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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1998
COMMISSION FILE NO. 2-31909
SYNTHETIC BLOOD INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-3067701
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
2685 CULVER AVENUE, KETTERING, OHIO 45429
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 298-6070
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) YES (X) NO
(2) YES (X) NO
Indicate by check mark if disclosure of delinquent filings pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
YES (X) NO
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: The aggregate market
value of the shares held by non-affiliates of the registrant (assuming officers,
directors and 10% shareholders are affiliates) was approximately $9,923,625
based on the closing bid price of the Registrants Common Stock on April 30, 1998
of $0.22 per share.
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K into which the document is incorporated: (1) Any
annual report to security holders; (2) Any proxy or information statement; and
(3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act
of 1933. None of the above-listed documents are incorporated by reference.
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PART 1
ITEM 1 - BUSINESS
Synthetic Blood International, Inc. ("SBI" or the "Company") is a
development-stage company which is developing OXYCYTE, a proprietary synthetic
blood emulsion and FLUOROVENT, a liquid for assisting oxygen exchange in damaged
or diseased lungs for human and non-human applications based upon
perfluorocarbon ("PFC") technology. In addition the Company has developed an
implantable continuous reading glucose biosensor. The Company is now in the
preclinical stage and is completing activities necessary for the preparation of
applications with the United States Food and Drug Administration ("FDA") to
begin clinical testing. After the submission to the FDA, the Company's products
will require extensive clinical testing before FDA approval may be granted. No
assurance may be given that FDA approval will be granted.
SBI's scientific team has been led by Dr. Leland C. Clark, Jr. who is a
pioneer and leader with a world-wide reputation in the development of PFC-based
synthetic blood. Dr. Clark invented the first heart-lung machine which
successfully provided oxygen to the blood stream of a human being. The treatment
of this patient showed the feasibility of using an artificial heart and lung to
sustain life. Dr. Clark also invented the Clark Electrode, which is utilized
worldwide to measure oxygen in the blood and for many other commercial oxygen
measuring needs in industry. The research that led to the Clark Electrode became
the basis for a growing biosensor industry which has included electrochemical
devices to measure glucose, lactate and other chemical compounds produced in the
human body. Dr. Clark has also experimented with fluorocarbon liquid breathing
which was the catalyst for the development of fluorocarbon based synthetic blood
substitutes.
The Company began conducting business in its current form in September
1990, shortly thereafter changed its name to Synthetic Blood International,
Inc., and revised its business purpose to developing a line of blood
substitutes.
MARKET
FLUOROVENT - Thousands of premature infants are born each year with
underdeveloped lungs and a condition of impaired pulmonary function known as
infant respiratory distress syndrome (IRDS). This syndrome has multiple causes
and also occurs in children and adults (ARDS). Although many of these patients
are treated with mechanical ventilation, this treatment can add further injury
to the lungs and the mortality rate is still high. This has prompted research
for a safer, more effective treatment. While more research is needed, current
studies with partial liquid ventilation in animals and patients, both infants
and adult suggest that liquid ventilation may be a safe and effective treatment
of ARDS.
Fluorovent, a unique oxygen-carrying perfluorocarbon, has been selected
for the treatment of ARDS after screening dozens of available perfluorocarbons
for optimal properties. When given as a liquid directly into the lungs, it acts
as a surfactant and a highly effective medium for gas exchange, thus increasing
pulmonary function and the diffusion of oxygen and carbon dioxide.
Based on laboratory and animal studies thus far, SYBD believes that
Fluorovent has significant competitive advantages as a liquid ventilation
treatment. Its boiling point and vapor pressure result in longer pulmonary
retention without the need for continuous replacement of evaporated fluid,
offering the potential for less costly, less time-intensive procedures. It doses
not contain bromine or chlorine and thus presents no environmental hazard. In
animals, it does not produce a hyperinflated, noncollapsible lung condition seen
with other perfluorocarbon liquids being tested.
