings per share since their effect would
be antidilutive.
F-10
<PAGE> 41
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Foreign Currency Transactions
Gains or losses resulting from foreign currency
transactions have been insignificant and are included in
the statement of operations when incurred.
2. PROPERTY AND A summary of property and equipment follows:
EQUIPMENT
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------
<S> <C>
Equipment $ 3,700
Less: accumulated depreciation (600)
--------------------------------------------------------
$ 3,100
--------------------------------------------------------
</TABLE>
3. ACCRUED EXPENSES A summary of accrued expenses follows:
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------
<S> <C>
Wages payable $ 81,700
Accrued expenses 22,300
--------------------------------------------------------
$ 104,000
--------------------------------------------------------
</TABLE>
4. RELATED PARTY The Company has entered into various stock purchase
TRANSACTIONS agreements and employment contracts with shareholders of
the Company. As of December 31, 1999, the following
transactions and/or agreements have been consummated:
On February 26, 1998, the Company issued 877,500 shares
of common stock valued at $0.0025 per share to an
officer and director of the Company for services
rendered in organizing and planning the initial business
structure of the Company and for his overall business
expertise and consultation. On July 18, 1998, this
officer purchased 40,000 additional shares of common
stock for $0.25 per share. This officer purchased 2,800
and 1,000 additional shares in September 1998 and
November 1999, respectively.
On February 26, 1998, the Company issued 877,500 shares
of common stock
F-11
<PAGE> 42
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
valued at $0.0025 per share to an officer and director
of the Company for services rendered in organizing
meetings with potential business partners and providing
business contacts.
On February 26, 1998, the Company issued 60,000 shares
of common stock valued at $0.0025 per share to a
director of the Company for services rendered in
organizing meetings with potential business partners and
providing general business consultation services. On
April 6, 1998, this director purchased 60,000 additional
shares of common stock for $0.25 per share and was
issued a warrant to purchase 50,000 shares of restricted
common stock at $0.375 through March 24, 2000. In July
1998, this director purchased 73,600 additional shares
of common stock for $0.25 per share and was issued an
option to purchase 20,000 shares of common stock at
$0.025 per share pursuant to the Company's Non-Statutory
Incentive Stock Option Plan. In May 1999, this director
purchased 3,000 additional shares of common stock for
$1.50 per share. In August 1999, this director exercised
the vested portion of his stock option and purchased
6,000 shares of common stock.
On February 26, 1998, the Company issued 488,000 shares
of common stock valued at $0.0025 per share to three
consultants for technical, translation and business
consultation services rendered.
On May 10, 1998, the Company entered into an Employment
Agreement with Rocky Umar, as the Vice President of
Marketing for a minimum term of one year and whereby he
receives a salary ranging from $2,000 per month to
$10,000 per month, depending upon performance and the
possibility of a commission equal to 1% of sales under
Mr. Umar's management that exceeds $1,500,000 for a
consecutive six-month period, not to exceed a $100,000
commission per 12-month period. Mr. Umar has been
granted an option to purchase 200,000 shares of common
stock at $0.025 per share pursuant to the Company's
Statutory Incentive Stock Option Plan. Further, Mr. Umar
is eligible for a bonus of up to $5,000 after the first
year of employment up to the expiration of the stock
options.
On May 28, 1998, the Company entered into a Consulting
Agreement whereby Dr. Luis Toledo was appointed to the
Company's advisory board. Under the Consulting Agreement
the Company pays Dr. Toledo a commission equal to 5% of
all sales within the organ transplant market for the
lessor of a five year period from the date of the
agreement, or as long as Dr. Toledo remains a consultant
and
F-12
<PAGE> 43
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
advisory board member. Such commission is limited to a
total of $1,000,000. Further, Dr. Toledo, a participant
in the Company's Non-Statutory Incentive Stock Option
Plan, has been granted options to purchase 200,000
shares of common stock of the Company at $0.025 per
share. In addition, Dr. Toledo is eligible for a bonus
of up to $5,000 after the first year as a consultant and
advisory board member.
