<PAGE> 1
FORM 10K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C., 20549
FORM 10K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended April 30, 1996
Commission File No. 2-31909
SYNTHETIC BLOOD INTERNATIONAL, INC.
New Jersey 22-3067701
(State of Incorporation) (IRS Employer I.D. Number)
402 West Broadway Street, Suite 400, San Diego, California,92101
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number and area code: (619) 595-4829
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
(1) YES (X) NO ( )
(2) YES (X) NO ( )
Indicate by check mark if disclosure of delinquent filings pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be continued,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
YES (X) NO ( )
The aggregate market value of the shares held by non-affiliates of the
registrant (assuming officers, directors and 10% shareholders are affiliates)
was approximately $ 7,369,840 based on the closing bid price of the Registrants
Common Stock on April 29, 1996 of $0.34 per share.
1
<PAGE> 2
PART 1
Item 1 - BUSINESS
Synthetic Blood International, Inc. ("SBI" or the "Company")
is a development-stage company which is developing OXYCYTE(TM), a proprietary
synthetic blood emulsion and FLUOROVENT(TM), a neat liquid for assisting oxygen
exchange in damaged or diseased lungs for human and non-human applications based
upon perfluorocarbon ("PFC") technology. In addition the Company has developed
an Implantable continuous reading glucose biosensor from a patent licensed from
Children's Hospital of Cincinnati, invented by Dr. Leland C. Clark, Jr. The
Company is now in the Preclinical stage and is completing independent animal
testing necessary for the preparation of applications with the United States
Food and Drug Administration ("FDA") for approval to market these products.
After the submission to the FDA, the Company's products will require extensive
clinical testing before FDA approval may be granted. No assurance may be given
that FDA approval will be granted.
SBI's scientific team is led by Dr. Leland C. Clark, Jr. who
is a pioneer and leader with a world-wide reputation in the development of
PFC-based synthetic blood. Dr. Clark invented the first heart-lung machine which
successfully provided oxygen to the blood stream of, or perfused, a human being.
The treatment of this patient showed the feasibility of using an artificial
heart and lung to sustain life. Dr. Clark also invented the Clark Electrode,
which is utilized worldwide to measure oxygen in the blood and for many other
commercial oxygen measuring needs in industry. Dr. Clark has also experimented
with fluorocarbon liquid breathing which was the catalyst for the development of
fluorocarbon based synthetic blood substitutes.
The Company began conducting business in its current form in
September 1990, shortly thereafter changed its name to Synthetic Blood
International, Inc., and revised its business purpose to developing a line of
red blood cell substitutes. During this period part of the current management
team began as officers and directors.
MARKET
According to independent industry sources which the Company
believes are reliable, the total future market potential for synthetic blood
worldwide is estimated to be $4-$5 billion. The United States market is
estimated by the Company to account for up to 35% of this total. The Company
believes the growth potential for the synthetic blood market is substantial,
although there can be no assurance as to when, if ever, any applications for
such blood substitutes will be approved by the FDA and introduced into the
market, and if so, whether any particular market size will be achieved.
If appropriate regulatory approvals are obtained, several
major applications for synthetic blood are generally envisioned and are being
developed by many companies. The sole existing application for synthetic blood
approved by the FDA for commercial use is balloon angioplasty, for which
Fluosol-DA (20%), a PFC-based blood substitute, has already received limited FDA
approval. Industry sources indicate that the largest number of recipients of
synthetic blood would be patients involved in various surgeries, and would
represent approximately 54% of the total demand. Other major applications for
synthetic blood are for procedures related to thrombolytics (anti-blood
clotting), cancer, traumas, sickle cell anemia and organ transplantation. Each
application would require a particular type of PFC emulsion as treatment, as the
properties of PFCs can vary significantly, depending on their molecular weight,
boiling point and physical structure. Although one perfluorocarbon could
eventually be used in all applications, the Company believes it may be
advantageous to have emulsions of different perfluorocarbons available.
2
<PAGE> 3
Approximately 600,000 adult inpatients receive treatment with
a mechanical respirator annually in the U.S. This together with 80,000 neonates
born each year with severe respiratory disorders suggests a potential market for
FLUOROVENT(TM) in the range of $500 million for hospital inpatients alone.
The Company believes the potential market for an Implantable
self-fueling glucose sensor was significantly increased by the announcement at
the June 1993 annual meeting of the American Diabetes Association that,
"Complications of the disease (diabetes) could be prevented or delayed...when
diabetics closely monitored their blood sugar levels with a special meter
throughout the day and injected themselves with insulin four to seven times
daily to keep their blood sugar at near-normal level". The total potential
market is now estimated to exceed $1 billion annually.
Most diabetics do not mind injecting insulin when needed but
to finger stick themselves many times throughout the day and night to determine,
if or how much insulin is needed, becomes a very difficult regimen to continue
day after day. Of the 14 million diabetics nationwide, tens of thousands
experience complications that include vision and nerve loss, or kidney failure
and researchers have said that most may lengthen their lives and lessen symptoms
while at the same time reducing the nation's health care costs.
TECHNOLOGY
PFCs consist principally of carbon and fluorine atoms.
Fluorine is, under normal conditions, a gas, obtainable from the widely
available mineral fluorite (calcium fluoride). The PFCs are chemically inert,
causing no chemical reactions when in contact with other substances, are
biologically inert and have no effect on healthy organ function when given in
clinical doses.
Earlier studies had shown that oxygen and carbon dioxide,
gases which are essential to mammal breathing, are highly soluble in certain
fluorocarbon liquids. This fact suggested that such liquids could support
respiration in mammals. Beginning in 1965, Dr. Clark demonstrated in a series of
laboratory tests that mice could survive, and breathe, while they were immersed
in a PFC liquid. Dr. Clark's experiments also indicated that PFCs could perform
the same basic functions as red blood cells, i.e., as life-supporting,
intravascular oxygen and carbon dioxide transport agents. In fact, the Company
believes PFCs can exceed the performance of red blood cells in certain
functions.
Since the mid 1960's, one aspect of research and development
efforts has been to determine which PFCs are safest for intravascular use in
humans. In this regard, the molecular weight and structure of PFCs, which
affect the rate at which they are expelled from the body, have been of key
importance.
PFCs leave the body by evaporation, mainly through the lungs.
Depending on the molecular structure and boiling point of a given PFC, the
process of evaporation can be as short as a few days, or as long as 100 years.
This process determines the length of time that the PFCs stay in certain organs
of the body such as the spleen and liver (referred to as "dwell time").
Generally, the heavier the PFC molecule (i.e., the more carbon and fluorine
atoms it contains), the longer the dwell time.
Certain PFC molecular structures are known by the Company to
cause undesirable side effects in laboratory test animals, which are believed to
be related to how quickly PFCs leave the body. Some types of PFCs with a very
short body dwell time, when administered intravascularly, have been shown to
cause an enlargement of the lungs in laboratory test animals. Other types of
PFCs, with very long dwell times, have been found to not cause any significant
side effects. Based on the Company's review of FDA approval procedures for
PFCs, the Company has concluded that the FDA apparently considers PFCs with
very long body dwell
3
<PAGE> 4
time as generally unacceptable. A therapeutic agent such as PFCs may be
perceived as better when it is eliminated quickly from the body after performing
its intended function.
POTENTIAL APPLICATIONS FOR THE COMPANY'S PRODUCTS UNDER DEVELOPMENT
Several major applications are currently under review by the
Company for its PFC-based synthetic blood products under development. The most
important initial applications are in cardiac catheterization and other surgical
procedures. Such applications include the uses such as for percutaneous
transluminal coronary angioplasty with a balloon-tipped catheter, treatment of
myocardial infarction (heart attack) and cardioplegia for open heart surgery.
Other potential applications are as a cancer diagnostic and adjunct therapeutic.
Additional possible applications exist for procedures related to thrombolytics
(anti-blood clotting), traumas, sickle cell anemia and organ transplantation.
The products under development could be used to enhance
radiation treatment and chemotherapy. Because malignant tumors or cancers
contain less oxygen than normal tissue and the Company's products carry more
oxygen than red cells, the use of PFCs could result in a much higher presence of
oxygen at the tumor site. Consequently lower effective doses of
chemotherapeutics or radiation may be used in the treatment of certain cancers
in conjunction with the Company's products under development.
