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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, 1997
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Commission File Number 2-31909
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SYNTHETIC BLOOD INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 22-3067701
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(State of Incorporation) (IRS Employer ID Number)
2685 Culver Avenue Kettering, Ohio 45429
937-298-6070
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(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, 1997.
45,873,950 shares of common stock par value $0.01
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31, April 30,
1997 1997
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 99,619 $ 53,857
Prepaid Expense 9,645 17,425
----------- -----------
Total Current Assets $ 109,264 $ 71,282
Property & Equipment, net 111,021 137,433
Other Assets:
Patents and Technology 112,988 109,448
----------- -----------
Total Assets $ 333,273 $ 318,163
=========== ===========
LIABILITIES AND STOCKHOLDERS'S EQUITY
Current Liabilities:
Accrued Expenses $ 471,215 $ 473,974
Stockholders loans 52,888 75,979
Accrued Payroll & Other 152,270 50,722
----------- -----------
Total Current Liabilities $ 676,373 $ 600,675
Total Liabilities $ 676,373 $ 600,675
Stockholder's Equity:
Common Stock $0.01 par Value:
Authorized 100,000,000 shares
Issued & outstanding
45,873,950 & 42,829,500 $ 458,739 $ 428,295
Additional Paid in capital 8,079,881 7,576,325
Deficit Accumulated since
Development Stage (8,881,720) (8,287,132)
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Total Stockholder's Equity
(Deficit) $ (343,100) $ (282,512)
----------- -----------
Total Liabilities &
Stockholder's Equity $ 333,273 $ 318,163
=========== ===========
</TABLE>
See accompanying notes to financial statements
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Accumulated during the October 31, October 31,
development stage 1997 1996 1997 1996
-------------------- ---------------------------- -----------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Expenses:
Research and
development $ 2,876,784 $ 37,986 $ 149,071 $ 83,533 $ 284,047
General and
administrative 5,949,169 337,813 523,123 508,659 724,946
Interest 104,961 2,497 2,755 3,289 4,323
------------ ------------ ------------ ------------ ------------
Total Expense 8,930,914 378,296 674,949 595,481 1,013,316
OTHER INCOME (49,194) (779) (89) (893) (263)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (8,881,720) $ (377,517) $ (674,860) $ (594,588) $ (1,013,053)
============ ============ ============ ============
NET LOSS PER SHARE $ (0.01) $ (0.01) $ (0.01) $ (0.03)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 44,122,787 32,274,295 43,472,610 32,274,295
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
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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 1997 1996
ACTIVITIES: stage
<S> <C> <C> <C>
Net loss $(8,881,720) $ (594,588) $(1,013,053)
Adjustments to reconcile net
cash used in operating activities:
Depreciation and amortization 285,038 46,588 14,000
Write down other assets 126,800
Issuance of compensatory stk options 118,500
Contribution of capital through
services rendered 30,000
Issuance of stock for services rendered 936,924 402,675
Issuance of stock below FMV 720,000 180,000
Changes in operating assets and
liabilities:
Prepaid expenses & other assets (9,645) (7,780) 20,686
Accounts payable and accrued
expense 607,730 98,789 42,085
----------- ----------- -----------
Net cash used in operating activities (6,066,373) (261,431) (533,607)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of other assets (328,326) (23,716) (2,937)
Proceeds from the sale of equipment 15,457
Purchase of property and equipment (270,640) (3,452)
----------- ----------- -----------
Net cash used in investing activities (583,509) (23,716) (6,389)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of common stock 5,218,221 260,000 619,500
Payments on capital lease obligations (35,765) (4,362)
Proceeds from issuance of notes
payable to stockholder 866,254 31,000 29,806
Contribution of capital stockholder 35,700
Proceeds from convertible debentures 780,000
Repayments of notes payable (114,909) 39,909 (42,500)
----------- ----------- -----------
Net cash provided by financing activities 6,749,501 330,909 602,444
NET DECREASE IN CASH AND CASH
EQUIVALENTS: 99,619 45,762 62,448
CASH AND CASH EQUIVALENTS,
beginning of period 53,857 76,312
CASH AND CASH EQUIVALENTS,
</TABLE>
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<TABLE>
<S> <C> <C> <C>
end of period $ 99,619 $ 99,619 $138,760
======== ======== ========
Cash paid for Interest $ 90,458 $ 3,287 $ 4,322
Taxes 5,600 800 800
</TABLE>
See accompanying notes to financial statements
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
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, 1997 and the results of its operations
and its cash flows for the three month and six month periods ended
October 31, 1997 and 1996. 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, 1997 filed with
the Securities and Exchange Commission on August 29, 1997.