On June 1, 1998, the Company entered into an Agreement
of Assignment of Patent and Technology with Leonid Babak
and Vladimir Serebrennikov whereby these individuals
assigned to the Company the entire worldwide right,
title and interest in and to their invention of
technology for preserving and transporting biologic and
non-biologic material and in and to all of the
discoveries, concepts and ideas whether patentable or
not. Pursuant to this Agreement on Assignment of Patent
and Technology, each individual received 877,500 shares
of the Company's common stock with an ascribed value of
$2,200, determined at the time of issuance on February
26, 1998 at $0.0025 per share which has been expensed as
research and development.
On June 1, 1998, the Company entered an Employment
Agreement with Leonid Babak, a shareholder, whereby Mr.
Babak is employed as the Branch Chief of Russian
Operations for an indefinite term and receives base
compensation of $400 a month, which salary may be
adjusted and be eligible for a performance based bonus
of $5,000 per year.
On June 1, 1998, the Company also entered into a
separate Employment Agreement with Vladimir
Serebrennikov, a shareholder, whereby Mr. Serebrennikov
is employed as the Technical Director of Preservation
Systems for an indefinite term and the Company pays Mr.
Serebrennikov $400 per month, which salary may be
adjusted, with a bonus of $25,000 upon the successful
completion of the Phase I within the agreed upon time
frame.
On June 24, 1998, the Company appointed Eric Slayton,
President of Global Healthcare, to be a member of the
advisory board. The Company granted to Mr. Slayton an
option to purchase 40,000 shares of common stock of the
Company at $0.025 per share pursuant to the Company's
Non-Statutory Incentive Stock Option Plan.
On September 1, 1998, The Company entered into a
purchase agreement with Paul
F-13
<PAGE> 44
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Okimoto, an officer and director of the Company,
acquiring all rights to a disposable venereal disease
test device called Phemtest, for which Mr. Okimoto owned
the patent. The Company paid to the law firm of Flehr,
Hohbach, Test and Herbert, $1,375 for the patent
maintenance fee, and has also agreed to pay Mr. Okimoto
a royalty payment of 5% of gross sales of Phemtest for
the next five years.
In September 1998, the Company issued 600,000 shares of
common stock to its legal counsel at their fair market
value of $0.25 per share for services rendered in
connection with a private placement (Note 6) and $600
cash for an aggregate value of $150,000. Since the
services related to the offering, the $149,400 cost has
been recorded as a cost of the offering. There was no
effect on operations.
The Company entered into an employment agreement with
David Lucas on January 1, 1999, whereby Mr. Lucas as
Scientific Director oversees the research and
development efforts of the Company. The Company pays Mr.
Lucas $3,000 per month.
On October 28, 1999, the Company entered into an
employment agreement with the Chief Financial Officer
and Secretary for a minimum term of one year. The
compensation will range from $6,000 to $9,200 per month.
In addition, he has been granted three options to
purchase 150,000 shares of restricted common stock at
$0.25, $0.50 and $1.62 per share pursuant to the
Company's Statutory Incentive Stock Option Plan.
Further, he is eligible for a bonus of $1,000 after
January 1, 2000.
On November 20, 1999, the company entered into a
consulting agreement for receiving market information,
technical contracts and business and investor contracts.
In consideration, the Company issued warrants to
purchase up to 800,000 shares of common stock at an
exercise price of $1.50 per share. The warrants will
expire on June 30, 2000.
F-14
<PAGE> 45
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Shareholder payables at December 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
AMOUNT
--------------------------------------------------------
<S> <C>
Wages payable to shareholder employees $ 81,300
Notes payable (1) 30,700
Accrued interest and other 1,200
--------------------------------------------------------
$ 113,200
--------------------------------------------------------
</TABLE>
(1) These notes payable, which bear interest at 10% and
are unsecured, were originally due in November 1999
but were extended to June 30, 2000. Of the balance
outstanding at December 31, 1999, $24,200 is due to
an officer and principal shareholder of the Company.