The Company's products are expected to carry as much oxygen as
red blood cells but because they carry oxygen at high oxygen tensions they can
exchange a greater amount of oxygen. Unlike hemoglobin and human blood, PFCs do
not require blood-typing or cross matching and they do not transmit disease.
During cardioplegia (surgical arrest of the heart for open heart surgery),
studies have been performed using PFCs in place of whole blood or the plasma
expanders such as saline or dextran, which demonstrated that the oxygen
transport characteristics were superior to those of the expanders. PFCs can also
be used to prime the heart-lung machines, eliminating the reliance on scarce and
potentially dangerous human blood.
MARKETING
The Company intends to search for strategic partners in
Europe, the Far East or elsewhere for the purposes of completing development of
its products, manufacturing, testing and marketing its products under
development for distribution in these areas. To date no agreements have been
completed although a number of negotiations are in progress. There can be no
assurance that any such agreement will be consummated.
The Company plans on initially contracting for the
manufacturing of its products in the United States for the purpose of supplying
sufficient quantity for the proposed clinical testing. The Company then has the
option to license out on a royalty basis all or part of its manufacturing and
distribution or establish an organization for the distribution and sale of its
products in North and South America. These sales are anticipated to be made
either through a sales force selling to drug or medical distribution systems or
direct sales to end users such as hospitals and other institutions by future
company sales force.
The marketing of the biosensor devices if FDA approval is
achieved will probably be by manufacturing and distribution via licensing
agreements with companies presently involved with distributing products in the
diabetic field. Several of such companies have been contacted and are at present
reviewing the patents and discussing the technology with our Company.
4
<PAGE> 5
COMPETITION
Synthetic blood research to date has been focused virtually
exclusively on red cell substitutes. PFC-based hemoglobin substitute, bovine
hemoglobin, modified human hemoglobin and recombinant (genetically engineered)
human hemoglobin are the four main categories of red cell substitutes currently
being pursued.
PFCs are based on elements and minerals which occur naturally
and are in abundant supply. PFCs must be emulsified with a surfactant and mixed
with "salt" water, before it can be administered intravenously.
Bovine hemoglobin is derived from cows' blood. It is not
compatible with human blood and, therefore, requires substantial processing in
order to become usable. Various proteins present in bovine blood must be
eliminated lest they cause an immune response in humans.
Modified human hemoglobin is based on reconstituted, old or
otherwise discarded human blood. Although it is derived from human blood,
modified human hemoglobin can only be used after it has undergone substantial
processing.
Recombinant human hemoglobin has been produced in yeast and in
swine. Current efforts are underway to engineer genes which will allow
sufficient quantities of oxygen to be released for the oxygenation of tissues.
Organ toxicity remains a problem to be solved.
One other company is involved with the development of a PFC
based liquid ventilation method utilizing a mechanical ventilator to move the
PFC in and out of the lung. It is currently in Phase I/II Clinical testing.
There are a number of companies and researchers attempting to
develop an Implantable glucose sensor or other approaches which include the use
of infrared light rays, drawing glucose through the skin surface and other
non-invasive mechanical devices. None of these methods have been successful in
spite of the renewed emphasis on the development of such a sensor. There are
over 125 public and closely held companies involved worldwide in the development
of synthetic blood and related products.
MANUFACTURING AND SOURCES OF SUPPLY
PFCs, traditionally manufactured as lubricants for military
and industrial use, are available from a large number of sources. However, the
degree of purity ultimately required by the FDA for the use of PFCs for medical
purposes could limit the sources for raw materials. Surfactants are also
generally available, although quality varies between different manufacturers.
Certain types of egg yolk phospholipids are superior to others. Saline or
Ringer's solution is available from multiple sources and is relatively standard
in quality.
PATENTS AND PROPRIETARY RIGHTS
OXYCYTE(TM) is based on the molecular structure of certain
PFCs, that provides equal or greater oxygen carrying capacity, greater ability
to be stored at room temperature, greater dwell-time in the blood stream but
less dwell time in the liver and spleen, and fewer side-effects than many of the
synthetic blood products of its competitors. The following patents have been
licensed by the Company from Children's Hospital Medical Center in Cincinnati,
Ohio.
Patent No.'s 4,401,122: 4,458,686; and 5,030,333 with
accompanying foreign patents all relate to Cutaneous Methods and Polargraphic
Methods for Measuring Body Substances. The inventor is Leland C. Clark, Jr.
5
<PAGE> 6
Patent No.'s 4,680,268 and 4,721,677 with accompanying foreign
patents are for the Implantable Gas-Containing Biosensor. The inventor is Leland
C. Clark, Jr., and they are licensed from Children's Hospital Medical Center,
Cincinnati and are dated 1987, 1988 respectively.
Patent application No. 08-242-310, filed May 13, 1994 is for
"A Method of Assisting Normal Breathing in a Mammal Having a Lung Disorder". It
utilizes one of the PFCs being developed for a synthetic blood emulsion for
therapeutic treatment of certain lung disorders.
A Continuation-in-Part was filed May 12, 1995 for additional
uses and claims to this patent application. Additional patent applications are
in the process of being prepared by the Company for additional medical
applications using PFC compounds.
A patent application on the design and composition of the
electrode membrane used to insure the proper mix of oxygen and glucose in the
implantable biosensor is currently being drafted for submission to the patent
office.
Pursuant to Dr. Clark's Employment Agreement, all of his
intellectual property not already assigned to third parties were assigned to the
Company.
The Company has discontinued all research on perfluorocarbons
containing a bromine atom. While their use for diagnostic imaging would be
effective, the environmental impact of the free bromine ion as a result of
exhaling the PFC into the atmosphere would be detrimental.
GOVERNMENT REGULATION
All of the Company's proposed products will require
governmental approval before production and marketing can commence. The
regulatory approval process is administered by the FDA in the United States, and
by similar agencies in foreign countries. FDA review of new drugs, devices or
biologicals is an uncertain, costly and lengthy process. Various state, federal
and foreign statutes also govern or influence the manufacturing, safety,
labelling, storage, record keeping and marketing of such products. Ongoing
compliance with these requirements can require the expenditure of substantial
resources.
At the present time, the Company intends to file a "Request
for Jurisdiction" with the FDA for its OXYCYTE(TM) artificial blood product and
FLUOROVENT(TM) for its liquid ventilation product. The FDA's response to these
requests will likely determine whether a subsequent filing by the Company for
that product will be classified as a drug, device or biological. The Implantable
glucose sensor will be filed as a device and many of its parts are off-the-shelf
material already approved for human implantation by the FDA. The FDA has
different procedures for drugs, devices and biologicals.
Whether or not FDA approval has been obtained, approval of a
product by regulatory authorities in foreign countries must be obtained prior to
the commencement of marketing of the product in such countries. The requirement
governing the conduct of clinical trials and product approvals vary widely from
country to country, and the time required for approval may be longer or shorter
than that required for FDA approval. Although there are some procedures for
unified filings for certain European countries, in general, each country has its
own procedures and requirements.
EMPLOYEES
On April 30, 1996, the Company employed 10 individuals, two of
whom were executive and scientific personnel with Ph.D's, three are executives,
five are technicians. None of its employees are currently represented by a union
or any other form of collective bargaining unit.
6
<PAGE> 7
ITEM 2 - PROPERTIES
The Company owns no real property and currently leases on a
month to month basis its administrative offices at 402 West Broadway Street,
Suite 400, San Diego, California 92101. The Company rents laboratory and office
space at the Charles F. Kettering Research Laboratories, Antioch University in
Yellow Springs, Ohio. These facilities originally were provided to Dr. Clark for
his teaching services and partly paid by the National Institutes of Health
research grant. The Company has since negotiated a one year lease with options
to renew annually on the premises and expanded its laboratory, general and
administrative space. The current monthly rent is $5,588 per month.
ITEM 3 - LEGAL PROCEEDINGS
A legal action against Wright State University and its
officers and directors to protect the privacy of research records held by them
under the Federal Animal Protection Act was settled satisfactorily in June 1996.
In addition, to the best of the registrant's knowledge, no additional
proceedings are presently pending or contemplated.
ITEM 4 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
The Board of Directors approved on April 18, 1996 an Amendment
to the Certificate of Incorporation to eliminate the preemptive rights of
stockholders to purchase additional shares of the Company. This Amendment was
submitted to the shareholders for a written ballot. On May 23, 1996 it was
approved by an affirmative vote of 21,602,910 to 65,930 voting against and 7,900
abstaining. The affirmative vote was 73.9% of the votes cast. This vote was
requested to bring the Articles of Incorporation in conformity to the actual
historical practice of the Company which is not authorizing preemptive rights.
