U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2000
COMMISSION FILE NO. 0-28413
HYPERBARIC SYSTEMS
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 77-0481056
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1127 HARKER AVENUE
PALO ALTO, CALIFORNIA 94301
(Address of principal executive offices)
650-323-0943
(Issuer's telephone number)
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. Yes X No
At November 10, 2000, the registrant had outstanding 7,924,228 shares
of common stock, no par value.
Transitional Small Business disclosure format: Yes No X
HYPERBARIC SYSTEMS
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS - as of September 30, 2000
(unaudited) and December 31, 1999 3
STATEMENTS OF OPERATIONS (unaudited)
-- For the Three Month Periods Ended September
30, 2000 and 1999, for the Nine Month Periods
Ended September 30, 2000 and 1999 and the Period
from February 26, 1998 (Commencement of Operations)
through September 30, 2000 4
STATEMENTS OF CASH FLOWS (unaudited)
-- For the Nine Month Periods Ended September 30,
2000 and 1999, and the Period from February 26, 1998
(Commencement of Operations) through September 30, 2000 5
NOTES TO UNAUDITED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S PLAN OF OPERATION 8
PART II - OTHER INFORMATION 11
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HYPERBARIC SYSTEMS
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 2000 December 31, 1999
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $ 1,400 $ 52,100
Prepaid expenses and other assets 8,700 3,300
------- -------
Total Current Assets 10,100 55,400
Property and Equipment, net 8,000 3,100
------- -------
$ 18,100 $ 58,500
------- -------
Liabilities and Shareholders' Deficit
Current Liabilities:
Notes payable $ 0 $ 5,000
Accounts payable - trade 122,200 128,900
Accrued expenses -payable 88,100 104,000
Shareholder payables 277,900 113,200
Shares subject to rescission 334,400 0
------- -------
Total Current Liabilities 822,600 351,100
------- -------
Long Term Liabilities
Shareholder Note Payable 130,000 0
------- -------
Total Liabilities 952,600 351,100
------- -------
Commitments and Contingencies
Shareholders' Deficit:
Common stock, no par value;
50,000,000 shares authorized;
7,190,800 and 6,395,000 shares issued and
outstanding at September 30, 2000 and
December 31, 1999 2,248,200 1,077,600
Deficit accumulated during the development stage (3,182,700) (1,370,200)
--------- ---------
Total Shareholders' Deficit (934,500) (292,600)
--------- ---------
$ 18,100 $ 58,500
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
HYPERBARIC SYSTEMS
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended February 26, 1998
September 30, September 30, (Inception)
2000 1999 2000 1999 Through
Operating Expenses: September 30, 2000
General and administrative:
Stock based compensation $ 26,100 $ - $ 866,900 $ 6,100 $ 1,163,400
Other general and
administrative expenses 157,000 108,700 556,300 260,100 1,230,300
------- ------- --------- -------- ---------
Total general and administrative 183,100 108,700 1,423,200 266,200 2,393,700
Research and development 89,600 48,700 251,500 150,900 552,300
Sales and marketing 9,600 9,900 50,000 32,000 122,900
------- ------- --------- -------- ---------
Loss From Operations (282,300) (167,300) (1,724,700) (449,100) (3,068,900)
------- ------- --------- -------- ---------
Other Expense (Income):
Interest income -- -- (400) (600) (2,400)
Interest expense 29,100 12,000 87,400 12,000 113,800
------- ------- --------- -------- ---------
Total Other Expense (Income) 29,100 12,000 87,000 11,400 111,400
------- ------- --------- -------- ---------
Loss Before Income Taxes (311,400) (179,300) (1,811,700) (460,500) (3,180,300)
------- ------- --------- -------- ---------
Income Tax Expense -- -- 800 800 2,400
------- ------- --------- -------- ---------
Net Loss $ (311,400) $ (179,300) $(1,812,500) (461,300) $ (3,182,700)
------- ------- --------- -------- ---------
Basic and Diluted Loss Per Share $ (0.04) $ (0.03) $ (0.26) $ (0.08)
------- ------- --------- --------
Basic and Diluted Weighted
Average Common Shares Outstanding 7,081,600 6,157,300 6,879,400 6,125,400
--------- --------- --------- ---------
</TABLE>
For the three and nine months ended September 30, 2000 and 1999,
options and warrants to purchase 2,612,900 and 1,175,500 shares
of common stock, respectively, were excluded from the computations
of diluted earnings per share since their effect would be
antidilutive.
See accompanying notes to unaudited financial statements.