The remaining $6,500 is payable to two shareholders
who originally loaned the Company $10,000 and were
granted warrants to purchase 5,000 shares of the
Company's common stock at $1.50 per share through
August 2001. The fair value of the warrants as
computed using the Black-Scholes option pricing
model was $5,500 (Note 7), which was recorded as a
discount on the notes payable. This discount has
been fully amortized as of December 31, 1999.
5. NOTES PAYABLE During August and September 1999, two unrelated parties
advanced a total of $30,000 to the Company under the
terms of three unsecured notes bearing interest at 10%
and payable in 90 days. These lenders were also granted
two-year warrants to purchase 15,000 shares of the
Company's common stock at $1.50 per share. The fair
value of the warrants as computed using the
Black-Scholes option pricing model was $19,300 (Note 7),
which was recorded as a discount on the notes payable.
This discount has been fully amortized as of December
31, 1999. The $5,000 outstanding balance of the
remaining notes payable as of December 31, 1999 was
extended to a January 31, 2000 maturity date. On
February 1, 2000, the note and unpaid accrued interest
was repaid in full.
6. COMMON STOCK The Company undertook an offering, under Regulation D,
Rule 504 pursuant to which it sold 1,000,000 shares of
common stock at $0.25 per share to raise $250,000 via an
Offering Memorandum dated August 15, 1998 (the
"Offering"). The Offering commenced on August 15, 1998
and terminated on September 4, 1998. The transfer of
42,800 of the 1,000,000 shares is limited under the
provisions of Rule 144(e) because these shares were
issued to affiliates or control persons and are
therefore control stock. The remaining 957,200 of the
1,000,000 shares were issued to non-affiliates and are
therefore free trading (Note 4).
F-15
<PAGE> 46
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
All of the 1,000,000 shares were issued in reliance on
the Federal exemption from registration under Rule 504
of Regulation D and a Form D relating to these shares
was filed with the U.S. Securities Exchange Commission
(the "SEC") on September 9, 1998.
On June 21, 1999, the shareholders approved an increase
in the authorized number of shares of common stock from
10,000,000 to 50,000,000 shares.
Beginning on September 22, 1999, the Company undertook a
private placement, under Regulation D, Rule 505 pursuant
to which it offered to sell 2,000,000 shares of common
stock at $1.50 per share. Each two shares had a warrant
to purchase an additional share of common stock at $2.50
per share through 2002. During the year ended December
31, 1999, 225,400 shares of common stock were sold under
the terms of this private placement. Except for the
exercise of stock options, all other stock sales in 1999
were to various individuals at $1.50 per share. As
discussed in Note 10, the Company sold an additional
140,200 shares of common stock in January 2000 under the
terms of this private placement which expired on
February 1, 2000.
In May and December 1999, the Company issued 5,200
shares valued at $1.50 per share to two unrelated
parties for services rendered.
7. STOCK OPTION The Company adopted the following plans during 1998:
PLANS AND WARRANTS
Statutory Incentive Stock Option Plan
The purpose of this plan is to strengthen the Company by
providing incentive stock options as a means to attract,
retain and motivate corporate personnel. The options may
not be granted to employees who own stock possessing
more than 10% of the total combined voting power of the
stock of the Company. As of December 31, 1999, 600,000
options have been authorized.
F-16
<PAGE> 47
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
A summary of the status of this plan as of December
31, 1999, and changes during the period from February
26, 1998 (date of inception) to December 31, 1999 is
presented in the following table:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Options Exercise
for Grant Outstanding Price
----------------------------------
<S> <C> <C> <C>
Authorized, February 26, 1998 (date
of inception) 600,000 -- $ --
Granted (250,000) 250,000 0.07
----------------------------------------------------------------------------
Balance, December 31, 1998 350,000 250,000 0.07
Granted (325,000) 325,000 0.58
Forfeited 75,000 (75,000) 0.50
----------------------------------------------------------------------------
Balance, December 31, 1999 100,000 500,000 $0.34
----------------------------------------------------------------------------
</TABLE>
The weighted-average fair value of statutory stock
options granted during 1999 and 1998 was $0.48 and
$0.01, respectively.
