<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 July 31, 1997
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 July 31, 1997.
42,829,500 shares of common stock par value $0.01
1
<PAGE> 2
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, April 30,
1997 1997
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 15,877 $ 53,857
Prepaid Expense 21,425 17,425
----------- -----------
Total Current Assets $ 37,302 $ 71,282
Property & Equipment, net 124,227 137,433
Other Assets:
Patents and Technology 106,641 109,448
----------- -----------
Total Assets $ 268,170 $ 318,163
=========== ===========
LIABILITIES AND STOCKHOLDERS'S EQUITY
Current Liabilities:
Accrued Expenses $ 493,269 $ 473,974
Stockholders loans 154,979 75,979
Accrued Payroll & Other 116,541 50,722
----------- -----------
Total Current Liabilities $ 764,789 $ 600,675
Total Liabilities $ 764,789 $ 600,675
Stockholder's Equity:
Common Stock $0.01 par
Value: Authorized
100,000,000 shares
Issued & outstanding
42,829,500 & 42,829,500 $ 428,295 $ 428,295
Additional Paid in capital 7,576,325 7,576,325
Deficit Accumulated since
Development Stage (8,501,239) (8,287,132)
----------- -----------
Total Stockholder's Equity
(Deficit) $ ( 496,619) $ ( 282,512)
----------- -----------
Total Liabilities &
Stockholder's Equity $ 268,170 $ 318,163
=========== ===========
</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 Three Months Ended July 31,
development ------------------------------
stage 1997 1996
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Expenses:
Research and
development $ 2,838,798 $ 46,365 $ 106,215
General and
administrative 5,608,392 167,064 126,575
Interest 102,464 792 1,272
------------ ------------ ------------
Total Expense 8,549,654 214,221 234,062
OTHER INCOME (48,415) (114) (54)
------------ ------------ ------------
NET LOSS $ (8,501,239) $ (214,107) $ (234,008)
============ ============ ============
NET LOSS PER SHARE $ (0.01) $ (0.01)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 42,829,500 42,829,500
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
SYNTHETIC BLOOD INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Accumulated
during the Three months Three months
development ended July 31, ended July 31
stage 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (8,501,239) $ (214,107) $ (278,428)
Adjustments to reconcile net
cash used in operating activities:
Depreciation and amortization 261,744 23,294 12,500
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
Issuance of stock below FMV 540,000
Changes in operating assets and
liabilities:
Prepaid expenses & other assets (21,425) (4,000) 12,517
Accounts payable and accrued
expense 593,237 85,114 (280,412)
-------------- -------------- --------------
Net cash used in operating
activities (5,915,459) (109,699) (533,823)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of other assets (311,891) (7,281)
Proceeds from the sale of equipment 15,457
Purchase of property and equipment (270,640) (1,500)
-------------- -------------- --------------
Net cash used in investing
activities (567,074) (7,281) (1,500)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of common stock 4,958,221 826,183
Payments on capital lease obligations (35,765) (1,454)
Proceeds from issuance of notes
payable to stockholder 835,254 79,000 (212,100)
Contribution of capital stockholder 35,700
Proceeds from convertible debentures 780,000
Repayments of notes payable (75,000)
-------------- -------------- --------------
Net cash provided by financing
activities 6,498,410 79,000 612,629
NET DECREASE IN CASH AND CASH
EQUIVALENTS: 15,877 (37,980) 77,306
CASH AND CASH EQUIVALENTS,
beginning of period 53,857 76,312
CASH AND CASH EQUIVALENTS,
end of period $ 15,877 $ 15,877 $ 153,618
============== ============== ==============
Cash paid for Interest $ 87,171 $ 792 $ 1,272
Taxes 5,600 800 800
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
July 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 July 31, 1997, and the results of its operations and
its cash flows for the three month periods ended July 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 July 31, 1997 has accumulated losses from
operations amounting to $8,501,239, a working capital deficit of
$727,487. 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
5
<PAGE> 6
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 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-
6
<PAGE> 7
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.
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 July 31,
1997, except as follows:
The Company has two legal matters pending at July 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.
7
<PAGE> 8
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
First Quarter of 1997 and 1996.
The Research and Development expenses for the three months period ended July 31,
1997 was $ 46,365, compared to $106,215 for the same period in the prior year.
This decrease was due to a significant reduction in research personnel, the
purchase of animals and supplies.
General and Administrative expenses for the three months period ended July 31,
1997 were $167,064, compared to $126,575 for the same period in the prior year.
This increase was due to a increase in legal fees, filing fees, and the
application fees associated with foreign patent applications.
The net loss for the three months ended July 31, 1997 was $214,107, compared to
$234,008 for the same period in the prior year. This represented the reduction
of research staffing and animal supplies.
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 July 31, 1997 the Company had $37,302 in
total current assets and a working capital deficit of $727,487.
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.
8
<PAGE> 9
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.
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)
9/12/97 /S/ ROBERT J. LARSEN
- ----------------------------- ----------------------------------------
(Date) Robert J. Larsen, Secretary/Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
QUARTER ENDED JULY 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> JUL-31-1997
<CASH> 15,877
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,302
<PP&E> 303,518
<DEPRECIATION> 179,291
<TOTAL-ASSETS> 268,170
<CURRENT-LIABILITIES> 764,789
<BONDS> 0
<COMMON> 428,295
0
0
<OTHER-SE> (924,914)
<TOTAL-LIABILITY-AND-EQUITY> 268,170
<SALES> 0
<TOTAL-REVENUES> 114
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 214,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 792
<INCOME-PRETAX> (214,107)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,107)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