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
On February 26, 1993 the Common Stock of the Company began
limited public trading in the over-the-counter market with prices quoted in the
"Pink Sheets" published by the National Quotation Bureau under the symbol SYBD.
On March 15, 1993 the Common Stock of the Company began limited public trading
on the OTC Electronic Bulletin Board. From 1973 to February 26, 1993 Management
believes there was no public trading market for any of the registrant's
securities. This past year the bid and ask prices as determined by Company
records were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Quarter Low High Low High
------- --- ----- --- ----
<S> <C> <C> <C> <C> <C>
1st $ 1/4 $ 3/4 $ 7/16 $ 1 1/8
2nd 7/16 1 3/8 1.00
3rd 1/16 7/8 3/16 7/8
4th 1/16 1/2 1/4 5/8
</TABLE>
As of April 30, 1996 the approximate number of holders of the
Common Stock of the Company was 900. To the best knowledge of management, the
Company has never paid dividends since the date of its incorporation. The
Company does not expect to declare or pay dividend in the foreseeable future.
7
<PAGE> 8
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
April 30, April 30, April 30, April 30, April 30,
1992 1993 1994 1995 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 158 $ 811 $ 698 $ 35,181 $ 5,916
------------ ------------ ------------ ------------ ------------
Total Expenses $ 162,757 $ 720,437 $ 874,997 $ 1,917,004 $ 2,352,143
------------ ------------ ------------ ------------ ------------
Net Loss from
Operations $ (162,599) $ (719,626) $ (874,299) $ (1,881,823) $ (2,346,227)
-------------------------------------------------------------------------------------------
Net Loss per
share based on
Weighted Shares 17,598,830 17,990,650 21,857,475 26,333,838 28,894,248
outstanding $ 0.01 $ 0.04 $ 0.04 $ 0.07 $ 0.08
Total Assets $ 511,828 $ 386,368 $ 3,075,689 $ 1,179,085 $ 393,939
Total Liabilities $ 570,050 $ 261,866 $ 490,299 $ 117,907 $ 974,969
Total Long Term Debt 0 0 0 $ 32,736 $ 16,573
</TABLE>
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
The Company is a development-stage company which is developing
products in the medical field and therefore has no revenue from operations.
For the fiscal year ended April 30, 1996, other income
decreased to $5,916 from $35,181 for the fiscal year ended April 30, 1995 due to
a reduction of funds available for investment.
The General and Administrative expenses increased 40% from
$1,017,415 for the fiscal year ended April 30, 1995 to $1,422,809 during the
fiscal year ended April 30, 1996. This increase was due primarily to $380,000
charged to general and administrative expense from the issuance of stock below
the then current market price.
The Research and Development expenses increased 4% from
$896,534 for the fiscal year ended April 30, 1995 to $924,093 for the fiscal
year ended April 30, 1996. This small increase was due to the purchasing of a
larger volume of raw materials for additional testing.
The interest expense for the fiscal year ended April 30, 1995
was $3,055 compared to $5,241 for the fiscal year ended April 30, 1996 primarily
due to the financing of insurance premiums.
FISCAL 1995 COMPARED TO FISCAL 1994
For the fiscal year ended April 30 , 1995, other income
increased to $35,181 from $698 in the fiscal year ended April 30, 1994. This
increase was due solely to interest earned on substantially more funds available
during fiscal 1995.
8
<PAGE> 9
The General and Administrative expenses increased 64% from
$573,928 for the fiscal year ended April 30, 1994 to $1,017,415 during the
fiscal year ended April 30, 1995. This increase was due primarily to increased
administrative staff to support the research and development activities and the
moving of the day to day administrative activities to Yellow Springs, Ohio, and
the expensing of capitalized costs in which the period of recoverability was no
longer determinable.
The Research and Development expenses increased from $288,843
for the fiscal year ended April 30, 1994 to $896,534 during the fiscal year
ended April 30, 1995. This increase is due to increased technical and product
development staff and to a larger volume of raw materials needed for the
preclinical testing of both the perfluorocarbon compound emulsions and the
equipment and supplies needed to construct the implantable glucose sensors to
animal testing.
The interest expense for the fiscal year ended April 30, 1995
was $3,055 compared to the fiscal year ended April 30, 1994 of $12,226. This
decrease was due to the conversion of certain Convertible Debentures to Common
Stock and less interest expenses on the current year's borrowing.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since September 1990,
when current management became involved, through the issuance of debt and equity
securities and loans from stockholders. For the fiscal year ended April 30, 1996
the Company had $106,124 in total current assets and a working capital deficit
of $868,845 compared to $857,919 in total current assets and a working capital
surplus of $740,012 during the fiscal year ended April 30, 1995. The Company
raised approximately $292,750 from the sale of Common Stock and the exercise of
warrants during fiscal year ended April 30, 1996.
The Company is in the pre-clinical trial stage in the
development of its products. These products must undergo further development and
testing prior to submission to the FDA for approval to market its products. This
additional development and testing will require significant additional
financing. Although over half of the total current liabilities are owed to the
officers and directors for loans, expenses paid and salaries owed, additional
funds are needed immediately to continue to operate as a going concern. Funding
in the form of bridge loans and future options are currently being negotiated.
There can be no assurance these proposed funding arrangements will be
successful, or that if they are not the Company will be able to secure
additional capital.
As a result of the Company's accumulated losses from
operations, its accumulated deficit, and its necessity to obtain additional
financing to fund operations until the necessary regulatory approvals are
obtained, if ever, its continuation as a going concern is dependent on its
ability to obtain additional financing as may be required. These factors, among
others, raise doubts about the Company's ability to continue as a going concern.
The Company is subject to litigation in the normal course of
business, none of which management believes will have a material adverse effect
on the Company's financial statements as of April 30, 1996.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Stands No. 123, Accounting for
Stock-Based Compensation, which requires adoption of the disclosure provisions
for fiscal years beginning after December 15, 1995 and adoptions of the
recognition and measurement provisions for non-employee transactions no later
than December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period.
9
<PAGE> 10
FORWARD LOOKING STATEMENTS
Certain statements in this annual report include forward
looking statements which involve risks and uncertainties. Potential risks and
uncertainties include, but are not limited to the company's ability to obtain
financing and FDA approval to market their products.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data as required by
this item are set forth in a separate section of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 10- DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The directors, officers and key employees of the Company are
as follows:
<TABLE>
<CAPTION>
Name Age Position
- - - ---- --- --------
<S> <C> <C>
Roger A. Ekbom 69 Chairman of the Board and
Director
Gerald D. Schlatter 62 President and Director
Leland C. Clark, Jr., Ph.D. 77 Vice President, Director of
Research and Development and
Director
Robert J. Larsen 67 Secretary-Treasurer and
Director
Richard E. Hoffmann, Ph.D. 45 Laboratory Director
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Roger A. Ekbom, Chairman of the Board of Directors, Chief
Executive Officer and Director since 1991, was formerly President and major
stockholder of Cardio Vista Systems, Inc., which was sold in 1994. He was also
founder and Chairman of Tronomed, Inc. which was sold in January 1993. From 1978
to 1988, Mr. Ekbom was the Vice President of and a major stockholder in
Respiratory Support Products, Inc. and Tronomed International, Inc. Mr. Ekbom
was formerly the General Manager of a division of Becton Dickinson, and of
Marion Scientific, a subsidiary of Marion Laboratories. Mr. Ekbom received his
B.S. Degree from the University of Minnesota in 1960.
Gerald D. Schlatter, President and Director since 1990, was
President of Delamesa Leasing Co., Irvine, California, prior to joining the
Company full time in August 1994. Prior to joining Delamesa Leasing Co. in 1979,
Mr. Schlatter was a Marketing Manager of American Hospital Supply's New Product
Division. He has also held position in marketing the Medical Products Division
of Xerox Corporation. Mr. Schlatter obtained his undergraduate degree from the
California State University, Fresno, in Business Finance and Labor Law in 1962.