The following table summarizes information about
statutory stock options outstanding as of December 31,
1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-----------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise as of Contractual Exercise as of Exercise
Prices 12/31/99 Life Price 12/31/99 Price
=================================================================================
<S> <C> <C> <C> <C> <C>
$0.025 200,000 3.4 years $ 0.025 88,000 $ 0.03
$0.25-$0.50 260,000 2.3 years $ 0.38 37,500 $ 0.25
$1.62 40,000 4.8 years $ 1.62 -- $ --
- ---------------------------------------------------------------------------------
500,000 $ 0.34 125,500 $ 0.09
=================================================================================
</TABLE>
F-17
<PAGE> 48
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
The following table summarizes information about
statutory stock options granted during the year ended
December 31, 1999:
<TABLE>
<CAPTION>
Exercise
Price Equals,
Exceeds or is
Number of Less Than Weighted- Range Weighted-
Options Mkt. Price of Average of Average
Granted Stock on Exercise Exercise Fair
During 1999 Grant Date Price prices Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
75,000 Equals $ 0.50 $0.25-0.50 $ 0.09
-- Exceeds $ -- $ -- $ --
250,000 Less Than $ 0.60 $0.25-1.62 $ 0.59
-------------------------------------------------------------------
325,000 $ 0.58 $ 0.48
===================================================================
</TABLE>
Compensation expense under APB No. 25 relating to
statutory options that became exercisable in 1999 and
1998 was $5,600 and $0, respectively.
Employees may exercise their options to purchase his or
her shares according to the following schedule:
<TABLE>
<CAPTION>
Rocky Umar All others
---------- ----------
<S> <C> <C>
at inception 20% --
after 1st year 24% 30%
after 2nd year 32% 30%
after 3rd year 24% 40%
</TABLE>
Non-Statutory Incentive Stock Option Plan
The purpose of this plan is to promote the interest of
the Company by providing a method whereby non-employees,
advisory board members, members of the board of
directors, consultants and independent contractors, who
provide valuable services to the Company, may be offered
incentives as rewards which will encourage them to
acquire a proprietary interest in the Company. As of
December 31, 1999, 2,000,000 options have been
authorized.
F-18
<PAGE> 49
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
A summary of the status of this plan as of December 31,
1999, and changes during the period from February 26,
1998 (date of inception) to December 31, 1999 is
presented in the following table:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Options Exercise
for Grant Outstanding Price
-----------------------------------
<S> <C> <C> <C>
Authorized, February 26, 1998, (date
of inception) 2,000,000 $ -- $ --
Granted (800,000) 800,000 0.24
-----------------------------------------------------------------------------
Balance, December 31, 1998 1,200,000 800,000 0.24
Granted (142,500) 142,500 0.32
Exercised -- (31,000) 0.01
Forfeited 350,000 (350,000) 0.50
-----------------------------------------------------------------------------
Balance, December 31, 1999 1,407,500 561,500 0.12
=============================================================================
</TABLE>
The weighted-average fair value of non-statutory stock
options granted during 1999 and 1998 was $0.25 and
$0.03, respectively.
The following table summarizes information about
non-statutory stock options outstanding as of December
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise as of Contractual Exercise as of Exercise
Prices 12/31/99 Life Price 12/31/99 Price
=================================================================================
<S> <C> <C> <C> <C> <C>
$0.01-$0.025 381,500 3.5 years $ 0.03 143,500 $ 0.03
$0.10-$0.25 105,000 4.1 years $ 0.18 13,500 $ 0.03
$ 0.50 75,000 4.1 years $ 0.50 -- $ --
=================================================================================
561,500 $ 0.12 157,000 $ 0.03
=================================================================================
</TABLE>
F-19
<PAGE> 50
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Company estimates the fair value of non-statutory
stock options by using the Black-Scholes option
pricing-model with the following weighted-average
assumptions used for grants in 1999 and 1998; no
dividend yield; expected volatility of 33% and 0.001%;
risk free interest rates of 4.6% and 4.7%; and expected
lives of 2.6 years for all plan options.
