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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, 1998
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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
- ----------------------------- ------------------------------
(State of Incorporation) (IRS Employer ID Number)
2685 Culver Avenue, Kettering, Ohio 45429
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937-298-6070
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(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 1998.
51,024,302 shares of common stock par value $0.01
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, April 30,
1998 1998
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 249,149 $ 740,215
Prepaid Expenses 16,990 19,525
------------ ------------
Total Current Assets $ 266,139 $ 759,740
Property & Equipment, net 72,073 84,653
Other Assets:
Patents and Technology 150,134 141,521
------------ ------------
Total Assets $ 488,346 $ 985,914
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes
payable $ 82,510 $ 59,972
Accounts payable 293,929 339,540
Stockholders loans 14,900 15,000
Accrued expenses 106,777 116,828
------------ ------------
Total Current Liabilities $ 498,116 $ 531,340
Notes Payable, less current
portion 50,000 103,021
------------ ------------
Total Liabilities $ 548,116 $ 634,361
------------ ------------
Stockholders' Equity:
Common Stock $0.01 par
Value: Authorized
100,000,000 shares
Issued & outstanding
51,024,302 & 50,729,302 510,243 507,293
Additional Paid-in Capital 9,463,774 9,412,424
Deficit Accumulated since
Development Stage (10,033,787) (9,568,164)
------------ ------------
Total Stockholders' (Deficit)
Equity $ (59,770) $ 351,553
------------ ------------
Total Liabilities &
Stockholders' (Deficit)Equity $ 488,346 $ 985,914
============ ============
</TABLE>
See accompanying notes to financial statements.
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Accumulated
during the Three Months Ended Six Months Ended
development October 31, October 31,
stage 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------
Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C> <C>
Expenses:
Research and
development $ 2,977,054 $ 47,873 $ 37,986 $ 72,855 $ 83,533
General and
administrative 6,978,861 189,335 337,813 392,723 508,659
Interest 139,103 3,986 2,497 9,906 3,289
------------ ------------ ------------ ------------ ------------
Total Expense 10,095,018 241,194 378,296 475,484 595,481
Other income (61,231) (3,233) (779) (9,861) (893)
------------ ------------ ------------ ------------ ------------
NET LOSS $(10,033,787) $ (237,961) $ (377,517) $ (465,623) $ (594,588)
============ ============ ============ ============ ============
NET LOSS PER SHARE,
BASIC AND DILUTED $ (0.005) $ (0.009) $ (0.009) $ (0.014)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING,
BASIC AND DILUTED 50,974,411 44,122,787 50,891,259 43,472,610
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
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SYNTHETIC BLOOD INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Accumulated
during the Six months Six months
development ended October 31, ended October 31
stage 1998 1997
------------ ----------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,033,787) $ (465,623) $ (594,588)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 337,965 28,408 46,588
Write down other assets 126,800
Issuance of compensatory stock options 248,906
Issuance of stock for services 1,018,816 29,300
Issuance of stock below FMV 695,248 180,000
Contribution of capital by stockholders 216,851
Changes in operating assets & liabilities:
Prepaid expenses & other assets (16,990) 2,535 7,780
Accounts payable & accrued expenses 588,599 (30,762) 98,789
------------ ------------ ------------
Net cash used in operating
activities (6,817,592) (436,142) (261,431)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of other assets (371,643) (17,395) (23,716)
Proceeds from sale of equipment 15,457
Purchase of property and equipment (278,448) (7,046)
------------ ------------ ------------
Net cash used in investing
activities (634,634) (24,441) (23,716)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 6,138,221 260,000
Payments on capital lease obligations (52,338)
Proceeds from stockholder notes payable 915,792 31,000
Contribution of capital by stockholder 40,700
Proceeds from convertible debentures 811,000
Repayment of notes payable (152,000) (30,483) 39,909
------------ ------------ ------------
Net cash provided by (used in)
financing activities 7,678,837 (30,483) 330,909
NET CHANGE IN CASH AMD CASH EQUIVALENTS 249,149 (491,066) 45,762
CASH AND CASH EQUIVALENTS,
beginning of period 740,215 53,857
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of period $ 249,149 $ 249,149 $ 99,619
============ ============ ============
Cash paid for Interest $ 97,871 $ 9,590 $ 3,287
Taxes 6,400 800 800
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES-
Issuance of common stock in
settlement of accounts payable $ 25,000 $ 25,000
============ ============
</TABLE>
See accompanying notes to financial statements.
