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 June 30, 2000
COMMISSION FILE NO. 0-28413
HYPERBARIC SYSTEMS
Exact name of small business issuer as specified in its charter)
CALIFORNIA 77-048106
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 August 4, 2000, the registrant had outstanding 7,005,228 shares
of common stock, no par value.
Transitional Small Business disclosure format: Yes No X
<PAGE>
HYPERBARIC SYSTEMS
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS - as of June 30, 2000 (unaudited)
and December 31, 1999
STATEMENTS OF OPERATIONS (unaudited) -- For the Three Month Periods
Ended June 30, 2000 and 1999, for the Six Month Periods Ended June 30,
2000 and 1999 and the Period from February 26, 1998 (Commencement of
Operations) through June 30, 2000
STATEMENTS OF CASH FLOWS (unaudited) -- For the Six Month Periods
Ended June 30, 2000 and 1999, and the Period from February 26, 1998
(Commencement of Operations) through June 30, 2000
NOTES TO UNAUDITED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
HYPERBARIC SYSTEMS
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 2000 December 31, 1999
(Unaudited)
Assets
(Unaudited)
Current Assets:
Cash and cash equivalents $ 3,700 $ 52,100
Prepaid expenses and other
assets 6,700 3,300
------ ------
Total Current Assets 10,400 55,400
Property and Equipment, net 8,400 3,100
------ ------
18,800 58,500
====== ======
Liabilities and Shareholders' Deficit
Current Liabilities:
Notes payable $ - $ 5,000
Accounts payable - trade 128,600 128,900
Accrued expenses -payable 49,200 104,000
Shareholder payables 201,300 113,200
Shares subject to rescission 70,000 -
Total Current Liabilities 449,100 351,100
Long Term Liabilities
Shareholder Note Payable 50,000 -
Total Liabilities 499,100 351,100
Commitments and Contingencies
Shareholders' Deficit:
Common stock, no par value;
50,000,000 shares authorized;
6,988,300 and 6,395,000 shares
issued and outstanding at
June 30, 2000 and
December 31, 1999 2,390,900 1,077,600
Deficit accumulated during the
development stage (2,871,200) (1,370,200)
Total Shareholders' Deficit (480,300) (292,600)
$ 18,800 $ 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>
February 26, 1998
Three Months Ended Six Months Ended (Inception)
June 30, June 30, Through
2000 1999 2000 1999 June 30, 2000
Operating Expenses:
General and administrative:
Stock based compensation $ 608,100 $ - $ 840,800 $ 6,100 $ 1,137,300
Other general and
administrative expenses 138,100 77,900 399,300 151,400 1,073,300
Total general and
administrative 746,200 77,900 1,240,100 157,500 2,210,600
Research and development 95,600 52,900 161,900 102,200 462,700
Sales and marketing 21,300 9,100 40,400 22,100 113,300
Loss From Operations (863,100) (139,900) (1,442,400) (281,800) (2,786,600)
Other Expense (Income):
Interest income - - (400) (600) (2,400)
Interest expense 57,600 - 58,300 - 84,700
Total Other Expense (Income) 57,600 0 57,900 (600) 82,200
Loss Before Income Taxes (920,700) (139,900) (1,500,300) (281,200) (2,868,800)
Income Tax Expense 800 - 800 800 (2,400)
Net Loss (921,500) (139,900) (1,501,100) (282,000) (2,871,200)
Basic and Diluted Loss Per
Share (0.13) (0.02) (0.22) (0.02)
Basic and Diluted Weighted
Average Common
Shares Outstanding 6,899,200 6,125,400 6,760,500 6,108,900
</TABLE>
For the three and six months ended June 30, 2000 and 1999, options and warrants
to purchase 2,633,900 and 1,137,500 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>
February 26, 1998
Six Months Ended (Inception)
June 30, Through
2000 1999 June 30, 2000
Cash Flows From Operating Activities:
Net loss $(1,501,100) $ (282,000) $ (2,858,500)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Stock based compensation 840,800 6,100 1,137,300
Professional services rendered
in exchange for stock -- -- 18,000
Depreciation 800 200 1,400
Amortization of discount on notes
payable 56,900 -- 81,700
Changes in current assets and
liabilities:
Prepaid expenses and other assets (3,400) 200 (6,700)
Accounts payable - trade (300) 4,100 128,600
Accrued expenses payable (54,800) 37,900 49,200
Related party wages and accrued
interest 72,100 30,300 161,100
Net Cash Used In Operating Activities (589,000) (203,200) (1,300,700)
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 485,700 100,200 1,223,000
Proceeds from borrowing on notes
payable 66,000 -- 130,200
Principal payments on notes payable (5,000) -- (40,000)
Net Cash Provided By Financing Activities 546,700 100,200 1,313,200
Net (Decrease) Increase in Cash and Cash
Equivalents (48,400) (105,700) 3,700
Cash and Cash Equivalents, beginning of
period 52,100 125,800 --
Cash and Cash Equivalents, end of period 3,700 20,100 3,700
Supplemental Disclosure of Cash Flow
Information:
Cash paid for income taxes -- 800 2,400
Cash paid for interest 600 -- 800
</TABLE>
Supplemental disclosure of non-cash investing and financing activity: During 6
months ending June 30, 2000, the company recorded a $70,000 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 June 30, 2000 and for the
three and six month periods ended June 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 $1,501,100 for the six months ended June 30, 2000.