The following table summarizes information about
non-statutory stock options granted during the year
ended December 31, 1999:
<TABLE>
<CAPTION>
Exercise price
Equals,
Number of Exceeds or is Weighted- Weighted-
Options Less Than Mkt. Average Range of Average
Granted Price of Stock Exercise Exercise Fair
During 1999 on Grant Date Price Prices Value
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
75,000 Equals $ 0.50 $ 0.50 $ 0.06
-- Exceeds $ -- $ -- $ --
67,500 Less Than $ 0.12 $0.01-0.25 $ 0.47
---------------------------------------------------------------------
142,500 $ 0.32 $ 0.25
=====================================================================
</TABLE>
Compensation expense under SFAS No. 123 relating to
non-statutory stock options that became exercisable in
1999 and 1998 was $10,800 and $0, respectively.
Stock Purchase Warrants
In connection with certain business transactions and
debt or equity offerings, the Company has granted
various warrants to purchase common stock. The following
table summarizes activity relating to outstanding
warrants from February 26, 1998 (date of inception) to
December 31, 1999:
<TABLE>
<CAPTION>
Warrants Weighted Average
Outstanding Exercise Price
---------------------------------------------------------------------
<S> <C> <C>
Balance, February 26, 1998 (date
of inception) -- $ --
Granted 100,000 $ 0.38
---------------------------------------------------------------------
Balance, December 31, 1998 100,000 $ 0.38
Granted 942,800 $ 1.62
---------------------------------------------------------------------
Balance, December 31, 1999 1,042,800 $ 1.50
=====================================================================
</TABLE>
F-20
<PAGE> 51
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
The weighted average fair value of warrants granted
during 1999 and 1998 was $0.44 and $0.00, respectively.
The following table summarizes information about
warrants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Number Weighted Average Number
Outstanding as of Remaining Exercisable as
Exercise Price 12-31-99 Contractual Life 12/31/99
-------------------------------------------------------------------------
<S> <C> <C> <C>
$ 0.375 100,000 0.5 years 100,000
$ 1.50 830,000 0.6 years 830,000
$ 2.50 112,800 2 years 112,800
-------------------------------------------------------------------------
1,042,800 1,042,800
=========================================================================
</TABLE>
The following table summarizes information about
warrants granted during the year ended December 31,
1999:
<TABLE>
<CAPTION>
Exercise Price
Equals,
Number of Exceeds or is Weighted-
Warrants Less Than Mkt. Average Range of Weighted-
Granted Price of Stock Exercise Exercise Average
During 1999 on Grant Date Price Prices Fair Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-- Equals $ -- $ -- $ --
912,800 Exceeds $ 1.62 $ 1.50-2.50 $ 0.41
30,000 Less Than $ 1.50 $ 1.50 $ 1.37
------------------------------------------------------------------------
942,800 $ 1.62 $ 0.44
========================================================================
</TABLE>
The Company estimates the fair value of warrants at the
grant date by using the Black-Scholes option
pricing-model with the following weighted-average
assumptions used for grants in 1999 and 1998; no
dividend yield; expected volatility of 157% and 0.001%;
risk free interest rates of 5.3% and 5.16%; and expected
lives of 0.77 and 1.5 years. Compensation expense
relating to warrants granted for services in 1999 and
1998 was $280,100 and $0. In addition, a $24,800
discount on notes payable (Notes 4 and 5) and stock
offering costs totaling $111,800 were recorded in 1999
relating to warrants granted in connection with various
debt and equity transactions.
F-21
<PAGE> 52
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Pro Forma Information
SFAS No. 123 requires the company to provide pro forma
information regarding net loss and loss per share as if
compensation cost for the Company's statutory stock
option plan had been determined in accordance with the
fair market value based method prescribed in SFAS No.