HYPERBARIC SYSTEMS
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
February 26, 1998
Nine Months Ended (Inception)
September 30, Through
2000 1999 September 30, 2000
Cash Flows From Operating Activities:
Net loss $ (1,812,500) $ (461,300) $ (3,182,700)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock based compensation 866,900 6,100 1,163,400
Professional services rendered in
exchange for stock 37,500 0 55,500
Depreciation 1,200 400 1,800
Amortization of discount on notes payable 84,500 0 109,300
Changes in current assets and liabilities:
Prepaid expenses and other assets (5,500) (1,000) (8,700)
Accounts payable - trade 60,000 29,600 122,200
Accrued expenses payable (82,400) 107,200 88,100
Related party wages and accrued interest 133,100 91,400 215,500
------- ------- ---------
Net Cash Used In Operating Activities (717,200) (227,600) (1,435,600)
------- ------- ---------
Cash Flows From Investing Activities:
Purchase of property and equipment (6,100) (2,700) (9,800)
------- ------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 515,900 127,100 1,254,400
Proceeds from borrowing on notes payable 161,700 0 232,400
Principal payments on notes payable (5,000) 0 (40,000)
------- ------- ---------
Net Cash Provided By Financing Activities 672,600 127,100 1,446,800
------- ------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (50,700) (103,200) 1,400
Cash and Cash Equivalents, beginning of period 52,100 125,800 0
------- ------- ---------
Cash and Cash Equivalents, end of period $ 1,400 $ 22,600 $ 1,400
------- ------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $ 800 $ 800 $ 2,400
Cash paid for interest 600 0 800
------- ------- ---------
</TABLE>
Supplemental disclosure of non-cash investing and financing activity:
During the nine months ending September 30, 2000, the company
recorded a $334,400 liability for its estimated exposure relating
to an offer made to investors to rescind their investment in the
Company's common stock.
See accompanying notes to unaudited financial statements.
HYPERBARIC SYSTEMS
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements at September 30, 2000 and
for the three and nine month periods ended September 30, 2000 and 1999 are
unaudited and have been prepared by HyperBaric Systems (the "Company").
Certain information and footnote disclosures normally included in
the Company's audited annual financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted in the Company's interim financial statements. In the opinion of
management, the interim financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair
representation of financial position and results of operations and cash
flows for the interim periods presented.
The results of operations for the interim periods may not
necessarily be indicative of the results of operations expected for the
full year, although the Company expects to incur a significant loss for
the year ending December 31, 2000. These interim financial statements
should be read in conjunction with the audited financial statements for
the year ended December 31, 1999, which are contained in the Company's
most recent Annual Report on Form 10-KSB.
2. USE OF ESTIMATES
The preparation of the 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(s) of the financial statements and the reported amounts of revenues
and expenses during the reporting period(s). Actual results could differ
from those estimates.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
HyperBaric Systems (a development stage company referred 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 beginning its third year of 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 $1,812,500 for the nine months ended September
30, 2000. The Company is in the third year of research and development,
with an accumulated loss during the development stage of $3,182,700, a
shareholders' deficit of $934,500 and a working capital deficiency
$812,500. The net cash used in operating activities was approximately
$717,200 for the nine months ending September 30, 2000 and with an
accumulated usage of $1,435,600 since inception. As of September 30,
2000, management is uncertain as to the completion date or if the product
will be completed at all.
The Company has extended to stockholders who have purchased its
common stock under the private placement memoranda dated September 1, 1999
and February 2, 2000, the option to rescind their investment. The option
expired on September 15, 2000. The Company has received notice from 22
investors, represent 222,900 shares, with a rescission value of $334,400.
A Rescission Agreement has mailed to these investors during October 2000,
requiring its return within five days of its signing. The terms of the
Agreement are to return the certificate or certificates evidencing the
Investor's Shares and Warrants. In exchange, the Company will issue a
promissory note payable upon the earlier of (1) one year form the date of
the note, or the receipt of funding sufficient to permit repayment of the
principal and interest due under the note. The note will bear an
interest rate of 10% per annum, compounded annually.
These conditions give rise to substantial doubt about the Company's
abiliy 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 from borrowings or sales
of its common stock, as may be required, and ultimately to attain
profitability.
The Company intends to secure funding in the immediate future by
borrowing available funds under a loan agreement with its shareholder and
to raise additional funds through other offerings of debt or equity.
Management believes that the amount current availability under a loan
agreement will be sufficient to finance the continuing research for the
upcoming three months. There is no assurance that the Company will be
able to obtain any such funds.
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.