10
<PAGE> 11
Leland C. Clark, Jr., Ph.D., was appointed Vice President,
Director of Research and Development in 1991. Dr. Clark received his Ph.D. in
Biochemistry & Physiology at the University of Rochester School of Medicine in
1944. Dr. Clark has held several academic appointments including Professor of
Biochemistry in the Department of Surgery in the School of Medicine of the
University of Alabama (1958-1968) and at the University of Cincinnati School of
Medicine where he was Director of the Division of Neurophysiology, and was
Research Professor of Pediatrics at the Children's Hospital Medical Center of
the University of Cincinnati Medical School(1968-91).
Robert J. Larsen, Secretary-Treasurer and Director since 1990,
is a former President and Chief Executive Officer of Bay Hospital Medical
Center, Chula Vista, California. Mr. Larsen has 25 years of experience in the
development and management of hospitals and other related enterprises in
California and Oregon. Mr. Larsen received his graduate degree in Hospital
Administration from the University of California, Santa Barbara, and his B.A.
from the University of Washington.
KEY EMPLOYEES
Richard E. Hoffmann, Ph.D., manages the laboratory activities
of the Company in developing a blood substitute. Dr. Hoffmann is a graduate of
the University of Cincinnati, with a doctorate in Physical Chemistry in 1982.
Dr. Hoffmann worked first as a Research Assistant, then as a Research Scientist,
with Dr. Clark at the Children's Hospital Research Foundation in Cincinnati. Dr.
Hoffmann is currently working as a Research Associate with Dr. Clark at the
Kettering Research Laboratories at Antioch University in Yellow Springs, Ohio.
SCIENTIFIC ADVISORY BOARD
The Company has recently named Glen Wegner, M.D., J.D., as
Chairman of the Scientific Advisory Board. Dr. Wegner is President of Health
Business Synergies, a firm dedicated to the creation and the development of
entrepreneurial health related business opportunities. He is trained and
licensed in both medicine and law. Dr. Wegner graduated from the University of
Washington School of Medicine and completed internship at Boston City Hospital.
In addition to graduating from Washington College of Law, American University,
he also practiced at John Hopkins Hospital and at the National Institutes of
Health.
ITEM 11 - EXECUTIVE COMPENSATION
The summary compensation table shows the compensation for
Roger A. Ekbom, Chairman and Chief Executive Officer, Gerald D. Schlatter,
President, Robert J. Larsen, Chief Financial Officer and Secretary-Treasurer of
the Company and Dr. Leland C. Clark, Vice President. Mr. Ekbom and Dr. Clark
have been Executive Officers for the years ended April 30, 1995, 1994, 1993,
and 1991. Mr. Schlatter and Mr. Larsen for the years ended April 30, 1995, 1994,
1993, 1992 and 1991. This information includes the dollar amount of base
salaries, bonus awards, stock options and all other compensation, if any,
whether paid or deferred.
11
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Stock Option Incent. Total
Name & Position Year Salary Bonus Other Awards Shares Payouts Other
in $ SARS Long Tm. Comp.
- - - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Roger A. Ekbom 1996 $100,000 0 0 0 0 0 0
Chairman 1995 34,333 0 0 0 0 0 0
1994 13,000 0 0 0 0 0 0
1993 6,000 0 0 0 0 0 0
1992 2,500 0 0 0 0 0 0
Gerald D. Schlatter 1996 $ 96,000 0 0 0 0 0 0
President 1995 85,500 0 0 0 0 0 0
1994 13,000 0 0 0 0 0 0
1993 6,000 0 0 0 0 0 0
1992 2,500 0 0 0 0 0 0
Leland C. Clark, Jr 1996 $114,000 0 0 0 0 0 0
Vice President 1995 114,000 0 0 0 0 0 0
1994 96,000 0 0 0 0 0 0
1993 84,000 0 0 0 0 0 0
1992 36,000 0 0 0 0 0 0
Robert J. Larsen 1996 $100,000 0 0 0 0 0 0
Chief Financial 1995 72,333 35,000 0 0 0 0 0
Officer 1994 55,000 0 0 0 0 0 0
1993 48,000 0 0 0 0 0 0
1992 40,000 0 0 0 0 0 0
</TABLE>
Stock Option Plan
The Company's 1995 Stock Option Plan ("Plan") was adopted by
the Board of Directors in April 1995. Pursuant to the Plan, the Company may
grant both incentive stock options intended to qualify for preferential tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and nonstatutory stock options that do not qualify for such
treatment. Incentive stock options may be granted only to employees, while
consultant, employees, officers and directors are eligible for the grant of
nonstatutory options. The Plan also provides for the grant of stock purchase
rights, stock appreciation rights and long term performance awards.
The purpose of the plan is to provide an incentive to eligible
employees, consultants and officers whose present and potential contributions
are important to the continued success of the Company, to afford those
individuals the opportunity to acquire a proprietary interest in the Company and
to enable the Company to enlist and retain in its employment qualified personnel
for the successful conduct of its business.
The total number of shares of Common Stock of the Company
reserved and available for distribution under the Plan is 2,500,000 shares.
Pursuant to the Plan, the administrators of the Plan shall be either the Board
of Directors or one or more committees designated by the Board of Directors to
administer the Plan. Subject to the express terms of the Plan, the
administrators have full power to select, from among the officers, employees and
consultants of the Company eligible for award rights, and options, the
individuals to whom awards, rights or options will be granted, and to determine
the specific terms of each award or grant.
12
<PAGE> 13
The maximum term of a stock option under the Plan is ten
years, but if the optionee at the time of the grant has voting power over more
than 10% of the Company's outstanding capital stock, the terms is five years.
The exercise price of incentive stock options granted under the Plan must be at
least equal to the fair market value of such shares on the date of the grant.
The exercise price of nonstatutory stock options granted under the Plan is
determined by the administrators. Option may be exercisable in installments, and
the exercisability of options may be accelerated by the administrators.
Options and rights granted pursuant to the Plan are
nontransferable by their participants, other than by will or by the laws of
descent or distribution, and may be exercised during the lifetime of the
participant only by the participant. Appropriate transfer restrictions hall
apply to any such stock awards.
In the event of any change in capitalization in the Company
that results in an increase or decrease in the number of outstanding shares
without receipt of consideration by the Company, an appropriate adjustment shall
be made in the number of shares which have been reserved for issuance under the
Plan and the price per share or number of shares covered by each outstanding
option or right.
The Plan may be amended by the Board at any time. However,
stockholder approval will be required to increase the number of shares reserved
for issuance under the Plan or where an amendment to the Plan would materially
increase the benefits accruing to participants under the Plan or materially
modify the requirements as to eligibility for participation in the Plan.
Defined Benefit and Actuarial Plans
The Company has not supplied Defined Benefits, or similar
Pension, Benefit or Actuarial Plan Benefits to its Executive Officers.
Compensation of Directors
Mr. Ekbom became a full time employee in April 1995, prior to
that he received compensation as a board member. Mr. Schlatter became a full
time employee in August 1994 and prior to that received compensation as a board
member. Mr. Larsen became a full time consultant and prior to that time received
compensation as a board member and part time consultant. Dr. Clark has been a
full time employee since he joined the Company 1991 and has not received board
member fees.
EMPLOYMENT CONTRACTS
On April 1, 1995 the Board of Directors approved a three year
employment contract with Roger A. Ekbom, Chairman with an automatic renewal for
one year annually. The employment contract specifies a base annual salary of
$100,000, an automobile allowance, Medical and Dental coverage, $200,000 life
insurance payable to the corporation and participation in the 1995 Stock Plan
with the right to have an option for 100,000 shares to be granted annually. The
contract covers the duties and responsibilities as Chief Executive Officer for
the corporation.
On April 1, 1995 the Board of Directors approved an extension
of the employment contract of Gerald D. Schlatter to a total of three years with
an automatic one year extension annually. The contract added a $200,000 life
insurance policy payable to the corporation and participation in the 1995 Stock
Plan with the right to have an option for 100,000 shares to be granted annually.
The contract covers the duties and responsibilities as Chief Operating Officer
for the corporation.
13
<PAGE> 14
On April 1, 1995 the Board of Directors approved a three year
consulting contract with Robert J. Larsen with an annual one year automatic
extension. The contract specifies an annual consulting fee of $100,000 and
includes a $200,000 life insurance payable to the corporation on the life of
Robert Larsen and participation in the 1995 Stock Plan with the right to have an
option for 100,000 shares to be granted annually. The contract included the
duties and responsibilities of Robert Larsen as Chief Financial Officer for the
corporation.