123. The Company estimates the fair market value of
stock options at the grant date by using the
Black-Scholes option pricing-model with the following
weighted average assumptions used for grants in 1999 and
1998: no dividend yielded; expected volatility of 66%
and 0.001%; risk-free interest rates of 4.6% and 5.0%;
and expected lives of 4.8 and 4.2 years.
Under the accounting provisions of SFAS No. 123, the
Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ending December 31, 1999 1998
--------------------------------------------------------
<S> <C> <C>
Net loss:
As reported $(1,098,200) $(272,000)
--------------------------------------------------------
Pro forma $(1,099,600) $(272,200)
--------------------------------------------------------
Basic and diluted loss per share:
As reported $ (0.18) $ (0.06)
--------------------------------------------------------
Pro forma $ (0.18) $ (0.06)
========================================================
</TABLE>
8. INCOME TAXES Income tax expense for the year ended December 31, 1999
and the period from February 26, 1998 (Inception) to
December 31, 1998, comprise:
<TABLE>
<CAPTION>
1999 Current Deferred Total
--------------------------------------------------------
<S> <C> <C> <C>
Federal $ -- $ -- $ --
State 800 -- 800
--------------------------------------------------------
$800 $ -- $800
========================================================
</TABLE>
F-22
<PAGE> 53
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
1998 Current Deferred Total
--------------------------------------------------------
<S> <C> <C> <C>
Federal $ -- $ -- $ --
State 800 -- 800
--------------------------------------------------------
$800 $ -- $800
========================================================
</TABLE>
The following summarizes the difference between the
income tax (benefit) expense and the amount computed by
applying the federal income tax 34% and the state tax
rate of 8.84% (5.83%, net of federal tax benefit) to
loss before income taxes:
<TABLE>
<CAPTION>
1999 1998
========================================================
<S> <C> <C>
Federal income tax benefit at
statutory rate $(373,100) $ (92,500)
State income tax benefit, net
of federal tax effect (64,000) (15,900)
Tax credits (8,400) --
Compensation relating to
stock options and warrants 131,100 --
Tax benefit from losses not
recognized and other 315,200 109,200
--------------------------------------------------------
INCOME TAX EXPENSE $ 800 $ 800
========================================================
</TABLE>
As of December 31, 1999, the Company had net operating
loss carryforwards of approximately $1,038,000 for both
federal and state income tax purposes to offset future
taxable income, if any, through the year 2018. In
addition, the company has research and development tax
credits of approximately $6,500 and $5,000 for federal
and state income tax purposes, respectively.
Deferred income taxes result primarily from differences
in the treatment of depreciation, state income taxes,
and net operating loss carryforwards, for book and tax
purposes. As of December 31, 1999, a 100% valuation
allowance was provided for the gross deferred tax asset
as management could not determine whether its
realization was more likely than not.
F-23
<PAGE> 54
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Deferred tax assets comprise the following:
<TABLE>
<CAPTION>
December 31, 1999
========================================================
<S> <C>
Tax benefit from NOL carryforwards $ 413,400
Credits not currently deductible 11,500
--------------------------------------------------------
Gross deferred tax assets 424,900
Valuation allowances (424,900)
--------------------------------------------------------
NET DEFERRED TAX ASSETS $ --
========================================================
</TABLE>
For the year ended December 31, 1999 and the period
ended December 31, 1998, the Company's valuation
allowance on deferred tax assets increased $315,200 and
$109,700, respectively.
9. CONCENTRATIONS Financial instruments, which potentially subject the
Company to concentration of credit risk, consist
principally of cash and cash equivalents. The Company
places its cash and cash equivalents with high quality
financial institutions.
The Company's research facility is located in
Krashoyarsk, Russia. At December 31, 1999, $10,900 of
the Company's assets related to this facility. Total
operating expenses incurred at this facility in 1999 and
1998 were $167,100 and $90,500, respectively.