4. Common Stock and Stock Options and Warrants
During the nine months ended September 30, 2000, the Company sold
765,300 shares of its common stock for an aggregate amount of $515,900 and
issued 173,800 warrants under the terms of two private placements. The
investors under these private placements have been extended an offer
allowing them to rescind their investment as described above. During the
nine months ended September 30, 2000, options and warrants to purchase
370,600 shares of common stock were exercised resulting in $22,900 of
proceeds to the Company. The company issued 30,000 shares for an
aggregate amount of $37,500 in exchange for service on September 30, 2000.
On January 2, 2000, the Company entered into a promotion agreement
with a consultant 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 paid $45,000 and granted
warrants to purchase up to 700,000 shares of common stock at an exercise
price of $1.50 per share. The warrants will expire on January 2, 2010.
Under the agreement, the warrants will vest as and if certain milestones
are met. If the services are not provided and the agreement is terminated,
the consultant will forfeit those warrants not vested. The company is
accounting for this transaction in accordance with Emerging Issues Task
Force No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring or in Conjunction with Selling, Goods
or Services." Because this transaction does not contain a performance
commitment, the final value of the warrants will be measured as they vest
on the date that each milestone is met. During the six months ended
June 30, 2000, warrants to purchase 700,000 shares of common stock vested,
and the Company recognized $805,000 in compensation expense. Additionally,
since the warrants were not registered with the Securities and Exchange
Commission by September 2000, the consultant is entitled to an additional
ten-year warrant to purchase 50,000 shares of common stock at an exercise
price of $1.50 per share. Also, the promotion agreement specifies that
the Company has to issue 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, vesting over three years.
Subsequent to September 30, 2000, the Company sold an additional
74,000 sares of its common stock, for $20,000. The company issued 690,000
shares of its common stock for services rendered under two promotion
agreements for an aggregate value of $179,400.
.
5. Shareholder Notes Payable
On June 12, 2000, the Company entered into an unsecured loan
agreement with a shareholder to borrow a principal amount of up to $500,00.
The term of the loan is four years, with an interest rate of 10%
commencing one year from the date of each draw down of the loan. The
lender may convert this loan to restricted common stock, at $0.75 per
share, based on the maturity of the loan; up to 25% of the unpaid balance
may be converted after the first year anniversary, up to 50% of the unpaid
balance may be converted after the second year, and up to 75% of the
unpaid balance may be converted after the third year. Due to the
conversion feature of the debt and the Company's historical range of
common stock prices, the Company anticipates they will record significant
amounts of deemed interest expense in the future as funds are drawn on
the loan. During the nine months ened September 30, 2000, the Company
recorded $27,700 of deemed interest expense relating to this conversion
feature. Prepayment of the loan during the first year may be done without
notice and the lender shall have not further conversion rights. In the
event the company closed a public offering of shares of common stock, for
an aggregate amount of at least $1,000,000, the principal and accrued
interest due on the loan will be automatically converted into the
company's common stock. Prepayment after the first year requires the
company to give a 15-day notice. The lender was also granted a four-year
warrant to purchase 500,000 shares of the Company's common stock at $0.30
per share. The fair value of the warrant as computed using the Black-
Scholes option pricing model was $682,500, of which $56,900 was recorded
as interest expense during the nine months ending September 30, 2000.
The company has borrowed $130,000 under this loan agreement as of
September 30, 2000. Subsequent of September 30, 2000, the Company
borrowed an additional $14,000 under this loan agreement.
Item 2. Management's Plan of Operation.
Item 2. Management's Plan of Operation.
Certain statements in this Form 10-QSB, 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, expressedor implied by the
forward-looking statements.
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 pre-clinical 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 and developing solutions that will operate under
refrigerated and sub-zero temperature conditions.
We anticipate filing additional patents 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.
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, our viability
is dependent on borrowings available under our loan agreement with a
shareholder. We anticipate that the proceeds from this financing
will be sufficient to sustain operations through December 2000. In
order to continue operations beyond this period , 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.
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 the company's
line of credit with a shareholder.
Going Concern
We are in the third year of research and development,
with an accumulated loss during the development stage
of $3,182,700, shareholders' deficit of $934,500 and a working
capital deficiency of $812,500. As of September 30, 2000 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.
The Company has extended to shareholders who have purchased
its common stock under two private placements dated September 1, 1999
and February 2, 2000 the option to rescind their investment, with an
expiration date on this option of September 15, 2000. The Company has
received notice from 22 investors who represent 222,900 shares with a
rescission value of $334,400. A Rescission Agreement has been
mailed to these investors during October 2000, requiring its return
within five days of its signing. The terms of the Agreement are to
return the certificate or certificates evidencing the Investor's
Shares and Warrants. In exchange, the Company will issue a promissory
note payable upon the earlier of (1) one year form the date of the note,
or the receipt of funding sufficient to permit repayment of the principal
and interest due under the note. The note will bear and interest
rate of 10% per annum, compounded annually.
