<PAGE> 1
SYNTHETIC BLOOD INTERNATIONAL, INC.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended October 31, 1996
-------------------------------------------------
Commission File Number 2-31909
---------------------------------------------------------
SYNTHETIC BLOOD INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3067701
------------------------------ -------------------------
(State of Incorporation) (IRS Employer ID Number)
402 West Broadway Street, Suite 400, San Diego, CA 92101
- --------------------------------------------------------------------------------
619-595-4829
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by the 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).
YES (X) NO ( )
and (2) has been subject to such filing requirements for the past
90 days.
YES (X) NO ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 1996.
38,485,094 shares of common stock par value $0.01
- --------------------------------------------------------------------------------
1
<PAGE> 2
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31, April 30,
1996 1996
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 138,760 $ 76,312
Receivables 200,000
Prepaid Expense 9,126 29,812
----------- -----------
Total Current Assets $ 347,886 $ 106,124
Property & Equipment, net 191,619 202,167
Other Assets:
Patents and Technology 88,585 85,648
----------- -----------
Total Assets $ 628,090 $ 393,939
=========== ===========
LIABILITIES AND STOCKHOLDERS'S EQUITY
Current Liabilities:
Accrued Expenses $ 308,086 $ 277,340
Stockholders loans 4,027 246,701
Accrued Payroll & Other 65,115 450,928
----------- -----------
Total Current Liabilities $ 377,228 $ 974,969
Capital lease obligations $ 12,211 $ 16,573
----------- -----------
Total Liabilities $ 389,439 $ 991,542
Stockholder's Equity:
Common Stock $0.01 par
Value: Authorized
100,000,000 shares
Issued & outstanding
38,485,094 & 31,030,382 $ 384,851 $ 310,304
Additional Paid in capital 7,043,609 5,468,849
Stock Subscribed 200,000
Deficit Accumulated since
Development Stage (7,389,809) (6,376,756)
----------- -----------
Total Stockholder's Equity
(Deficit) $ 238,651 $ ( 597,603)
----------- -----------
Total Liabilities &
Stockholder's Equity $ 628,090 $ 393,939
=========== ===========
</TABLE>
See accompanying notes to financial statements
2
<PAGE> 3
SYNTHETIC BLOOD INTERNATIONAL, INC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Accumulated
during the Six Months Ended
development October 31,
stage 1996 1995
----------- -------------------------
(Unaudited)
<S> <C> <C> <C>
Expenses:
Research and
development $ 2,682,349 $ 284,047 $ 625,289
General and
administrative 4,662,074 724,946 805,692
Interest 93,036 4,323 5,318
----------- ----------- -----------
Total Expense 7,437,459 1,013,316 1,436,299
OTHER INCOME 47,650 263 5,650
----------- ----------- -----------
NET LOSS $(7,389,809) $(1,013,053) $(1,430,649)
=========== ===========
NET LOSS PER SHARE $(0.03) $(0.05)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 32,274,295 28,910,459
=========== ===========
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
SYNTHETIC BLOOD INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
ACCUMULATED SIX MONTHS SIX MONTHS
during the ended October 31, ended October 31,
CASH FLOWS FROM OPERATING development 1996 1995
ACTIVITIES: stage
<S> <C> <C> <C>
Net loss $(7,388,863) $(1,013,053) $(1,378,528)
Adjustments to reconcile net
cash used in operating activities:
Depreciation and amortization 165,925 10,548 18,142
Write down other assets 126,800
Issuance of compensatory stk options 118,500
Contribution of capital through
services rendered 30,000
Changes in operating assets and
liabilities:
Accounts receivable
Prepaid expenses & other assets 9,126 20,686 42,546
Accounts payable and accrued
expense 355,067 (355,067) (228,748)
---------- ---------- ----------
Net cash used in operating
activities (6,583,445) (1,336,886) (1,089,092)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of other assets (264,599)
Purchase of property and equipment (255,992) ( 2,937) (33,926)
---------- ---------- ----------
Net cash used in investing
activities (520,591) ( 2,937) (33,926)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of common stock 5,177,721 819,500 371,699
Payments on capital lease obligations (22,405) (4,362) ( 8,724)
Proceeds from issuance of notes
payable to stockholder 446,701 ( 6,930)
Contribution of capital stockholder 35,700
Stock subscription (200,000) (200,000)
Proceeds from convertible debentures 780,000
Issuance of stock for services 1,360,593 1,028,861
Repayments of notes payable (335,514) (242,674)
---------- ---------- ----------
Net cash provided by financing
activities 7,242,796 1,402,269 356,045
NET DECREASE IN CASH AND CASH
EQUIVALENTS: 138,760 62,448 (766,973)
CASH AND CASH EQUIVALENTS,
beginning of period 76,312 767,825
CASH AND CASH EQUIVALENTS,
end of period $ 138,760 $ 138,760 $ 852
========== ========== ==========
Cash paid for Interest $ 89,429 $ 4,322 $ 904
Taxes 4,800 800 800
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements contain all adjustments
(consisting only of normal recurring adjustments) which in the opinion
of management, are necessary to present fairly the financial position
of the Company at October 31, 1996, and the results of its operations
and its cash flows for the six month period ended October 31, 1996 and
1995. Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted pursuant to rules
and regulations of the Securities and Exchange Commission although the
Company believes that the disclosures in the financial statements are
adequate to make the information presented not misleading.
The financial statements included herein should be read in conjunction
with the financial statements of the Company, included in the Company's
Annual Report on Form 10-K for the year ended April 30, 1996 filed with
the Securities and Exchange Commission on August 29, 1996.