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 October 31, 1997 has accumulated losses from
operations amounting to $8,881,720, a working capital deficit of
$567,109. 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
Company's continuation as a going concern is dependent on its ability
to generate sufficient cash flow, to meet its obligations on a timely
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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.
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.
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3. COMMITMENTS AND CONTINGENCIES
Employment Contracts - The Company has employment agreements with
certain officers and an employee with aggregate future commitments of
$240,000 in 1998.
During fiscal 1995, the Company entered into a consulting agreement
with an unrelated party which required monthly payment of $5,000. This
agreement 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 believes will have a material
adverse effect on the Company's financial statements as of October 31,
1997, except as follows:
The Company has two legal matters pending at October 31, 1997. These legal
actions were filed by former employees alleging unfair treatment during a
temporary layoff in December 1995. These cases are presently in discovery.
Company managements communications with legal counsel have indicated that the
Company's exposure related to these legal actions could amount to $124,000.
Thus, while the outcome of such litigation is uncertain, the Company has
provided an accrual for such loss contingency using the best available estimate
of $124,000, as initially disclosed in audited April 30, 1997 Financial
Statements and included in the April 30, 1997 10K.
4. STOCKHOLDERS' EQUITY
On August 1, 1997 convertible debentures were issued that are
convertible into 516,667 shares of the Company's common stock, for an investment
of $31,000 with an annual interest rate of 8%. An amount representing the fair
market value of the Company's common stock as of the date of the debentures was
recognized as an expense related to this issuance.
On September 22, 1997 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 an $260,000 investment. 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.
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On September 23, 1997 the Company issued 1,044,450 shares of its common
stock under Regulation 144 to officers and directors for the cancellation of
$94,000 of loans made to the corporation remaining unpaid as at September 23,
1997. An amount representing the fair market value of the Company's common stock
at the date of the Board Resolution less the loan balance was recognized as
expense.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (FAS 128). FAS 128 requires the Company to
disclose a basic and diluted earnings per share calculation. Basic earnings per
share (EPS) excludes common stock equivalents from the EPS calculation, while
diluted EPS is calculated consistent with the Company's primary earnings per
share calculation. The Company will adopt the provisions of FAS 128 during the
fiscal year ending April 30, 1998. Basic and diluted EPS, as computed under FAS
128, would not have been materially different than EPS determined in accordance
with APB 15 for the periods presented.
SYNTHETIC BLOOD INTERNATIONAL, INC
(A Development Stage Company)
Part I- Financial Information
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Second Quarter of 1997 and 1996.
The Research and Development expenses for the three and six month periods ended
October 31, 1997 were $37,986 and $83,533 respectively, compared to $149,071
and $284,047 for the same periods in the prior year. This decrease was due to a
significant reduction in research personnel, outside laboratory confirmation of
test results and the purchase of fewer animals and supplies.
General and Administrative expenses for the three and six month periods ended
October 31, 1997 were $337,813 and $508,659 respectively, compared to $523,123
and $724,946 for the same periods in the prior year. This decrease was due to a
significant reduction in legal fees, licensing fees, and research staff.
The net loss for the three and six month periods ended October 31, 1997 was
$377,517 and $594,588,
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compared to $674,860 and $1,013,053 for the same periods in the prior year.
This represented a substantial reduction of research and general administrative
expenses as the primary activity was writing patent applications during this
period.
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, 1997 the Company had $109,264 in
total current assets and a working capital deficit of $567,109.
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.
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
Part II-Other Information
Item 1. Legal Proceedings.
Described in Financial Statement notes.
Item 2. Changes in Securities.