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. The
Company's 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. Our continuation as a going concern
is dependent upon our ability to obtain additional
financing from the sale of our common stock, as may be required,
and ultimately to obtain profitability.
The Report of our Independent Certified Public Accountants,
included in the Company's most recent Annual Report on Form 10-KSB,
contains an uncertainty paragraph regarding the Company's ability
to continue as a going concern.
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 have
paid $3,000 and are committed to pay an additional $4,645 of a work
order total maximum of $20,000 for developing a detailed strategic
development plan for our platelet storage system. The remaining $12,355
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.
Research and Development Plan
We have developed a research and development strategy that
considers the FDA and international approval process and its impact on
bringing a product to market. Based on these constraints we have
developed a research and development plan that requires multiple
developments being conducted at the same time.
We have developed a 4-phase marketing strategy that considers
FDA and international approval processes,with estimated time requirements
for the research and development of the products, and market introduction
of these products. The plan starts with phase 1, a platelet preservation
product using the PlexLife solution by itself. The second phase is the
market introduction of the Complete PlexLife System. Our third phase of
marketing will be the entry into the organ preservation market, with
both solution and a complete system. Phase 4 is the entry into the
tissue preservation market place, with solutions and a system for heart
valves.
Our current research and development is supporting the first
three phases of the marketing strategy. Major efforts are being spent
on the PlexLife solution, the solution for organ preservation and the
complete PlexLife system.
a. Platelet Preservation - Solution Only
The plan starts with a platelet preservation product using
the PlexLife solution by itself. A 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.
b. Platelet Preservation - Complete PlexLife System
This 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.
c. Organs and Heart Valves
This effort 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.
Currently we are in the development of a preservation
solution for the kidney and other organs that would
compete with currently available products such as the University of
Wisconsin (UW) solution and the Euro-Collins solution will be our
immediate goal with respect to Phase 3 objectives. This will be followed
by the development of longer term storage systems, which will require
a new solution that is able to withstand sub-zero temperatures.
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.
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 is contained in the Company's most recent Annual
Report on Form 10-KSB.
Plant and Significant Equipment Requirements
It is our plan to purchase computer equipment, laboratory
equipment and office furniture over the next twelve
months. 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.
Changes in the Number of Employees
We anticipate that the growth of the company will
require the addition of several employees The Company has
hired Luis Toledo, M.D., Ph.D. as our Chief Medical Officer
and Executive Vice President in March of this year, who
is an expert in the field of organ preservation and transplantation.
The addition of employees will be made on an as
required basis.
Audit Committee
The Company has not formed an audit committee as
of this time. The Company plans to form an audit
committee within the next two months.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the nine months ended September 30, 2000, the Company
sold 765,300 shares of its common stock for an aggregate amount
of $515,900 and issued 173,800 warrants under the terms of two
private placements. The investors under these private placements
have been extended an offer allowing them to rescind their
investmentas described above. During the nine months
ended September 30, 2000, options and warrants to purchase
370,600 shares of commonstock were exercised resulting in
$22,900 of proceeds to the Company. Services were received
in exchange for 30,000 shares with a value of $37,500.
On January 2, 2000, the Company entered into a promotion agreement
with a consultant 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 paid $45,000 and granted warrants to purchase up to
700,000 shares of common stock at an exercise price of $1.50 per
share. The warrants will expire on January 2, 2010. Under the
agreement, the warrants will vest as and if certain milestones are
met. If the services are not provided and the agreement is
terminated, the consultant will forfeit those warrants not
vested. The company is accounting for this transaction in
accordance with Emerging Issues Task Force No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring or in Conjunction with Selling,
Goods or Services." Because this transaction does not contain a
performance commitment, the final value of the warrants
will be measured as they vest on the date that each milestone is met.
During the nine months ended September 30, 2000, warrants to
purchase 700,000 shares of common stock vested, and the Company
recognized $805,000 in compensation expense. Additionally, since
the warrants were not registered with the Securities and Exchange
Commission by September 2000, the consultant is entitled to an
additional ten-year warrant to purchase 50,000 shares of common
stock at an exercise price of $1.50 per share. Also, the promotion
agreement specifies that the Company has to issue 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, vesting over three years.