On October 1, 1991, Dr. Leland C. Clark, Jr., signed a five
year contract with the Company as Research and Development Director. That
contract was extended for an additional three years on April 1, 1995. The annual
salary is $125,000.
REPRICING OF OPTIONS AND STOCK APPRECIATION RIGHTS
During the last fiscal year the Company has not adjusted or
amended the exercise price of stock options or Stock Appreciation Rights for
Executive Officers.
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE, INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Company does not presently have a Compensation Committee
of the Board of Directors, or other Board Committees performing equivalent
functions, and did not at any time during the last four years. The entire Board
of Directors presently performs these functions. All of the Executive Officers
are members of the Company's four person Board of Directors.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth the stock ownership of all
persons who, to the registrants knowledge, own of record and beneficially five
(5%) per cent or more of its outstanding Common Stock, and for the officers and
directors as a group.
BENEFICIAL OWNERS
- - - --------------------------------------------------------------------------------
Title of Name & Address Amount & Nature Percent
Class of Beneficial of Beneficial of
Owner Ownership Class
- - - --------------------------------------------------------------------------------
Common Stock Helen Pierre Fromm 2,499,000 8.1%
3445 Don Carlos Drive
Carlsbad, CA 92008
14
<PAGE> 15
<TABLE>
<CAPTION>
MANAGEMENT OWNERS
- - - --------------------------------------------------------------------------------
Title of Name of Amount & Nature Percent
Class Beneficial of Beneficial of
Owner Ownership Class
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Roger A. Ekbom 814,250 2.6%
Common Stock Gerald D. Schlatter 404,500 1.3%
Common Stock Leland C. Clark, Jr.(1) 3,360,830 10.8%
Common Stock Robert J. Larsen (2) 1,150,750 3.7%
All Directors and Officers
as a group (4 persons) 5,730,330 18.5%
</TABLE>
(1) Leland C. Clark, Jr., owns 2,791,415 shares, Eleanor W. Clark owns 569,415
for a total of 3,360,830.
(2) Robert J. Larsen owns 1,150,750 beneficial by virtue of his control of Peso,
Inc. and Jada, Inc.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Roger A. Ekbom, a director and Chief Executive Officer, loaned
the Company $71,391 as of April 30, 1996. Gerald D. Schlatter, a director and
Chief Operating Officer, loaned the Company $52,020 as of April 30, 1996. Leland
C. Clark, Jr., a director and Vice President of Research and Development, loaned
the Company $67,285 as of April 30, 1996. Robert J. Larsen, a director and Chief
Financial Officer, loaned the Company $56,005 as of April 30, 1996. These loans
totalling $246,701 were made to enable the Company to continue its business
operations, pending receipt of additional funding.
Robert J. Larsen, a director and Chief Financial Officer, who
controls stock owned by an entity transferred an aggregate of $35,700 to the
company as contribution of capital.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Response to Item 8.
A. Documents Filed as a Part of This Report:
(1) FINANCIAL STATEMENTS
(a) Independent Auditors Report.
(b) Balance Sheets as of April 30, 1996
& 1995.
(c) Statements of Operations for each
of the three years in the period
ended April 30, 1996.
(d) Statements of Stockholders' Equity
for each of the three years in the
period ended April 30, 1996.
(e) Statements of Cash Flows for the
three years in the period ended
April 30, 1996.
(f) Notes to the Financial Statements.
15
<PAGE> 16
INDEX TO EXHIBITS
Exhibits Required by Exhibits to Exhibits to
Item 601 of Regulation S K This Report Prior Reports
- - - -------------------------- ----------- -------------
3 (a) Registrant's Amended Articles of
Incorporation A-1
3 (b) Specimen Form of Common Stock X
Certificate
4 (a) Specimen three year Warrants to Purchase
Stock dated July 24, 1992 with amendments X
4 (b) Specimen three years Warrants to Purchase
Stock dated September 30, 1992 with amendments X
4 (c) Specimen three year Warrants to Purchase
Stock dated November 20, 1992 with amendments X
4 (d) Warrant to Purchase Stock issued February 28, 1994
to The American Heritage Fund, Inc. X
4 (e) Warrant to Purchase Stock issued July 24, 1992
to Cato Portfolio AG X
4 (f) Specimen two year Warrant to Purchase Stock dated
September 30, 1992 and November 20, 1992 X
4 (g) Warrant to Purchase Stock issued April 29, 1994
to Cato Portfolio AG X
4 (k) Warrant to Purchase Stock issued August 19, 1993 X
and September 9, 1993 to Cato Portfolio
4 (l) Specimen two year Warrants to Purchase Stock issued
on various dates from January 21, 1993 to
February 23, 1994 X
10(a) Agreement between the Registrant and Leland C. Clark,
Jr., Ph.D. dated October 1, 1991 with amendments, Re:
Assignment of Intellectual Property and Trade Secrets X
10(b) Agreement between the Registrant and
W. Keith R. Watson, Ph.D., Re: Assignment
of Invention X
10(c) Agreement between the Registrant and Children's
Hospital Medical Center dated July 6, 1992 X
10(d) Agreement between the Registrant and Children's
Hospital Medical Center dated July 6, 1993 X
10(e) Agreement between the Registrant and Children's
Hospital Medical Center dated July 6, 1993 X
10(f) Agreement between the Registrant and Roger A. Ekbom
dated April 1, 1995 X
10(g) Agreement between the Registrant and Gerald D.
Schlatter dated July 11, 1994 with Amendments X
16
<PAGE> 17
10(h) Agreement between the Registrant and Robert J.
Larsen dated April 1, 1995 X
10(i) Agreement between the Registrant and L.G. Kurtz &
Associates dated July 22, 1994 X
10(j) Agreement between the Registrant and Broadgate
Consultant, Inc., dated July 29, 1994 X
10(k) Agreement between the Registrant and San Diego
Contract Research Associates, Inc. dated November
21, 1995. X
10(l) Agreement between the Registrant and Glen Wegner, M.D.,
J.D. dated April 27, 1995 X
10(m) Employee Stock Plan dated April 28, 1995 X
10(n) Indemnification Agreement between the Registrant and
members of the Board of Directors dated
April 26, 1995 X
10(o) Agreement between the Registrant and Air Products
& Chemical, Inc. dated January 30, 1995. X
17
<PAGE> 18
Pursuant to the requirements of Section 13 of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereto duly authorized.
SYNTHETIC BLOOD INTERNATIONAL, INC.
By: /s/
__________________________________
Roger A. Ekbom, Chairman & CEO
By: /s/
_________________________________
Robert J. Larsen, Secretary &
Chief Financial Officer
Dated: 7/22/96
________________
Pursuant to the requirements of Instruction D to Form 10-K under
the Securities and Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated. The following
represent at least a majority of the Board of Directors of the
Registrant.
Date Name & Title
Roger A. Ekbom
Chairman of the
7/22/96 Board of Directors /s/ Roger Ekbom
_________ ___________________________
Gerald D. Schlatter
7/22/96 President & Director /s/ Gerald Schlatter
_________ ___________________________
Leland C. Clark, Jr.
Vice President &
_________ Director __________________________
Robert J. Larsen
Director & Secretary
7/22/96 Treasurer /s/ Robert Larsen
_________ __________________________
-18-
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Synthetic Blood International, Inc.:
We have audited the accompanying balance sheets of Synthetic Blood
International, Inc. (the Company) as of April 30, 1996 and 1995 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years then ended, and for the period from May 26, 1967 (date of incorporation)
to April 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits. The financial statements of the
Company for the year ended April 30, 1994, were audited by other auditors whose
report, dated June 22, 1994, expressed an unqualified opinion on those
statements and included an emphasis paragraph related to the Company's ability
to continue as a going concern as discussed in Note 1 to the financial
statements. The financial statements for the period May 26, 1967 through April
30, 1994 reflect a net loss of $2,148,700 of the related total. The other
auditors' report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for such prior period, is based solely on the
report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
financial statements present fairly, in all material respects, the financial
position of Synthetic Blood International, Inc. as of April 30, 1996 and 1995
and the results of its operations and its cash flows for the years then ended,
and for the period from May 26, 1967 (date of incorporation) to April 30, 1996,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing certain medical products. As discussed in Note
1 to the financial statements, the Company's accumulated losses from operations,
its accumulated deficit, its necessity to obtain
-19-
<PAGE> 20
additional financing to fund operations until the necessary regulatory approvals
are obtained, if ever, its ability to successfully market the Company's products
and its ability to ultimately attain successful operations, raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
Costa Mesa, California
June 14, 1996
-20-
<PAGE> 21
RAMON D. PRATT
CERTIFIED PUBLIC ACCOUNTANT
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors
Synthetic Blood International, Inc.