On September 22, 1997, the Company issued 2,000,000 shares
of its common stock under
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Rule 144, Section 4/2 of the Securities Act to Argos Invest
Consult AG, a Zurich Switzerland asset manager for an $260,000
investment. An amount representing the fair market value of
the Company's stock at the date of the agreement was
recognized as expense related to this issuance.
On September 23, 1997, the Company issued 1,044,450 shares of
its common stock under Regulation 144, Section 4/2 of the
Securities Act to officers and directors for the cancellation
of $94,000 of loans made to the corporation remaining unpaid
as of that date. An amount representing the fair market value
of the Company's common stock at the date of the Board
Resolution to issue stock less the loan balance was recognized
as expense.
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.
Exhibit 10.1
Stock subscription agreement dated September 22, 1997.
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 hereunto duly authorized.
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(Registrant)
9/14/97 //SS//SS//
- ----------------- -------------------------------------
(Date) Robert J. Larsen, Secretary/Treasurer
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EXHIBIT 10.1
EXECUTION COPY
SUBSCRIPTION AGREEMENT FOR 2,000,000 SHARES OF
COMMON STOCK ISSUED
BY SYNTHETIC BLOOD INTERNATIONAL, INC.
This Subscription Agreement is made by and between Synthetic Blood
International, Inc., a New Jersey corporation (the "Company") and Argos Invest
Consult AG, ("Argos") who is subscribing for Two Million (2,000,000) shares of
Common Stock ("Common Stock") of the Company for the total purchase price of Two
Hundred and Sixty Thousand Dollars US ($260,000) which purchase price includes
Warrants to purchase One Million (1,000,000) shares of Common Stock of the
Company ("Warrants") at an exercise price of Seventy ($0.70) per share, with
such Warrant expiring two years from the closing of this Subscription. Pursuant
to the representations and warranties, understandings, and other provisions of
this Subscription Agreement, Argos represents and warrants it has full power and
authority to authorize and direct such issuance and that no other person or
entity has an interest in said shares of Common Stock of the Company.
The Common Stock has not been and will not be registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons as defined in the Securities Act except in accordance with
Regulation S under the Securities Act, or pursuant to an exemption from the
registration requirements of the Securities Act. Argos will offer and sell the
Common Stock in the United States or to of for the account of U.S. persons only
in accordance with Rule 903 of Regulation S, if available, Rule 144A under the
Securities Act, or in accordance with the Securities Act. Neither the Company,
Argos, any of their affiliates nor any persons acting on our behalf have engaged
or will engage in any directed selling efforts, as defined in Regulation S, with
respect to the Common Stock, and the Company, Argos have complied and will
comply with the offering restrictions requirement of Regulation S.
In consideration of the Company's agreement to issue the 2,000,000
shares of Common Stock to Argos and accept the undersigned as a stock holder of
the Company upon the terms and conditions set forth herein Argos agrees and
represents as follows:
A. SUBSCRIPTION
1. Argos hereby subscribes to purchase Two Million (2,000,000)
shares of Common Stock of the Company at thirteen cents ($0.13) per share, for a
total aggregate purchase price of Two Hundred and Sixty Thousand Dollars
($260,000), which includes Warrants to purchase One Million shares of Common
Stock at an exercise price of Seventy Cents ($0.70) per share expiring two years
from the closure of this subscription.
2. It is understood and agreed that this subscription is made
subject to the following terms and conditions:
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(a) The Company shall have the right to accept or
reject this and any other subscription in whole or in part.
(b) Upon acceptance of this Subscription Agreement
by the Company, the Company shall deliver to you, as promptly as practicable,
the Shares of Common Stock issuable, and fully executed copy of this
Subscription Agreement.
EXECUTION COPY
B. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER
1. Argos hereby represents and warrants to, and agrees with,
the Company as follows:
(a) The Common Stock of the Company is being
purchased for its own account, for investment purposes only, and not for the
account of any other person, and not with the view to distribution, assignment
or resale to others or to fractionalization in whole or in part and no other
person has or will have a direct or indirect beneficial interest in such Common
Stock and the undersigned will not sell, hypothecate or otherwise transfer his
Common Stock except in accordance with the Securities Act and applicable state
securities laws or unless, in the opinion of United States counsel for the
holder of the Common Stock, which such opinion is reasonable acceptable to the
Company, an exemption from the registration requirements of the Securities Act
and such laws is available.