The Company is in the third year of research and development, with an
accumulated loss during the development stage of $2,871,300, a shareholders'
deficit of $480,300 and a working capital deficiency $438,700. The net cash
used in operating activities was approximately $589,000 for the six months
ending June 30, 2000 and with an accumulated usage of $1,300,700 since
inception. As of June 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, with an
expiration date on this option of September 15, 2000. Management has
contacted approximately 90% of these investors and estimates the rescission
exposure to be $70,000. However, management can not be certain of the total
exposure until after the expiration date should all eligible investors elect
to rescind their investment the company's exposure
would be $860,000.
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 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 four months. There is no assurance that the Company will be able
to obtain any such additional funds will be completed.
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 six months ended June 30, 2000, the Company sold 477,700
shares of its common stock for an aggregate amount of $521,500 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 six months ended June
30,2000, options and warrants to purchase 245,600 shares of common stock were
exercised resulting in $16,400 of proceeds to the Company.
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, if the warrants are 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 June 30, 2000, the Company sold an additional 17,000
shares of its common stock, for $25,500, and issued 8,500 warrants at $2.50
per share expiring July 23, 2002.
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 $500,000. 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. 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
six months ending June 30, 2000. Subsequent to June 30, 2000, the company
borrowed an additional $65,000
under this loan agreement.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Certain statements in this Form 10-QSB constitute "forward-looking
statements," within the meaning of Section 21(c) of the Securities Exchange
Act of 1934. These forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause our actual results,
performance or achievements to be materially different from any future
results, performance or achievements, expressed or implied by the forward-
looking statements. All forward-looking statements in this Form 10-QSB are
based on information available to us on the date hereof and speak only as of
the date hereof.
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.
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 has commenced on kidney
preservation and 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.
Liquidity and Capital Resources
Since our inception, we have financed our operations through private
equity financings and an 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. We do 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 October 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.
Going Concern
We are in the third year of research and development, with an
accumulated loss during the development stage of $2,871,300, shareholders'
deficit of $410,300 and a working capital deficiency of $438,700. As of
June 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 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, with an
expiration date on this option of September 15, 2000. Management has
contacted approximately 90% of these investors and estimates the rescission
exposure to be $70,000. However, management can not be certain of the total
exposure until after the expiration date should all eligible investors elect
to rescind their investment the company's exposure would be $860,000.
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 borrowings or sale of our common stock, as
may be required, and ultimately to obtain profitability.
Subsequent to June 30, 2000, the Company sold an additional 17,000
shares of its common stock, for $25,500, and issued 8,500 warrants at $2.50
per share expiring July 23, 2002.
The Report of our Independent Certified Public Accountants, included
in the Company's most recent Annual Report on Form 10-KSB, contains a
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. As of June 30, 2000, we have paid
$3,000 and are committed to pay an additional $4,645 of the total contract of
up to $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 with 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, at the Institute of Technology of Sonora, located in the city
of Ciudad Obregon, Sonora, Mexico. 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.
d. 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.
e. Plant and Significant Equipment Requirements
It is our plan to purchase computer equipment, laboratory equipment
and office furniture over the next twelve months. Our plan is to rent or
lease facilities and any additional significant equipment necessary during our
development stage.
f. 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.
g. 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 four months.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the six months ended June 30, 2000, the Company sold
477,700 shares of its common stock for an aggregate amount of $521,500 and
issued 173,800 warrants under the terms of two private placements to sell
2,000,000 shares of common stock at $1.50 per share. The investors under
these private placements have been extended an offer allowing them to rescind
their investment as described above. During the six months ended June 30,2000,
options and warrants to purchase 245,600 shares of common stock were exercised
resulting in $16,400 of proceeds to the Company.
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, if the warrants are 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 June 30, 2000, the Company sold an additional 17,000
shares of its common stock, for $25,500, and issued 8,500 warrants at $2.50
per share expiring July 23, 2002.
.
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 Employment Agreement, Dr. Luis Toledo, M.D., Ph.D.
10.2 Consulting Agreement, Fernando Lopez, M.D.
10.3 Convertible Promissory Note and Loan Agreement, Jose Venzor
10.4 Warrant to Purchase Shares of Common Stock, Jose Venzor
10.5 Unsecured Promissory Note, H. Masuda, May 15, 2000
10.6 Unsecured Promissory Note, H. Masuda, May 22, 2000
10.7 Unsecured Promissory Note, H. Masuda, June 29, 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: August 14, 2000 /s/ ARDETH N. SEALY
-----------------------
Ardeth N. Sealy
Chief Financial Officer
EXHIBITS