Subsequent to September 30, 2000, the Company sold an
additional 74,000 shares of its common stock, for
$20,400. The Company issued 690,000 shares of its common
stock for an aggregate value of $179,400, in consideration of
work performed under two promotional agreements. Additional
borrowings, subsequent to September 30, 2000, of $14,000 were
made under the company's line of credit with a stockholder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Unsecured Promissory Note, H. Masuda, August 28, 2000
10.2 Unsecured Promissory Note, H. Masuda, September 13, 2000
10.3 Unsecured Promissory Note, H. Masuda, September 18, 2000
10.4 Unsecured Promissory Note, H. Masuda, September 27, 2000
10.5 Consulting Agreement, Victor Ivashin, July 1, 2000
10.6 Investor Relations Program, Yes International, July 10, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HYPERBARIC SYSTEMS
Date: November 14, 2000 /s/ Harry Masuda
-----------------
Harry Masuda
Chief Executive Officer
(Duly authorized officer and principal financial officer)
EXHIBITS
10.1 Unsecured Promissory Note, H. Masuda, August 28, 2000
HyperBaric Systems
1127 Harker Avenue
Palo Alto, CA 94301
UNSECURED PROMISSARY NOTE
August 28, 2000
HyperBaric Systems (Company), a California Corporation,
does hereby promise to pay Harry
Masuda an amount of $5,500, for sums
loaned the Company this date. The principal
amount plus any unpaid interest earned at 10%
per annum is due upon demand. This note is
unsecured.
HyperBaric Systems
/s/ Ardeth Sealy
------------
Ardeth Sealy
Chief Financial Officer, Secretary
10.2 Unsecured Promissory Note, H. Masuda, September 13, 2000
HyperBaric Systems
1127 Harker Avenue
Palo Alto, CA 94301
UNSECURED PROMISSARY NOTE
September 13, 2000
HyperBaric Systems (Company), a California Corporation,
does hereby promise to pay Harry Masuda an amount of
$5,500, for sums loaned the Company this date. The
principal amount plus any unpaid interest earned at
10% per annum is due upon demand. This note is
unsecured.
HyperBaric Systems
/s/ Ardeth Sealy
------------
Ardeth Sealy
Chief Financial Officer, Secretary
10.3 Unsecured Promissory Note, H. Masuda, September 18, 2000
HyperBaric Systems
1127 Harker Avenue
Palo Alto, CA 94301
UNSECURED PROMISSARY NOTE
September 18, 2000
HyperBaric Systems (Company), a California Corporation,
does hereby promise to pay Harry Masuda an amount of $200,
for sums loaned the Company this date. The principal amount
plus any unpaid interest earned at 10% per annum is due
upon demand. This note is unsecured.
HyperBaric Systems
/s/ Ardeth Sealy
------------
Ardeth Sealy
Chief Financial Officer, Secretary
10.4 Unsecured Promissory Note, H. Masuda, September 27, 2000
HyperBaric Systems
1127 Harker Avenue
Palo Alto, CA 94301
UNSECURED PROMISSARY NOTE
September 27, 2000
HyperBaric Systems (Company), a California Corporation,
does hereby promise to pay Harry Masuda an amount of $7,000,
for sums loaned the Company this date. The principal amount
plus any unpaid interest earned at 10% per annum
is due upon demand. This note is unsecured.
HyperBaric Systems
/s/ Ardeth Sealy
------------
Ardeth Sealy
Chief Financial Officer, Secretary
10.5 Consulting Agreement, Victor Ivashin, July 1, 2000
CONSULTANT AGREEMENT
THIS AGREEMENT is made effective July 1, 2000 between HYPERBARIC
SYSTEMS, whose address is 1127 Harker Avenue, Palo Alto, CA 94301,
incorporated under the laws of the State of California,
hereinafter called "COMPANY", and VICTOR IVASHIN, whose address
is 3645 Midway Drive, Santa Rosa, CA 95405 hereinafter called
"CONSULTANT".
WITNESSETH:
I . PURPOSE OF AGREEMENT. HYPERBARIC SYSTEMS is a duty established
California corporation engaged in the business of designing,
manufacturing and marketing products for the medical, food and
semiconductor industries, and CONSULTANT represents that he has
expertise in the area of electromechanical systems design and
mechanical configuration design. This agreement between COMPANY
and CONSULTANT is entered into for the purpose of defining the
relationship,responsibilities, and agreement between
COMPANY and CONSULTANT.
2. CONSULTANT: COMPANY hereby appoints Victor Ivashin to
assist in the design of a computer controlled system to monitor and
apply environmental conditions to a chamber used to preserve blood
products (platelets) and other biological material, and to assist in
future container design.
3. CONSULTANT DUTIES AND RESPONSIBILITIES: CONSULTANT shall
be engaged as a Consultant with the following tasks:
a. Make suggestions on the design and operation of two test
stations that will control the temperature, pressure and changes in
those parameters within the chamber used to preserve platelets
and organs.
b. Review all design work and make necessary recommendations.
c. Work with COMPANY assigned engineers to define the
specifications of operation of the test stations.
d. Make recommendations to select the appropriate vendor(s) in
the U.S. when necessary and when such components are not available at
the Branch in Russia.
e. Research and recommend materials for future container
designs to maximize cost and safety.