(Formerly Sinequanon Corporation)
I have audited the accompanying Balance Sheet of Synthetic Blood International,
Inc. (Formerly Sinequanon Corporation ) (A Development Stage Company) as of
April 30, 1994 and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended April 30, 1994 and
1993. These financial statements are the responsibility of the company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the 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.
I believe that my audit provides a reasonable basis for my opinion.
As shown in the aforementioned financial statements, the Company incurred a net
loss of $874,299 during the year ended April 30, 1994 and is in the research and
development stage. The Company's continued existence will depend upon its
ability to obtain revenues and/or additional financing over the long term. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
In my opinion, subject to the effects on the financial statements of such
adjustments, if any, as might have been required had the outcome of the
uncertainty about the recoverability and classification of recorded asset
amounts and the amounts and classification of liabilities referred to in the
preceding paragraph been known, the financial statements referred to above
present fairly in all material respects the financial position of Synthetic
Blood International, Inc. (Formerly Sinequanon Corporation) (A Development State
Company) as of April 30, 1994, and the results if its operations, changes in
stockholders' equity and statements of cash flows for the years ended April 30,
1994 and 1993, in conformity with generally accepted accounting principles
consistently applied.
/s/Ramon D. Pratt
- - - -------------------------------
Ramon D. Pratt
Certified Public Accountant
Palm Springs, California
June 22, 1994
-21-
<PAGE> 22
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
AS OF APRIL 30, 1996 AND 1995
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 76,312 $ 767,825
Prepaid expenses:
Insurance 20,686 65,051
Other 9,126 25,043
----------- -----------
29,812 90,094
----------- -----------
Total current assets 106,124 857,919
PROPERTY AND EQUIPMENT:
Laboratory equipment 235,329 231,765
Furniture and fixtures 70,064 55,386
----------- -----------
305,393 287,151
Less accumulated depreciation (103,226) (34,293)
----------- -----------
Property and equipment, net 202,167 252,858
PATENTS, net (Note 2) 85,648 68,308
----------- -----------
$ 393,939 $ 1,179,085
=========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
-22-
<PAGE> 23
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
AS OF APRIL 30, 1996 AND 1995 (CONTINUED)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of capital lease obligation (Note 3) $ 17,722 $ 15,624
Accounts payable 277,340 50,919
Accrued payroll 343,641 30,400
Other accrued liabilities 89,565 20,964
Notes payable to stockholders (Note 4) 246,701
----------- -----------
Total current liabilities 974,969 117,907
CAPITAL LEASE OBLIGATION (Note 3) 16,573 32,736
COMMITMENTS AND CONTINGENCIES (Notes 3, 4 and 5)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 3, 6 and 7):
Common stock, par value $0.01 per share; authorized 100,000,000
shares; 31,030,382 and 27,510,459 shares issued and outstanding
at April 30, 1996 and 1995, respectively 310,304 275,104
Additional paid-in capital 5,468,849 4,783,867
Deficit accumulated during the development stage (6,376,756) (4,030,529)
----------- -----------
Net stockholders' equity (deficit) (597,603) 1,028,442
----------- -----------
$ 393,939 $ 1,179,085
=========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
-23-
<PAGE> 24
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE 1996 1995 1994
<S> <C> <C> <C> <C>
EXPENSES:
Research and development $ 2,331,455 $ 924,093 $ 896,534 $ 288,843
General and administrative 4,003,975 1,422,809 1,017,415 573,928
Interest 88,713 5,241 3,055 12,226
------------ ------------ ------------ ------------
Total expenses 6,424,143 2,352,143 1,917,004 874,997
OTHER INCOME (47,387) (5,916) (35,181) (698)
------------ ------------ ------------ ------------
NET LOSS $ (6,376,756) $ (2,346,227) $ (1,881,823) $ (874,299)
============ ============ ============ ============
NET LOSS PER SHARE $ (0.08) $ (0.07) $ (0.04)
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 28,894,248 26,333,838 21,857,475
============ ============ ============
</TABLE>
See independent auditors' report and notes to financial statements.
-24-
<PAGE> 25
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED NET
ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER OF COMMON PAID-IN DEVELOPMENT EQUITY
SHARES STOCK CAPITAL STAGE (DEFICIT)
<S> <C> <C> <C> <C> <C>
BALANCES, May 26, 1967 -- $ -- $ -- $ -- $ --
Issuance of common stock 17,861,543 178,615 440,294 618,909
Conversion of convertible
debentures into common
stock 870,199 8,702 771,298 780,000
Net losses (1,274,407) (1,274,407)
----------- ----------- ----------- ----------- -----------
BALANCES, May 1, 1993 18,731,742 187,317 1,211,592 (1,274,407) 124,502
Issuance of common stock,
net of issuance costs of
$431,765 5,679,500 56,795 2,278,392 2,335,187
Net loss (874,299) (874,299)
----------- ----------- ----------- ----------- -----------
BALANCES, April 30, 1994 24,411,242 244,112 3,489,984 (2,148,706) 1,585,390
Issuance of common stock,
net of issuance costs of
$210,000 (Note 6) 2,366,667 23,667 1,061,333 1,085,000
Issuance of common stock to
employees and compensatory
options (Note 6) 218,800 2,188 81,312 83,500
Common stock issued upon
conversion of notes payable
(Note 6) 500,000 5,000 120,000 125,000
Exercise of warrants (Note 7) 13,750 137 1,238 1,375
Contribution of capital through
services rendered (Note 6) 30,000 30,000
Net loss (1,881,823) (1,881,823)
----------- ----------- ----------- ----------- -----------
BALANCES, April 30, 1995 27,510,459 275,104 4,783,867 (4,030,529) 1,028,442
</TABLE>
See independent auditors' report and notes to financial statements.
-25-
<PAGE> 26
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED NET
ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER OF COMMON PAID-IN DEVELOPMENT EQUITY
SHARES STOCK CAPITAL STAGE (DEFICIT)
<S> <C> <C> <C> <C> <C>
Issuance of common stock 358,333 $ 3,583 $ 71,417 $ $ 75,000
Issuance of common stock
in conjunction with funding
agreements and services
rendered (Note 6) 1,444,090 14,441 317,291 331,732
Issuance of common stock to
officers (Note 6) 117,500 1,176 16,574 17,750
Common stock issued upon
conversion of notes payable
(Note 6) 400,000 4,000 76,000 80,000
Exercise of warrants (Note 7) 1,200,000 12,000 108,000 120,000
Issuance of warrants (Note 7) 60,000 60,000
Contribution of capital from
officer (Note 6) 35,700 35,700
Net loss (2,346,227) (2,346,227)
----------- ----------- ----------- ----------- -----------
BALANCES, April 30, 1996 31,030,382 $ 310,304 $ 5,468,849 $(6,376,756) $ (597,603)
=========== =========== =========== =========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
-26-
<PAGE> 27
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE 1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $(6,376,756) $(2,346,227) $(1,881,823) $ (874,299)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 155,377 87,459 44,097 15,322
Write-down of other assets 126,800 126,800
Issuance of compensatory stock options/
warrants 118,500 60,000 58,500
Contribution of capital through services
rendered 30,000 30,000
Changes in operating assets and liabilities:
Receivables from employees 7,178 3,750
Prepaid expenses (29,812) 60,282 36,090 30,694
Accounts payable and accrued expenses 710,546 608,263 (194,016) 122,183
----------- ----------- ----------- -----------
Net cash used in operating activities (5,265,345) (1,530,223) (1,773,174) (702,350)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (268,512) (33,699) (136,686) (3,172)
Proceeds from sale of property and equipment 15,457 15,457
Purchase of other assets (264,599) (35,866) (14,209) (89,349)
----------- ----------- ----------- -----------
Net cash used in investing activities (517,654) (54,108) (150,895) (92,521)
</TABLE>
See independent auditors' report and notes to financial statements.