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 has accumulated losses from operations amounting
to $7,389,809. 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. The Company's continuation as a going concern is dependent
on its ability to generate sufficient cash flow, to meet its
5
<PAGE> 6
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 the 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. Additional funding will be necessary
which will require future private placements and/or joint ventures to
enable the Company to continue the required testing through Phase I, II
and III human testing.
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.
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
issuance of common stock to unrelated parties and/or from common stock
market quotations, after giving effect to the restricted nature of the
stock issued.
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 lease term, if applicable.
6
<PAGE> 7
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. The Company evaluated
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.
Reclassification - Certain amounts as previously reported have been
reclassified to conform to the 1996 presentation.
3. COMMITMENTS AND CONTINGENCIES
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 finance 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. As of October 31, 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 requires monthly payment 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.
Litigation - The Company is subject to litigation in the normal course
of the business, none of which management
7
<PAGE> 8
believes will have a material adverse effect on the Company's financial
statements as of October 31, 1996.
4. 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 and $200,000 per year, thereafter. These
agreements expire at various dates through the expiration of the
patents.
5. STOCKHOLDERS' EQUITY
In connection with a funding in 1995, the Company issued a warrant
providing for the purchase of up to 500,000 shares of its common stock
at $0.60 per share, which approximated the fair market value of the
warrant. The warrants expire in April 1998.
On July 28, 1996 the Company issued 1,000,000 shares of its common
stock under a Regulation S subscription agreement to an offshore
company, Caymus Capital, Ltd., for a $200,000 investment.
On July 5, 1996 the Company issued 2,869,191 shares of common stock to
officers and directors for the cancellation of $ 581,763 of loans made
to the corporation and for salaries and expenses remaining unpaid as at
July 5, 1996.
On July 5, 1996 the Company issued an employee bonus of 222,100 shares
of common stock to all employees other than officers and directors. An
expense of $44,420 was made at $0.20 per share for said bonus.
On August 29, 1996 the Company issued 1,000,000 shares of common stock
to Robert Nicora, an outside consultant as a bonus for services
rendered to the company. An expense of $10,000 was made at $0.20 per
share for said bonus.
8
<PAGE> 9
On August 2, 1996 the company issued 133,500 shares of common stock to
Jan Glines for the payment of $19,500 or $0.15 per share.
On August 6, 1996, the company issued 100,000 shares of common stock to
Mary Harvey for services rendered to the company. An expense of $20,000
or $0.20 per shares was made for the payment.
On October 2, 1996, the company issued 40,000 shares of common stock to
CeCe Wilkens for cancelling $6,000 owed to her company Wilkens
Communications. An expense of $2,000 was made for this issuance.
On October 2, 1996, the company issued 40,000 shares of common stock to
Jeremy Andrus as payment for services rendered to the company. An
expense of $8,000 was made for this issuance.
On August 29, 1996 the Company issued 1,000,000 shares of its common
stock under a Regulation S subscription agreement to an offshore
company, Caymus Capital, Ltd., for a $200,000 investment.
On October 16, 1996 the Company issued 2,000,000 shares of its common
stock under a Regulation S subscription agreement to Argos Invest
Consult AG, a Zurich Switzerland asset manager, for a $200,000
investment.
SYNTHETIC BLOOD INTERNATIONAL, INC
(A Development Stage Company)
Part I- Financial Information
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Second Quarter of 1996 and 1995.
The Research and Development expenses for the six months period ended October
31, 1996 were $284,047, compared to $625,289 for the
9
<PAGE> 10
same period in the prior year. This decrease was due to a significant reduction
in research personnel, research support personnel, and outside independent
laboratory confirmation of test results. The development activities were
primarily concerned with the patenting activity.
General and Administrative expenses for the six month period ended October 31,
1996 were $724,946, compared to $805,692 for the same period in the prior year.
The decrease for the six months period reflected lower travel and office
expenses for the period.
The net loss for the six month period ended October 31, 1996 was $1,013,053,
compared to $1,430,649 for the same period in the prior year. This decrease for
the six month period represents the reduction of research staff and outside
laboratory testing.
LIQUIDITY AND CAPITAL SOURCES
The Company has financed its operations since September 1990, when the current
management became involved, through the issuance of debt and equity securities
and loans from stockholders. As of October 31, 1996 the Company had $347,886 in
total current assets and a working capital deficit of $29,342.
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 and if approved, the FDA required clinical testing will
require significant additional financing. Management is actively pursuing
strategic alliance and joint venture agreements to enable the Company to develop
its products. There can be no assurance that FDA approval will be granted, once
applied for, or that necessary funding will be obtained.
10
<PAGE> 11
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
Part II-Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matter to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNTHETIC BLOOD INTERNATIONAL, INC.
-----------------------------------
(Registrant)
12/13/96____________ _____//SS//SS//______________________
(Date) Robert J. Larsen, Secretary/Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from a quarterly
October 31, 1996 report Synthetic Blood International, Inc.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 138,760
<SECURITIES> 0
<RECEIVABLES> 200,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 347,886
<PP&E> 305,957
<DEPRECIATION> 114,338
<TOTAL-ASSETS> 628,090
<CURRENT-LIABILITIES> 377,228
<BONDS> 12,211
0
0
<COMMON> 384,851
<OTHER-SE> (146,199)
<TOTAL-LIABILITY-AND-EQUITY> 628,090
<SALES> 0
<TOTAL-REVENUES> 263
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,013,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,323
<INCOME-PRETAX> (1,013,053)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,013,053)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