4. CONSULTANT'S PERFORMANCE.. CONSULTANT agrees to devote a
reasonable amount of time to meet the objectives outlined in Paragraph
3 above. The Company acknowledges that Consultant is
not an employee of the Company.
5. TERM. The term of this Agreement shall be effective for
a period of 90 days from the date of this Agreement unless terminated
earlier by fulfillment of the services to be provided. This agreement
may be extended upon the mutual consent of both parties.
6. STOCK OPTION. For the purpose of compensating CONSULTANT,
COMPANY shall grant a non-qualified stock option to purchase 30,000
shares of common stock at the exercise price of $ 0.1O per share
which is fully vested for previous work already performed against
Paragraph 3 above. An additional option to purchase 30,000 shares at
an exercise price of $0.30 per share shall be granted for the balance
of work to be performed under Paragraph 3. The second option shall vest
upon the successful completion of terms of this agreement, as defined in
section 3, but no later than July 1, 2001. The COMPANY'S non-qualified
incentive stock option plan, agreement and grant shall govern the terms
and conditions of this stock option. The option is subject to final
approval of the Board of Directors.
7. TERMINATION UPON BREACH. This Agreement shall be
terminated upon material breach of any of the provisions herein,
or breach of the material provisions of any and all supplemental
agreements which the CONSULTANT and COMPANY may mutually execute.
8. CONFIDENTIALITY AGREEMENT. CONSULTANT agrees that all
information made available to CONSULTANT regarding the products,
clients and software systems of COMPANY are confidential and
require a high degree of confidentiality so as not to violate
the rights of others and to prevent the use thereof for purposes
detrimental to the interests of COMPANY and its clients. Such
information in any 2 form shall be hereinafter referred to as
"INFORMATION." For purposes of this Agreement:
a. CONFIDENTIAL INFORMATION means INFORMATION disclosed to or
acquired by CONSULTANT while employed by COMPANY, and includes but
is not limited to, INVENTIONS, Patent Applications, TRADE SECRETS, any
other information of value relating to the business and/or field
of interest of COMPANY including information with respect to which
COMPANY is under an obligation of confidentiality with any third party.
CONFIDENTIAL INFORMATION does not include information that is
generally known in the relevant trade or industry or any information
known to and freely usable by CONSULTANT before CONSULTANT'S
association with COMPANY, provided, however, information for purposes
of this Agreement shall be considered CONFIDENTIAL INFORMATION if not
known by the trade generally, even though such infon-nation has been
disclosed to one or more third parties pursuant to distribution agreements
joint research agreements, or other agreements entered into by COMPANY;
b. TRADE SECRET(S) means all information, know-how, concepts, data,
knowledge, ideas and materials however embodied, relating to the business
of COMPANY'S customers which have not been released publicly by an
authorized representative of COMPANY or have not otherwise lawfully
entered the public domain. TRADE SECRETS shall include but are not
limited to information, know-how, concepts, data, knowledge,
computer programs, ideas and materials relating to COMPANY'S
existing and future products, processes, research and development,
technology, production costs, contract forms, drawings, designs,
plans, proposals, marketing and sales plans and strategies, cost or
pricing information, financial information, promotional
methods, volume of sales, names or classes of customers and
vendors, management procedures, organization charts, and
CONSULTANT directories.
9. PROPRIETARY INFORMATION OF OTHERS. CONSULTANT shall
not use or disclose to COMPANY, or induce COMPANY to use, any
information, know-how, concepts, data, knowledge, computer
programs, ideas or materials, however embodied, with respect
to which CONSULTANT is under an obligation of confidentiality to
any third party imposed, by law or agreement prior to the date
Hereof. COMPANY represents and covenants that it will not
require CONSULTANT to violate any obligation to, or
confidence with, another.
10. SECRECY AGREEMENT. CONSULTANT acknowledges that he
understands the requirement for CONFIDENTIAL INFORMATION to be
kept secret and used only as authorized herein. CONSULTANT shall at
all times during the period of his association with COMPANY under
this agreement and thereafter keep in confidence and trust
all CONFIDENTIAL INFORMATION. CONSULTANT shall use CONFIDENTIAL
INFORMATION only in the course of performing duties as Consultant
and Advisory Board Member for the Company and other duties as
assigned by the Company President, and not for unrelated personal
gain. CONSULTANT shall not, directly or indirectly, disclose any
CONFIDENTIAL INFORMATION to any person, organization or entity,
except in the course of performing duties as a CONSULTANT of
COMPANY and only in the manner prescribed by COMPANY. CONSULTANT
shall abide by those COMPANY policies and regulations established
from time to time for the protection of CONFIDENTIAL INFORMATION.