-27-
<PAGE> 28
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE 1996 1995 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of notes payable
to stockholder $ 446,701 $ 246,701 $ 6,000 $ 106,250
Repayments of notes payable to stockholder (75,000) (75,000)
from issuance of convertible
debentures 780,000
Payments on capital lease obligation (18,043) (14,065) (3,978)
Contribution of capital from stockholders 35,700 35,700
Proceeds from issuance of common stock 4,358,221 292,750 1,111,375 2,335,187
Issuance of stock for financing and services
rendered 331,732 331,732
----------- ----------- ----------- -----------
Net cash provided by financing activities 5,859,311 892,818 1,038,397 2,441,437
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 76,312 (691,513) (885,672) 1,646,566
CASH AND CASH EQUIVALENTS,
beginning of period 767,825 1,653,497 6,931
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 76,312 $ 76,312 $ 767,825 $ 1,653,497
=========== =========== =========== ===========
CASH PAID FOR:
Interest $ 85,107 $ 5,241 $ 1,601 $ 75,539
=========== =========== =========== ===========
Taxes $ 4,000 $ 800 $ 800 $ 800
=========== =========== =========== ===========
</TABLE>
SUPPLEMENTAL INFORMATION -
For information relating to conversion of notes payable into common stock and
other noncash transactions see Notes 3 and 6.
See independent auditors' report and notes to financial statements.
-28-
<PAGE> 29
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
- - - --------------------------------------------------------------------------------
1. GENERAL
The Company was incorporated on May 26, 1967 and was inactive through
September 1990 when it began conducting operations for the purpose of
developing a synthetic blood emulsion to act as a human blood
substitute, and developing a method of using a perfluoracarbon compound
to facilitate oxygen exchange for individuals with respiratory distress
syndrome. Shortly after commencing these operations the Company changed
its name to Synthetic Blood International, Inc. The Company is also
developing an implantable continuous reading glucose biosensor to be
used primarily by individuals with diabetes. All of the Company's
products are currently in the pre-clinical trial stage. This stage
requires a sufficient level of animal testing to be performed in order
to file certain applications with the United States Food and Drug
Administration (FDA) which is necessary to obtain FDA approval to market
these products. No assurances can be given that such approval, once
applied for, will be granted.
Going Concern - 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. As
shown in the financial statements, the Company is in the development
stage and, at April 30, 1996, has accumulated losses from operations
amounting to $6,376,756 and has a working capital deficit of $868,845.
As mentioned in the preceding paragraph, the Company is in the
pre-clinical trial stage of its products. These products must undergo
further development and testing prior to submission to the FDA for
approval to market the products. The additional development and testing
will require significant additional financing. Management intends to
seek additional financing through future private placement offerings
and/or joint ventures to enable the Company to continue required
testing. The Company's continuation as a going concern is dependent on
its ability to generate sufficient cash flow, to meet its obligations on
a timely basis, to obtain additional financing as may be required, and
ultimately to attain successful operations. However, no assurance can be
given at this time as to whether the Company will achieve any of these
conditions or that FDA approval will be granted, once applied for. These
factors, among others, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company
be unable to continue as a going concern for a reasonable period of
time.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage - Because the Company has not commenced principal
operations, it is considered a "Development Stage Enterprise" as defined
by Statement of Financial Accounting Standards No. 7, Accounting and
Reporting by Development Stage Enterprises.
-29-
<PAGE> 30
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
Cash and Cash Equivalents - The Company considers highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Property and Equipment - Property is recorded at cost. Depreciation and
amortization are computed using the straight-line method over the
shorter of the estimated useful lives of the related assets, ranging
from three to ten years, or the lease term, if applicable.
Patents - Patent costs are being amortized over the lesser of the
remaining life of the patent or the estimated useful life of the related
product, ranging from eight to ten years. Patent costs totaled $134,790
and $101,933, net of accumulated amortization of $49,142 and $33,625, at
April 30, 1996 and 1995, respectively. The Company evaluates
recoverability of patents on at least an annual basis by comparing the
estimated resale value of the patents to the remaining carrying values.
An adjustment to the carrying value of the patent rights would be made
if the estimated resale value of the patents is determined to be
insufficient to recover such value.
Pricing of Common Stock and Options to Purchase Common Stock - The
Company's Board of Directors determines the issuance price of its common
stock and options to purchase common stock to be fair market value,
based on a good faith estimate which is derived from recent issuances of
common stock to unrelated parties and/or from common stock market
quotations, after giving effect to the restricted nature of the stock
issued.
Net Loss per Common Share - Net loss per common share is calculated
using the weighted average number of common shares outstanding during
the period. Shares issuable upon the conversion of notes payable to
stockholder (prior to fiscal 1995) and the exercise of common stock
warrants and options have not been included in the per share
computations because their effect is antidilutive.
Income Taxes - The Company accounts for its income taxes in accordance
with the standards specified in Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes.
Reclassifications - Certain amounts as previously reported have been
reclassified to conform to the 1996 presentation.
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 at the date of the financial statements and the
reported amounts of other income and expenses during the reporting
periods. Actual results could differ from those estimates.
-30-
<PAGE> 31
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
Fair Value of Financial Instruments - The Company's balance sheet
includes the following financial instruments: cash and cash equivalents,
accounts payable, accrued expenses, capital lease obligation and notes
payable to stockholders. The Company considers the carrying amount in
the financial statements to approximate fair value for these financial
instruments because of the relatively short period of time between
origination of the instruments and their expected realization.
3. COMMITMENTS AND CONTINGENCIES
Leases - During fiscal 1995, the Company entered into capital lease
agreements for certain computer equipment. At April 30, 1996, the
capitalized cost related to these leases amounted to $52,388 and the
related accumulated amortization amounted to $20,935. As of April 30,
1996, the future minimum lease payments and the present value of such
are as follows:
<TABLE>
Year ending April 30:
<S> <C>
1997 $ 21,060
1998
17,551
- - - ---------------------------------------------------------------------------
38,611
Less amounts representing interest
(4,316)
---------
$ 34,295
=========
</TABLE>
Employment Contracts - The Company has employment agreements with
certain officers and an employee with aggregate future commitments of
$411,000 in 1997 and $272,000 in 1998.
Consulting Agreements - The Company has an equity financing agreement
with an individual which provides for commissions of 6% to be paid in
cash or common stock, in exchange for raising at least $5,000,000 in
equity financing after May 7, 1996. At April 30, 1996, no amounts were
due under this agreement. The agreement expires on May 7, 1997.
During fiscal 1995, the Company entered into a consulting agreement with
an unrelated party which required monthly payments of $5,000 and expired
in December 1995. In conjunction with this agreement, the Company issued
warrants to purchase 100,000 shares of the Company's common stock at
$1.00 per share, which exceeded the fair market value at the date of the
agreement. The warrants expire in April 1999.
-31-
<PAGE> 32
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
Litigation - The Company is subject to litigation in the normal course
of business, none of which management believes will have a material
adverse effect on the Company's financial statements as of April 30,
1996.
4. NOTES PAYABLE TO STOCKHOLDERS
During 1996, certain stockholders loaned the Company $255,826 to fund
operations. Such loans are due on demand and are noninterest-bearing.
5. LICENSE AGREEMENTS
The Company has various exclusive and non-exclusive license agreements
with an unaffiliated entity providing for the rights to manufacture, use
and sell certain licensed products. In exchange for these rights, the
Company is required to pay royalties of the greater of 3-1/2% of net
sales or $30,000, $140,000 and $150,000 for the years ended April 30,
1997, 1998 and 1999, respectively, and $200,000 per year, thereafter.
These agreements expire at various dates through the expiration of the
patents and are cancelable on the annual renewal date at the option of
the Company.
6. STOCKHOLDERS' EQUITY
At April 30, 1994, the Company had a subscription agreement with an
unrelated entity providing for future purchases of up to 1,666,667
shares of the Company's common stock at $.60 per share, which was
fulfilled during fiscal 1995. In conjunction with this agreement, the
Company incurred offering costs of $210,000, of which $150,000 was paid
in cash and $60,000 was paid through the issuance of 100,000 shares of
common stock. Also, the Company issued a warrant providing for the
purchase of up to 500,000 shares of its common stock at $.60 per share,
which approximated the fair market value of the warrant. The warrants
expire in April 1998.