10. SUBSEQUENT On January 2, 2000 the Company entered into a promotion
EVENTS agreement with a company to produce a thirty-minute
television documentary that will be aired nationally.
The Company shall participate equally in any revenues
derived from the sales of the show for a period of ten
years. In consideration for this production the Company
shall pay $45,000 and grant a warrant to purchase up to
700,000 shares of common stock at an exercise price of
$1.50 per share. The warrant will expire on January 2,
2010. In addition, the Company has issued stock options,
under the Company's Non-Statutory Incentive Stock Option
Plan, to purchase 100,000 shares of common stock at
$1.50 per share for consulting services. The vesting of
these options has not been determined at this time.
F-24
<PAGE> 55
HYPERBARIC SYSTEMS
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
On January 5, 2000 the Company issued to its legal
council one warrant to purchase 10,000 shares of its
common stock at an exercise price of $1.50 per share.
The warrant shall expire on September 21, 2004.
In January 2000, options to purchase 72,000 shares of
common stock were exercised resulting in $4,500 of
proceeds to the Company.
In January 2000, the Company sold 140,200 shares of its
common stock, for an aggregate amount of $210,300 and
issued 70,100 warrants under the terms of the private
placement offering discussed in Note 6. As of February
1, 2000, this private placement offering had expired and
was replaced by a new private placement as discussed
below.
Beginning February 2, 2000, the Company undertook a
private placement, under Regulation D, Rule 505 pursuant
to which it offered to sell 2,000,000 shares of common
stock at $1.50 per share. Each two shares have a warrant
to purchase an additional share of common stock at $2.50
per share through 2002. During the period from February
2, 2000 through February 22, 2000, 64,900 shares of
common stock were sold and 32,500 warrants were issued
under the terms of this private placement.
F-25
<PAGE> 56
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HyperBaric Systems
(Registrant)
By: /s/ Paul Okimoto
-------------------------------
Name: Paul Okimoto
-------------------------------
Title: Chairman of the Board
-------------------------------
Date: March 23, 2000
-------------------------------
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Harry Masuda
-------------------------------
Name: Harry Masuda
-------------------------------
Title: Chief Executive Officer, President
-----------------------------------------
Date: March 23, 2000
-------------------------------
By: /s/ Ardeth N. Sealy
-------------------------------
Name: Ardeth N. Sealy
-------------------------------
Title: Chief Financial Officer, Secretary
-----------------------------------------
Date: March 23, 2000
-------------------------------
By: /s/ George Tsukuda
-------------------------------
Name: George Tsukuda
-------------------------------
Title: Director
-------------------------------
Date: March 23, 2000
-------------------------------
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION LOCATION
- -------------- ----------- --------
<S> <C> <C>
3(i) Articles of Incorporation Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 2.1)
3(ii) Bylaws Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 2.2)
4 Instruments defining the Incorporated by reference to Exhibit to the
rights of holders, incl. Registrant's Form 10-SB Registration Statement
Indentures. filed on December 8, 1999 (No. 3)
4.1 Stock Purchase Agreement for Incorporated by reference to Exhibit to the
Founders (Common Stock) Registrant's Form 10-SB Registration Statement
February 26, 1998 filed on December 8, 1999 (No. 3.1)
4.2 Representation Letter for Incorporated by reference to Exhibit to the
Founders Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 3.2)
4.3 Stock Purchase Agreement - Incorporated by reference to Exhibit to the
Private Placement Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 3.3)
4.4 Subscription Agreement - Incorporated by reference to Exhibit to the
Regulation D, Rule 504 Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 3.4)
4.5 Subscription Agreement - Incorporated by reference to Exhibit to the
Regulation D, Rule 506 Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 3.5)
9 Voting trust agreement Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 5) and as
amended January 25, 2000, (No. 9)
10 Material contracts Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6) and as
amended January 25, 2000, (No. 10)