(b) Prior to its decision to purchase the 2,000,000
shares, the undersigned has been furnished with and has carefully read the Form
10-K Annual Report of the Company for the year ended April 30, 1997, (the
"Documents"). In determining whether to purchase the Common Stock, the
undersigned has not relied upon any representations or other information
(whether oral or written) from the Company, or any of its agents other than as
set forth in the Documents, except as modified herein, and no oral or written
representations have been made or oral or written information furnished to the
undersigned or his advisors, if any, in connection with the offering of the
Common Stock which were or are in any way inconsistent with the Documents.
(c) Prior to the purchase of the 2,000,000 shares of
Common Stock by Argos, the Company has made available to Argos all documents and
information that Argos has requested relating to an investment in the Company.
(d) The undersigned recognizes the Company is a
development stage Company, that it had an accumulated deficit of $8,287,132 and
working capital deficit of $529,393 as of April 30, 1997, has not generated any
revenue from operations and is not expected to generate any revenue from
operations for a minimum of several years and perhaps for many years, and that
proposed research and development expenditures are expected to result in
substantial and increasing losses over at least the next several years, and
probably longer. Investment in the Company involves substantial risk, and the
undersigned should not purchase the Common Stock unless it can afford the
complete loss of its investment. The
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undersigned has taken full cognizance of and understands all of the risk factors
related to the receipt of the Common Stock, including, but not limited to, the
fact that the Company has not submitted any application to the FDA, and further,
those risk factors set forth in the Documents.
(e) The undersigned has carefully considered and has
been advised by the Company to have both this Subscription Agreement, and
related documents, the Documents and the purchase of Common Stock reviewed by
its legal counsel prior to purchase, and to discuss with his tax professional
and financial advisors the suitability of the purchase of the Common Stock and
he has determined that the Common Stock is a suitable investment for him. The
Company specifically disclaims any representation regarding the legal, tax, or
financial consequences of the purchase.
EXECUTION COPY
(f) All information which the undersigned has
provided to the Company concerning the undersigned and its financial position is
correct and complete as of the date set forth below, and if there should be any
change in such information prior to his acceptance as a shareholder of the
Company, Argos will immediately provide such information to the Company and will
promptly send confirmation of such information to the Company.
(g) If this subscription Agreement is executed and
delivered on behalf of a partnership, or corporation, (i) the undersigned's
execution, delivery and performance of and under this Subscription Agreement,
and all documents ancillary hereto, and the consummation of the transactions
contemplated hereby and thereby have been duly authorized, and the undersigned
is duly authorized (a) to execute and deliver this Subscription Agreement and
all other instrument executed and delivered on behalf of such partnership or
corporation in connection with the issuance in its name of the Common Stock; and
(b) to acquire and hold the Common Stock, (ii) such entity has not been formed
for the specific purpose of acquiring the Common Stock: and (iii) when executed
and delivered by the Company, will constitute such partnership's or
corporation's legal, valid and binding obligation enforceable against it in
accordance with its terms.
(h) The undersigned is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D of the Securities Act of
1933 for the reasons set forth in the undersigned's completed and duly executed
Purchaser Questionnaire delivered simultaneously with this Subscription
Agreement.
(i) The undersigned is an Offshore Purchaser: The
term "Offshore Purchaser" means:
(i) A person who was outside the United States
at the time the offer to sell the Securities was made to such person; and
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(ii) A person who, at the time of
originating any buy order for the Securities (including, but not limited to, the
execution of this Agreement or other documentation and any wire or other
transfer or commitment of fund), is or was outside the United States.
Notwithstanding the foregoing definition of "Offshore
Purchaser", such term (i) shall not include any person who purchases the
Securities for the account or benefit of any specifically targeted, identifiable
group of U.S. citizens abroad, such as members of the U.S. armed forces serving
overseas; (ii) shall include persons excluded from the definition of "U.S.
Person" pursuant to the provision of this Subscription Agreement or person
holding accounts excluded from the definition of "U.S. Person" pursuant to the
provisions of this Subscription Agreement, solely in their capacities as holders
of such account. For purposes of this Agreement, "United States" means the
United States of America, its territories and possessions, any State of the
United States, and the District of Columbia.