During fiscal 1995, the Company converted outstanding notes payable to a
stockholder and officer aggregating $125,000 into 500,000 shares of the
Company's common stock, pursuant to a conversion provision granted by
the Company. In conjunction with the terms of the original agreement
which was entered into during fiscal 1994, the Company granted the
holder warrants to purchase 110,250 shares of common stock at an
exercise price of $.10 per share. At the date of the agreement, the
exercise price of the warrants was considered to approximate the fair
market value of the warrants. In addition,
-32-
<PAGE> 33
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
the Company issued 110,800 shares of the Company's common stock as
additional consideration for the note. An amount representing the fair
market value of the Company's common stock at the date of the agreement
was recognized as expense related to this issuance.
During fiscal 1995, an entity in which an officer of the Company has a
controlling interest, transferred an aggregate of 120,000 shares of the
Company's common stock to a stockholder and an employee for certain
loans and services, respectively, provided to the Company. Accordingly,
an amount which represents the fair market value of the Company's common
stock at the date of the related transfers or issuances has been
recognized in the accompanying financial statements as an expense.
During fiscal 1995, the Company issued 100,000 shares of common stock to
an employee for $25,000 in cash, which represented the fair market value
at the date of issuance. In addition, in exchange for various services
performed, the Company issued certain officers 8,000 shares of the
Company's common stock.
During fiscal 1996, the Company issued 1,200,000 shares of its common
stock in conjunction with a standby funding agreement with a
stockholder, which allowed the Company to borrow up to $450,000 from
this stockholder during the period from August 1995 through October
1995. As a result of this agreement, the Company recognized an expense
of $240,000 which represented the fair market value of the shares at the
date of the agreement.
During fiscal 1996, the Company issued 117,500 shares of common stock to
officers. In addition, during 1996, the officers exercised warrants
granted during 1994 to purchase 91,250 shares of common stock. The
exercise price of the warrants of $.10 per share approximated the fair
market value of the warrants on the date of grant. The remaining shares
were purchased for $8,625 in cash, which represented the fair market
value at the date of issuance.
During fiscal 1996, the Company converted an outstanding note payable to
a stockholder of $80,000 into 400,000 shares of the Company's common
stock, pursuant to a conversion option granted by the Company.
During fiscal 1996, an officer of the Company contributed $35,700 in
cash to fund operations.
During fiscal 1995 and fiscal 1996, the Company expensed $30,000 and
$45,000, respectively, which was paid to a stockholder as an inducement
to retain shares of the Company's common stock.
-33-
<PAGE> 34
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
7. STOCK OPTIONS AND WARRANTS
In April 1995, the Company adopted a stock option plan providing for the
granting of options to officers, directors, consultants and key
employees to purchase up to 2,500,000 shares of the Company's common
stock at prices not less than the fair market value of the stock at the
date of grant. The option expiration dates are determined at the date of
grant, but may not exceed ten years. In conjunction with this agreement
in fiscal 1995, the Company granted an employee an option to purchase up
to 100,000 shares of the Company's common stock at $.25 per share. The
option expires in March 1999. In fiscal 1996, no new options were
granted, however, the Company's Board of Directors did commit to grant
three officers 100,000 options each at a future date. The option price
will be determined at the date of grant. During fiscal 1994, 1995 and
1996, no options were exercised.
In connection with various agreements for the sale of the Company's
common stock (Note 6) and in lieu of payment for services rendered, the
Company issued warrants to purchase shares of its common stock at prices
ranging from $0.10 to $3.00 per share. During fiscal 1996, the Company
granted warrants to nonemployees to purchase 1,200,000 shares of common
stock at $.10 per share. As the exercise price was less than the fair
market value of the stock on the grant date, an amount representing the
difference between exercise price and fair market value was recognized
as expense during fiscal 1996. The difference between the fair value of
the warrant and the fair value of the common stock was not considered
significant. All warrants granted during fiscal 1996 were exercised in
April 1996. Remaining warrants outstanding at April 30, 1996 provide for
the purchase of common shares at $.60 to $1.00 per share and expire in
April 1998. Warrant activity for each of the three years ended April 30,
1996 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- ------------------------------ -----------------------------
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
beginning
of year 2,189,973 ($.10 - $3.00) 2,218,584 ($.10 - $3.00) 941,136 ($.10 - $3.00)
Granted 1,200,000 ($.10) 101,500 ($.10 - $1.00) 1,473,875 ($.10 - $2.00)
Expired (1,493,723) ($.10 - $3.00) (121,361) ($.10 - $1.12) (196,427) ($.56)
Exercised (1,291,250) ($.10) (13,750) ($.10)
------------ --------- ---------
BALANCE,
end of year 600,000 ($.60 - $1.00) 2,184,973 ($.10 - $3.00) 2,218,584 ($.10 - $3.00)
============ ========= =========
</TABLE>
-34-
<PAGE> 35
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, which requires adoption of the disclosure
provisions for fiscal years beginning after December 15, 1995 and
adoptions of the recognition and measurement provisions for non-employee
transactions no later than December 15, 1995. The new standard defines a
fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured
at the grant date based on the fair value of the award and is recognized
over the service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, but would be required
to disclose in a note to the financial statements pro forma net income,
and if presented, net income per share as if the Company had applied the
new method of accounting. The accounting requirements of the new methods
are effective for all employee awards granted after the beginning of the
fiscal year of adoption. Adoption of the new standard will have no
effect on the Company's cash flows.
The Company has determined that it will not change to the fair value
method and will continue to use Accounting Principles Board Opinion No.
25 for measurement and recognition of employee stock-based transactions.
8. INCOME TAXES
SFAS 109 requires the recognition of deferred tax liabilities and assets
for the future consequences of events that have been recognized in the
Company's financial statements or tax returns. In the event the future
consequences of differences between financial reporting bases and tax
bases of the Company's assets and liabilities result in a deferred tax
asset, SFAS 109 requires an evaluation of the probability of being able
to realize the future benefits indicated by such asset. A valuation
allowance is provided when it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
As of April 30, 1996 and 1995, the Company had net deferred tax assets
of approximately $2,171,000 and $1,466,000, respectively, all of which
has been offset by a valuation allowance. These deferred tax assets are
comprised of net operating loss and research and development credit
carryforwards which expire through 2011.
-35-
<PAGE> 36
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
- - - --------------------------------------------------------------------------------
9. RELATED PARTIES
During fiscal 1996, 1995 and 1994, the Company recorded expenses of
approximately $100,000, $72,000 and $55,000, respectively, for amounts
paid to a company in which an officer of the Company has a controlling
interest, for services provided by the Company.
-36-
<PAGE> 1
Exhibit 3(a)
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
SYNTHETIC BLOOD INTERNATIONAL, INC.
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-
4(3), Corporations, General, of the New Jersey Statutes, the undersigned
corporation executes the following Certificate of Amendment to its Certificate
of Incorporation:
1 . The name of the corporation is Synthetic Blood International, Inc.
2. The following amendment to the Certificate of Incorporation was
approved by the directors and thereafter duly adopted by the shareholders of the
corporation on the 23rd day of May, 1996:
Resolved, that the Certificate of Incorporation be amended to add new
Article Seventh, to read as follows:
Shareholders of the corporation shall have no preemptive or
preferential rights to subscribe for or purchase any shares of
any class of stock, whether now or hereafter authorized, or
any obligations, bonds or other securities convertible into
shares or securities.
3. The number of shares entitled to vote upon the amendment was
29,239,082.
4. That in lieu of a meeting and vote of the shareholders and in
accordance with the Provisions of Section 14A:5-6. the amendment was adopted by
the shareholders without a meeting pursuant to the written consents of the
shareholders and the number of shares represented by such consents is 21,602,910
shares. The amendment was approved by the written consent of shareholders
holding more than two-thirds of the outstanding voting stock of the corporation.
Dated this 29th day of May, 1996.
Synthetic Blood International, Inc.
By: /s/ Robert Larsen
-----------------------------------
Robert Larsen, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 76,312
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 106,124
<PP&E> 305,393
<DEPRECIATION> 103,226
<TOTAL-ASSETS> 393,939
<CURRENT-LIABILITIES> 974,969
<BONDS> 16,573
0
0
<COMMON> 310,304
<OTHER-SE> (907,907)
<TOTAL-LIABILITY-AND-EQUITY> 393,939
<SALES> 0
<TOTAL-REVENUES> 5,916
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,352,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,241
<INCOME-PRETAX> (2,346,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,346,227)
<EPS-PRIMARY> ($0.08)
<EPS-DILUTED> ($0.08)
</TABLE>