10.1 Assignment of Phemtest Patent Incorporated by reference to Exhibit to the
and Technology Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.1) and as
amended January 25, 2000, (No. 10.1)
10.2 Phemtest Patents, US Incorporated by reference to Exhibit to the
4,945,921 and US 4,787,158 Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.2) and as
amended January 25, 2000, (No. 10.2)
</TABLE>
<PAGE> 58
<TABLE>
<S> <C> <C>
10.3 Assignment of Patent and Incorporated by reference to Exhibit to the
Technology - Vladimir Registrant's Form 10-SB Registration Statement
Serebrennikov filed on December 8, 1999 (No. 6.3) and as
amended January 25, 2000, (No. 10.3)
10.4 Assignment of Patent and Incorporated by reference to Exhibit to the
Technology - Leonid Babak Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.4) and as
amended January 25, 2000, (No. 10.4)
10.5 Consultant Agreement - Dr. Incorporated by reference to Exhibit to the
Luis Toledo Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.5) and as
amended January 25, 2000, (No. 10.5)
10.6 Employment Contract - R. Umar Incorporated by reference to Exhibit to the
Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.6) and as
amended January 25, 2000, (No. 10.6)
10.7 Employment Contract - L. Incorporated by reference to Exhibit to the
Bryant Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.7) and as
amended January 25, 2000, (No. 10.7)
10.8 Non-Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Plan Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.8) and as
amended January 25, 2000, (No. 10.8)
10.9 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Plan Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.9) and as
amended January 25, 2000, (No. 10.9)
10.10 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - R. Umar, Registrant's Form 10-SB Registration Statement
5/10/98 filed on December 8, 1999 (No. 6.10) and as
amended January 25, 2000, (No. 10.10)
10.11 Non-Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - A. Sealy, Registrant's Form 10-SB Registration Statement
7/21/98 filed on December 8, 1999 (No. 6.11) and as
amended January 25, 2000, (No. 10.11)
10.12 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - A. Sealy, Registrant's Form 10-SB Registration Statement
11/27/99 filed on December 8, 1999 (No. 6.12) and as
amended January 25, 2000, (No. 10.12)
10.13 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - A. Sealy, Registrant's Form 10-SB Registration Statement
6/25/99 filed on December 8, 1999 (No. 6.13) and as
amended
</TABLE>
<PAGE> 59
<TABLE>
<S> <C> <C>
January 25, 2000, (No. 10.13)
10.14 Indemnification Agreements of Incorporated by reference to Exhibit to the
Directors and Officers Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 (No. 6.14 thru 6.19)
and as amended January 25, 2000, (No. 10.14
thru 10.19)
10.15 Employment Agreement - Leonid Incorporated by reference to Exhibit to the
Babak Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.20)
10.16 Employment Agreement - Incorporated by reference to Exhibit to the
Vladimir Serebrennikov Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.21)
10.17 Employment Agreement - Ardeth Incorporated by reference to Exhibit to the
Sealy Registrant's Form 10-SB Registration Statement
filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.21)
10.18 Statutory Incentive Stock Incorporated by reference to Exhibit to the
Option Grant - A. Sealy, Registrant's Form 10-SB Registration Statement
10/1/99 filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.22)
10.19 Warrant to Purchase Shares of Incorporated by reference to Exhibit to the
Common Stock - The Corporate Registrant's Form 10-SB Registration Statement
Law Group filed on December 8, 1999 and as amended
January 25, 2000, (No. 10.23)
11 Statement re: computation of Incorporated by reference to Part 2, Item 7 of
per share earnings this filing
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the form
10-KSB at December 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1
<SECURITIES> 52,100
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 55,400
<DEPRECIATION> 3,700
<TOTAL-ASSETS> 600
<CURRENT-LIABILITIES> 58,500
<BONDS> 351,100
0
0
<COMMON> 0
<OTHER-SE> 1,077,600
<TOTAL-LIABILITY-AND-EQUITY> (1,370,200)
<SALES> 58,500
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,071,600
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,400
<INCOME-TAX> (1,097,400)
<INCOME-CONTINUING> 800
<DISCONTINUED> (1,098,200)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,098,200)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