During CONSULTANT'S association with COMPANY under this Agreement,
and after termination thereof, CONSULTANT shall not directly,
or indirectly, either as an CONSULTANT, COMPANY, agent, principal,
partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in
any activity of any nature whatsoever, the performance of which
would have a reasonable likelihood of placing CONSULTANT in conflict
with the obligations of confidence and trust regarding CONFIDENTIAL
INFORMATION imposed herein.
11. RETURN OF DOCUMENTS AND MATERIALS. CONSULTANT agrees
that all docwnents, reports, drawings, materials, designs, plans,
computer programs, proposals, marketing and sales plans,
reproductions, and other documents or things made by CONSULTANT
or that come into CONSULTANT'S possession in the course of employment
with COMPANY are the property of COMPANY and will not be used by
CONSULTANT for any purpose other than the business of COMPANY.
CONSULTANT will not deliver, reproduce or in any way allow such
documents or things to be delivered or be used by any third parties
without specific direction or consent of COMPANY. Upon termination
of this Agreement, CONSULTANT will promptly deliver to COMPANY the
above documents and materials together with any copies thereof.
12. NO DISCLOSURE. CONSULTANT agrees not to divulge,
disclose, convey or make known to others or any other entity, any
such information without the express written consent of the President
of HyperBaric Systems first obtained. CONSULTANT further agrees
to take all necessary steps to safeguard such information to prevent
the unauthorized disclosure thereof.
13. INJUNCTION. Recognizing that irreparable damage will
result to the business of COMPANY in the event of the breach of
any of these covenants and assurances by CONSULTANT, the parties
hereto agree that if CONSULTANT shall violate the terms of this
Agreement, COMPANY shall be entitled to an injunction to be issued
by any court of competent jurisdiction enjoining and restraining
CONSULTANT and each and every person, fmn, association, partnership,
company, or corporation concerned therewith, from the continuance of
such violation of the terms of this Agreement, and in addition thereto,
CONSULTANT shall pay to COMPANY all damages, including reasonable
attorneys' fees sustained by COMPANY by reason of the violation of
this Agreement. However, in no event shall the total damages exceed
the amount paid to CONSULTANT.
14. NO ASSIGNMENT. Neither the CONSULTANT nor COMPANY
may transfer or assign this Agreement, or any right or obligation
hereunder, without the prior written consent of the other party.
No right or obligation under this Agreement may be waived, modified,
or in any respect altered except by written agreement of the parties
executed in writing by both parties.
15. SUCCESSORS AND ASSIGNS. This agreement shall be binding on
the heirs, executors, successors and assigns of the parties.
16. ATTORNEYS FEES. If any action is brought to enforce any
obligation created under this Agreement, the Court shall award to the
prevailing party, such reasonable fees, costs, and expenses as may have
been incurred by such party in enforcing its rights under this Agreement,
including without limitation, the fees, costs, and expenses of its
attorney for services both before or after litigation is instituted.
17. ENTIRE AGREEMENT. This Agreement may not be changed except
in writing signed by the President of the Company and the CONSULTANT.
The validity, performance, construction, and effect of this Agreement
shall be governed by the laws of the State of California IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
"COMPANY" "CONSULTANT"
HYPERBARIC SYSTEMS. VICTOR IVASHIN
II 27 Harker Avenue 3645 MIDWAY DRIVE
Palo Alto, California 94301 SANTA ROSA, CA 95405
By:
/s/ HARRY MASUDA /s/ VICTOR IVASHIN
------------ --------------
HARRY MASUDA VICTOR IVASHIN
PRESIDENT CONSULTANT
10.6 Investor Relations Program, Yes International, July 10, 2000
OUTLINE OF INVESTOR RELATIONS PROGRAM
OBJECTIVES
1. Provide specifically designed materials and information under the
supervision, guidance and approvals of HyperBaric Systems, Inc. (HYRB)
to the international investment community at large and to both new and
existing shareholders and interested parties.
2, Provide timely and accurate information relating to compliance
and corporate finance matters as provided
by HYRB
3. Heighten the awareness of potential investors to the investment
opportunities in the activities of HYRB (This item will focus on
institutional Investors and large US and European stock brokerage
houses),
4. Broaden the current shareholder and brokerage industry
support base through the use of "Road Shows, telemarketing,
radio/TV interviews, magazine reports, Internet Activities and
Investment Analyst. YES international will negotiate with key
investment leaders for conference calls and/or personal interviews
with HYRB's key management which will ensure confidence and further
price appreciation of equity placements.