(j) The undersigned is not a U.S. Person and is not acquiring
the Securities for the account or benefit of any U.S. Person. The term "U.S.
Person" means:
(i) Any natural person resident in the United
States;
EXECUTION COPY
(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) Any estate of which any executor or
administrator is a U.S. Person;
(iv) Any trust of which any trustee is a U.S.
Person;
(v) Any agency or branch of a foreign entity located
in the United States;
(vi) Any non-discretionary account or similar
account held by a dealer or other fiduciary for the benefit or account of a U.S.
Person;
(vii) Any discretionary account or similar account
held by a dealer or other fiduciary organized, incorporated, or (if individual)
resident in the United States, and
(viii) Any partnership or corporation if:
(1) organized or incorporated under the
laws of any foreign jurisdiction; and
(2) formed by a U.S. Person principally for
the purpose of investing in securities not registered under the Act, unless it
is organized
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or incorporated and owned, by accredited investors who are not natural persons,
estates or trusts.
Notwithstanding the foregoing definition of "U.S. Person";
A. Any discretionary account or similar account
(other than estate or trust) held for the benefit or account of a non-U.S.
Person by a dealer or other professional fiduciary organized, incorporated, or
(if individual) resident in the United States shall not be deemed a U.S. Person.
B. Any estate of which any professional fiduciary
acting as executor or administrator is a U.S. Person shall not be deemed a U.S.
Person if:
(1) An executor or administrator of the
estate who is not a U.S. Person has sole or shared investment discretion with
respect to the assets of the estate; and
(2) The estate is governed by foreign law.
C. Any trust of which any professional fiduciary
acting as trustee is a U.S. Person shall not be deemed a U.S. Person if a
trustee who is not a U.S. Person has sole or shared investment discretion with
respect to the trust assets, and no beneficiary of the trust (and no settlor if
the trust is revocable) is a U.S. Person.
D. Am employee benefit plan established and
administered in accordance with the law of a country other than the United
States and customary practices and documentation of such country shall not be
deemed a U.S. Person.
EXECUTION COPY
E. Any agency or branch of a U.S. Person located
outside the United States shall not be deemed a U.S. Person if:
(1) The agency or branch operates for valid
business reasons; and
(2) The agency or branch is engaged in the
business of insurance or banking and is subject to substantive insurance or
banking regulation, respectively, in the jurisdiction where located.
(k) You have been advised by the Company that the
issuance of 2,000,000 shares of the Common Stock in the name of the undersigned
has not been reviewed by, passed on or submitted to any European, U.S., Federal
or state agency or self-regulatory organization since an exemption under the
Securities Act has and is being relied upon, and that the Company's reliance
thereon is based in part upon the representations made by you in this
Subscription Agreement. You acknowledge that you have been informed by the
Company of, or are otherwise familiar with, the nature of the limitations
imposed by the Securities Act and the rules and regulations thereunder on the
transfer of securities, including Regulation S. In particular, you agree that no
sale, assignment or
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transfer of any of the 2,000,000 shares of Common Stock shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of the
Securities is registered under the Securities Act, it being understood that none
of the 2,000,000 shares of Common Stock issued in the name of the undersigned
will or are currently registered for sale and that the Company has no obligation
or intention to so register such securities, or (ii) the securities are sold,
assigned or transferred in accordance with all the requirements and limitations
of either Rule 144, Rule 144A and/or Regulation S under the Securities Act,
or(iii) such sale, assignment or transfer is otherwise exempt from registration
under the Securities Act. You acknowledge that the 2,000,000 shares of Common
Stock shall be held in escrow until such time as they can be legally released to
you without legend and that they will be subject to a stop transfer order.
(l) It never has been represented, guaranteed or warranted by
any broker, the Company, and of its officers, directors, shareholders, partners,
employee or agents of either, or any person, whether expressly or by
implication, that:
(i) the Company or you will be able to resell any of
the 2,000,000 shares of Common Stock in the United States, or you will realize
any given percentage of profits, if any, or amount or type of consideration, as
a result of the Company activities or your investment in the Company; or
(ii) the past performance or experience of the
management of the Company, or of any person, will in any way indicate the future
results of the ownership of the 2,000,000 shares of the Common Stock or of the
Company's activities.