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
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, 1998, and the results of its operations for
the three and six months periods ended October 31, 1997 and 1998 and its
cash flows for the six month periods ended October 31, 1997 and 1998.
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, 1998 filed with
the Securities and Exchange Commission on August 28, 1998.
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, 1998 has accumulated losses from operations
amounting to $10,033,787 and a working capital deficit of $231,977. 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 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
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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,
derived from recent issuance of common stock to unrelated parties and/or
from common stock market quotations.
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 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.
3. COMMITMENTS AND CONTINGENCIES
Employment Contracts - The Company has employment agreements with a
certain officer with aggregate future commitments of $302,000 through
March 2001.
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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,
1998.
STOCKHOLDERS' EQUITY
During the period ending October 31, 1998, the Company issued 125,000
shares of the Company's common stock in satisfaction of a $26,250
liability due for rent of the Company's research facility. The stock was
valued at the fair market value at the date of issuance.
During the period ending October 31, 1998, the Company issued 170,000
shares of the Company's common stock to a director/stockholder in
exchange for services rendered. As a result of this transaction the
Company recognized an expense of $28,050, representing the fair market
value of the common stock issued.
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
Part I- Financial Information
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those projected in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section and
those discussed in the Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS-
Three months ended October 31, 1997 and 1998:
The Research and Development expenses for the three months period ended October
31, 1998 was $ 47,873, compared to $ 37,986 for the same period in the prior
year. This increase was due to a increase in research supplies and the addition
of a research laboratory in California.
General and Administrative expenses for the three months period ended October
31, 1998 were $189,335, compared to $337,813 for the same period in the prior
year. This decrease was due primarily to an expense related to stock issued
below fair market value of $180,000 incurred in the prior year.
The net loss for the three months ended October 31, 1998 was $237,961, compared
to $377,517 for the same period in the prior year. This decrease represented the
difference between a decrease in administrative expense offset by an increase in
research expense.
Six months ended October 31, 1997 and 1998
The Research and Development expenses for the six months period ended October
31, 1998 was $ 72,855, compared to $ 83,533 for the same period in the prior
year. This decrease was due to a reduction in research personnel and supplies.
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General and Administrative expenses for the six months period ended October
31,1998 were $392,723, compared to $508,659 for the same period in the prior
year. This decrease was due primarily to an expense related to stock issued
below fair market value of $180,000 incurred in the prior year offset by an
increase in personnel costs and legal fees.
The net loss for the six months ended October 31, 1998 was $465,623, compared to
$594,588 for the same period in the prior year. This decrease represented the
combined effect of a decrease in administrative expense and a decrease in
research expense.
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, 1998 the Company had $266,139 in
total current assets and a working capital deficit of $231,977.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company has no derivative financial instruments and no exposure to foreign
currency exchange rates or interest rate risk.
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
Part II-Other Information
Item 1. Legal Proceedings.
Described in Financial Statement Note 3.
Item 2. Changes in Securities.
In June 1998, the Company issued 125,000 shares of common stock
to one party in satisfaction of a $26,250 liability for rent of
the Company research facility. The common stock was issued
pursuant to the exemptions provided by Section 4(2) of the
Securities Act of 1933 and/or Regulation D.
In August 1998, the Company issued 170,000 shares of common stock
to a director of the Company in exchange for services rendered,
and recorded a expense of $28,050 which represents the fair
market value of the common stock. The common stock was issued
pursuant to the exemptions provided by Section 4(2) of the
Securities Act of 1933 and/or Regulation D.
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.
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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)
12/10/98 /S/ DAVID H. JOHNSON
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(Date) David H. Johnson, Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECOND
QUARTER ENDED OCTOBER 31, 1998 SYNTHETIC BLOOD INTERNATIONAL, INC.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 249,149
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 266,139
<PP&E> 300,063
<DEPRECIATION> 227,990
<TOTAL-ASSETS> 448,346
<CURRENT-LIABILITIES> 498,116
<BONDS> 0
0
0
<COMMON> 510,243
<OTHER-SE> (570,013)
<TOTAL-LIABILITY-AND-EQUITY> 448,346
<SALES> 0
<TOTAL-REVENUES> 3,233
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 237,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,986
<INCOME-PRETAX> (237,961)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237,961)
<EPS-PRIMARY> (0.005)
<EPS-DILUTED> (0.005)
</TABLE>