5, Focus and taro activities to obtain broad sponsorship in
US/ European markets, YES International will consult and advise on
regulatory and/or, financial requirements as they relate to future
financing, possible listings such as Moody's investors Services,
Standard & Poor's Securities and/or exchange filings, i,e.,
NASDAQ. If needed, YES International will provide any and all
Edgar support for necessary filings to the United States
Securities and Exchange Commission( fee base outide of this
agreement). YES International will distribute the appropriate
documents, news releases (Dow Jones, Bloomberg, Rueters, etc.)
specially items,and audio tapes to the investment community
and continue to translate news into German and into French.
A broad-based broker/dealer network will be established to garner
long-term support to decrease price volatility and maintain rising
price trends as warranted by HYRB's developments.
These combined efforts should continue to provide HYRB with the
necessary momentum and a support structure to launch new
fund-raising programs as the need arises.
6.Maintain information pipeline to key Investment and industrial
leaders in German and French speaking Europe and will provide
necessary translation services as needed In the course of doing
cross Atlantic business. Also, YES Intentional will design a
European page on the Company's existing web site to further
inform the European Investment communities.
WORK SCHEDULE
In essence, month one and beyond, YES International will, first,
concentrate its efforts to its established base of clients,
29,000+ throughout North America & Europe. YES will inform
them about HYRB and establish a following from the group, YES'
base contains private investors, retail/wholesale brokers,
Institutional Investors, mutual fund managers and investment
news writers. A combination of e-mail, fax and conference calling
will be used in a contiguous, base to strengthen and propel
bid-ask and the volume of HYRB. Additionally, HYRB will be listed
on YES International's website which currently attracts 170,000
"hits" per month. Once YES maintains and shows good liquidity
of the market on HYRB, YES will approach more Institutional,
wholesale and fund managers about the Company's high-tech
activities in US, CANADA and abroad. Objectively, month three,
the International investment communities will have a grand
understanding about HYRB. YES will utilize this
positive emotion of the investment community to mainstream the
company into a number of public mediums. Month Four,
YES will approach key US and CANADIAN equity analyst at
Solomon Smith Barney, Paine Webber, Prudential, Scotia McLeod, RBC
Dominion and LBG with the hope of getting an international/external
report to its brokers and its customers. Month six, if justified,
YES will be a key integral part in helping HYRB getting listed on
both the NASDAQ in the US and a viable/ visible exchange in Germany.
The 6-month term will be a combination of many factors which YES
maintains on a daily bases, with a on-set approach to its existing
base, HYRB will get the needed equity exposure from YES,
SCHEDULE OF COMPENSATION
HyperBaric Systems, Inc., AGREES TO COMPENSATE Yes
International for its services in accordance with the
following schedule.
1. Cash Disbursements
HyperBaric System, Inc. shall pay to YES International the sum
of Eighteen Hundred Fifty dollars ($1,850.00 US) for no longer
than 6 months beginning Monday, July 10, 2000 ending Friday,
January 10, 2001. This includes 800# cost, employee,
telemarketing services, mail cost, internet cost and other
incidentals, in the course of doing business. Payment
is expected within 5 days of the beginning of each month.
2. Extraordinary Expenses
In the event the activities of HyperBaric Systems, Inc. shall
cause YES International to incur any extraordinary expenses
outlined in #1 above. HYRB must first approve of any and all
extraordinary expenses. Upon approval HYRB will fully and
promptly reimburse YES. Inclusive expenses are Travel,
accommodations, food, and whatever expenditures to fulfill the
mandate of the "Investor Relations Program".
3. Shares or Warrants or Options- 30,000 restricted
shares and a 75,000 share option package.
CONTRACT TERM
The Initial Term of this Agreement shall be for a period
at 6-Mornths but may be extended by the mutual consent of
the parties,
The Parties hereto may be contacted as follows:
YES International HyperBaric Systems, Inc
3419 Virginia Beach Blvd. #252 1127 Harker Avenue
Virginia Beach, VA. 23452 Palo Alto, CA 94301
Tel:(757) 306-6090 Tel:(650) 323-0943
Fax:(757) 306-6092 Fax:(650) 3278858
IN WITNESS WHEREOF the parties hereto have executed this
Agreement on the date first above written.
Yes International HyperBaric Systems, Inc
/s/ Rich Kaiser /s/ Harry Masuda
----------- ------------
Rich Kaiser Harry Masuda
President President
Date: 7/10/00 Date:7/10/00