(m) You have had the opportunity to request of the Company
additional information regarding dilution, use of proceeds to be prepared for
his and his legal counsel's review prior to the undersigned's purchase and that
the undersigned determined that such sections did not need to be prepared and
reviewed.
EXECUTION COPY
(n) You acknowledge that you understand the meaning and legal
consequences of the representation and warranties contained in this Section
B(1), and you hereby agree to indemnify and hold harmless the Company and each
incorporator, officer, director, employee, agent and controlling person thereof,
past, present or future, from and against any and all loss, damage or liability
due to or arising out of a breach of any such representation or warranty.
(o) Neither this Subscription Agreement, nor any of your
interest herein, shall be assignable or transferable by you in whole or in part
except by operation of law.
(p) You are not purchasing the 2,000,000 shares of Common
Stock as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast
6
<PAGE> 7
over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a person not previously known to you in
connection with investments in securities generally.
(q) You have such knowledge and experience in finance, tax,
securities, investments and other business matters so as to be able to protect
your interests in connection with the purchase of the 2,000,000 shares of Common
Stock, and your investment in the Company hereunder is not material when
compared to your total capacity.
(r) The foregoing representations and warranties shall be true
and accurate as of the date of this Subscription Agreement and the issuance of
the 2,000,000 shares of Common Stock thereafter.
(s) The undersigned shall indemnify and hold harmless the
Company and/or any of its officers, employees, directors or control persons of
any such entity who or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of or arising from any
actual or alleged misrepresentation or misstatement of facts or omission to
represent or state facts made by the undersigned to the Company concerning
itself or its financial position in connection with the offering, sale or
issuance of the 2,000,000 shares of Common Stock which is not remedied by timely
notice to the Company as provided above, against losses, liabilities and
expenses for which the Company or any of its respective officers, employees,
directors or control persons of any such entity which have not been otherwise
reimbursed (including attorneys' fees, judgements, fines and amounts paid in
settlement) as actually and reasonably incurred by such person or entity in
connection with such action, suit or proceeding.
(t) The undersigned is a corporation duly organized, validly
existing and in good standing under the laws of Switzerland, is not a U.S.
Person as defined in this Subscription, and has all the requisite corporate
power and authority to enter into, perform and carry out the terms of this
subscription agreement and the transactions contemplated hereby.
(u) The undersigned has taken all requisite corporate action
to authorize the purchase of the 2,000,000 shares of Common Stock, and this
subscription agreement has been duly executed and delivered by Argos and is
binding upon and enforceable against Argos in accordance with its terms.
EXECUTION COPY
(v) The consummation of the transactions contemplated by this
Subscription Agreement will not result in or constitute the violation of any
Switzerland laws or, to the best of Argos's knowledge, any other relevant
foreign law, judgement, order, decree or agreement which adversely affects the
2,000,000 shares of Common Stock.
(w) Argos shall execute the Subscription Agreement and
Purchaser Questionnaire in full and the acceptance by the Company of such
subscription
7
<PAGE> 8
agreements shall be a condition precedent to the issuance of the 2,000,000
shares of Common Stock.
C. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, you as
follows:
1. The Company is duly organized, validly existing and in good
standing under the laws of the State of New Jersey, with all requisite power and
authority to own, lease, license, and use its properties and assets to carry out
the business in which it is engaged.
2. The Company has all the requisite power and authority to
execute, deliver and perform its obligations under this Subscription Agreement,
and to issue, sell and deliver 2,000,000 shares of Common Stock. This
Subscription Agreement will be duly authorized by the Company, and (subject,
with respect to enforceability, to the provisions of specific performance,
bankruptcy and similar laws and principles of equity) when executed and
delivered by the Company will constitute the legal, valid and binding
obligations of the Company, enforceable as to the Company in accordance with its
respective terms.
3. To the best of the Company's knowledge, no consent,
authorization, approval, order, license, certificate or permit of or from, or
declaration or filing with, a federal, state, local or other governmental
authority or any court or any other tribunal is required by the Company for the
execution delivery or performance by the Company of this Subscription Agreement
(except as specified herein or as may be required under Federal and state
securities laws).
4. To the best of the Company's knowledge, no consent of any
party to any contract, agreement, instrument, lease, license, arrangement or
understanding to which the Company is a party or to which any of its properties
or assets are the subject, which consent has not been obtained, is required for
the execution, delivery or performance by the Company of this Subscription
Agreement.
D. PURCHASER REPRESENTATIVE
If the undersigned intends to appoint anyone to serve as a
Purchaser Representative (as the term is used in Regulation D of the Securities
Act of 1933) the person appointed must fill out appropriate forms to be provided
by the Company. Please indicate if the undersigned intends to rely upon one or
more Purchaser Representatives: X NO YES
------- -------
8
<PAGE> 9
EXECUTION COPY
E. INVESTOR INFORMATION
The Company may only accept subscriptions from persons who
meet certain suitability standards unless waived by the Company. Therefore,
certain information is requested below.
1. Name: ARGOS INVEST CONSULT AG
----------------------------------------------------
Nature of Business Portfolio Manager
-------------------------------------------------
2. Home Address:
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Home Telephone Number:
-------------------------------------
Business Address: Limnatquai #72, CH 8001, Zurich,
Switzerland
-----------------------------------------------------------
-----------------------------------------------------------
3. Send Correspondence to: Home Business X
----- -----
(a) Maintain your primary residence ?
---------------------
4. Of what country are you a citizen Switzerland
-------------
5. List any other information you believe is relevant in
showing that you are able to adequately evaluate the risks and merits of the
purchase of the 2,000,000 shares of Common Stock in the undersigned's name:
- ------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In furnishing the above information, I acknowledge that the
Company will re relying thereon in determining among other things, whether there
are reasonable grounds to believe that I qualify as a purchaser under Section
4(2) and Regulation S of the Securities Act for the purposes of the proposed
investment.
F. UNDERSTANDINGS
1. The undersigned understands, acknowledges and
agrees with the Company as follows:
(a) This Subscription is and shall be
irrevocable.
(b) No federal agency, state agency or
foreign government has made any finding or determination as to the fairness of
this offering or investment, nor any recommendation or endorsement.
9
<PAGE> 10
(c) There is only a very limited public
market in the United States over-the-counter market for the Common Stock of the
Company and this very limited market may be discontinued at any time or
additional restrictions may be imposed which materially and adversely affect
this very limited market. There can be no assurance that the undersigned will be
able to
EXECUTION COPY
sell or dispose of his Common Stock. Moreover, no assignment, sale, transfer,
exchange or other disposition of the Common Stock can be made other than in
accordance with all applicable securities laws. It is understood that in order
not to jeopardize the offering's exempt status under Section 4(2) of the Act and
Regulation S thereunder, the transferee may be requested to fulfill the
accredited investor suitability requirements listed in this Document.
(d) The information contained in the
Documents is confidential and non-public and the undersigned agrees that all
such information shall be kept in confidence by him and neither used by him for
his personal benefit (other than in connection with his subscription for Common
Stock) nor disclosed to any third party for any reason; provided that this
obligation shall not apply to any such information which (i) is part of the
public knowledge or literature and readily accessible at the date hereof: (ii)
becomes part of the public knowledge or literature readily accessible by
publication (except as a result of a breach of these provisions); or (iii) is
received from third parties (except third parties who disclose such information
in violation of any confidentiality agreements including, without limitation,
any Subscription Agreement they may have with the Company).
(e) There can be no assurance as to the
Federal, state of foreign tax results of an investment in the Common Stock.
(f) The undersigned has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of investment in the Company and of making an informed
investment decision.
(g) The undersigned, by reason of his
business or financial experience, has the capacity to protect the undersigned's
own interest in connection with the Common Stock.
(h) The undersigned agrees, and any future
permitted transferee of the Common Stock by his acceptance thereof agrees, that
the Common Stock shall not be sold, assigned, transferred or otherwise disposed
of except as permitted by, and in compliance with, the provisions of (1)
Regulation S promulgated under the Securities Act, if available, or Rule 144 or
Rule 144A, or (2) such sale, assignment or transfer is otherwise exempt from
registration under the Securities Act.
2. The representations, warranties, understandings,
acknowledgments and agreements made by the undersigned in this Agreement are
true and accurate as of the date hereof, shall be true and correct as of the
date of the acceptance hereof by the Company and shall survive thereafter.
10
<PAGE> 11
G. MISCELLANEOUS
1. All pronouns and any variations thereof used herein shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person, persons or entities may require.
2. Neither this Subscription Agreement nor any provisions
hereof shall be waived, modified, changed, discharged, terminated or canceled
except by an instrument in writing signed by the party against whom any change,
discharge or termination is sought.
EXECUTION COPY
3. Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered or sent by registered mail, return receipt requested, addressed to the
other party at the address of such party set forth in this Subscription
Agreement, as amended from time to time, or to such other address furnished by
notice in accordance with this Article G.
4. Failure of the Company to exercise any right or remedy
under this Subscription Agreement or any other agreement between the Company and
the undersigned, or otherwise, or delay by the Company in exercising such right
or remedy, will not operate as a waiver thereof. No waiver by the Company will
be effective unless and until it is in writing and signed by the Company.
5. This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of
California, and shall be binding upon the undersigned, his heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company and its successors and assigns.
6. In the event that any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereon which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
7. This Subscription Agreement and portions of the Documents
(including all exhibits thereto), except as modified herein, constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersede any and all prior or contemporaneous representations,
warranties, agreements and understandings in connection therewith. This
Agreement may be amended only by a writing executed by all parties hereto.
8. Title to the 2,000,000 shares of Common Stock shall be
taken in the name of Argos Invest Consult AG
9. This Subscription Agreement may be executed in one or more
counterparts representing, however, one and the same Agreement.
11
<PAGE> 12
EXECUTION COPY
SYNTHETIC BLOOD INTERNATIONAL, INC.
SUBSCRIPTION AGREEMENT FOR 2,000,000 SHARES OF COMMON STOCK
SIGNATURE PAGE
This page constitutes the Signature Page for the Subscription
Agreement. The undersigned represents to the Company that (a) the information
contained herein is complete and accurate on the date hereof and may be relied
upon by the Company; and (b) the undersigned will notify the Company immediately
of any change in any of such information occurring prior to the acceptance of
the subscription and prior to the issuance in the name of Argos Invest Consult
AG of the certificates representing the 2,000,000 shares of Common Stock, once
the Subscription Agreement is accepted, and will promptly send the Company
written confirmation of such change. The undersigned hereby certifies that he
has read and understands the Documents, which includes the Form 10-K report for
the year ended April 30, 1997, and this Subscription Agreement.
Under penalty of perjury, the undersigned also certifies that he is not
subject to backup withholding under the rules and regulations of the Internal
Revenue Service.
12
<PAGE> 13
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this ______day _____________, 1997.
2,000,000
- ----------------------
Number of Common Stock
Shares Subscribed
---------------------------
Name of Common Stockholder
---------------------------------------
Address
---------------------------------------
---------------------------------------
Tax Identification Number
--------------------------------------------
Signature
--------------------------------------------
Title of Authorized Signatory, if Corporation
Accepted by:
SYNTHETIC BLOOD INTERNATIONAL, INC.
By:
-----------------------------------
Title
Dated , 1997
--------------------
THE 2,000,000 SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED AND SOLD
IN THE UNITES STATES OR TO UNITED STATES PERSON UNLESS THEY ARE REGISTERED UNDER
THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECOND
QUARTER ENDED OCTOBER 31, 1997 SYNTHETIC BLOOD INTERNATIONAL, INC.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 99,619
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 109,264
<PP&E> 303,518
<DEPRECIATION> 192,497
<TOTAL-ASSETS> 333,273
<CURRENT-LIABILITIES> 676,373
<BONDS> 0
0
0
<COMMON> 458,739
<OTHER-SE> (801,839)
<TOTAL-LIABILITY-AND-EQUITY> 333,273
<SALES> 0
<TOTAL-REVENUES> 893
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 595,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,497
<INCOME-PRETAX> (594,588)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (594,588)
<EPS-PRIMARY> ($0.01)
<EPS-DILUTED> ($0.01)
</TABLE>