The incident of ARDS in the US is about 250,000 cases annually. While
ARDS is the primary disease target for Fluorovent at this time, SYBD believes
that it may also be beneficial in chronic obstructive pulmonary disease (COPD),
a condition that occurs in 10 million people in the US. The number of ARDS and
COPD cases in the rest of the world is estimated to be at least twice that of
the US. The company believes that the ultimate market for Fluorovent may be in
the multi billion dollar range.
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OXYCYTE - The search for blood replacement fluids began centuries ago.
In modern times, this search has been given a new impetus by the threat of
disease transmission, most notably HIV and hepatitis C. The risks are low but
unacceptable because of the high death rate from these diseases. In
underdeveloped countries, the risk of serious disease transmission is much
greater.
An increasingly short supply of blood is also driving this research. In
the US, the number of blood donors continues to fall while the number of
elderly, the group that needs blood the most, is growing. By 2030, experts
project an annual shortfall of 4 million units in the US. In other countries
where cultural and logistical issues constrain blood collection even more, the
shortfall will be much greater.
The third major force behind this search is the military's desire for a
blood substitute that can be stockpiled and used immediately when needed in
battlefield conditions without special storage and matching of human donor
blood. Current techniques for blood transfusions do not, of course, meet these
requirements.
SYBD is developing Oxycyte, an oxygen-carrying intravenous emulsion made
from the same base perfluorocarbon in Fluorovent. Blood gases such as oxygen and
carbon dioxide are highly soluble in perfluorocarbons, making Oxycyte an
effective means of transporting oxygen to tissues and carbon dioxide to the
lungs. In comparison to hemaglobin, the component of blood that binds with and
transports oxygen, Oxycyte can carry at least five times more oxygen.
Additionally, perfluorocarbons are much more effective than hemoglobin at
unloading oxygen at the tissue level. Potential uses for Oxycyte include
surgery, trauma, angioplasty, open heart surgery and oxygenation of tumors
during radiation or chemotherapy.
Approximately 100 million units of human donor blood are collected in the
US each year. The global market for blood substitutes has been estimated at $2-5
billion.
GLUCOSE SENSOR - Diabetes and its associated complications are among the
most prevalent, costly diseases in the world. Its incidence is increasing at a
significant rate. Diabetes affects men and women equally but occurs most
frequently in the elderly. Direct costs are estimated at about $50 billion,
almost 6% of the total personal healthcare expenditures in the US.
A ten-year study, the Diabetes Control and Complications Trial (DCCT)
sponsored by the national Institutes of Diabetes and Digestive and Kidney
Diseases, showed that "tight diabetes control", keeping blood sugar levels close
to normal by frequent blood sugar testing, several daily insulin shots and
lifestyle changes, was associated with a major reduction in diabetic
complications. These findings led the American Diabetes Association to recommend
tight control as an important way to delay the onset and dramatically slow the
progression of complications from diabetes.
People with diabetes measure their blood glucose levels by sticking a
finger with a needle to obtain a blood drop that is placed on a test strip and
analyzed by a portable instrument. Repeating this procedure several times a day
becomes painful, leading many patients, especially the elderly, to perform the
procedure infrequently. Furthermore the accuracy of some blood glucose analyzers
is poor.
SYBD has developed an implantable glucose biosensor to monitor blood
glucose without the need for finger sticks. Termed a biosensor because it
utilizes an enzyme specific for glucose, it provides glucose measurements
significantly more accurate than possible from current portable measuring
devices. Once implanted in subcutaneous tissue during a simple outpatient
procedure, the biosensor, which is about the size of a cardiac pacemaker,
provides continuous, accurate monitoring of blood glucose which is displayed as
a digital readout in a wearable beeper-sized device. Ultimately, the biosensor
will be linked to an implanted insulin pump, creating a closed-loop mechanical
pancreas. It is anticipated that the implant life of the biosensor will exceed
one year.
More than 16 million people, approximately half undiagnosed, are
estimated to suffer from diabetes in the US. Between 600,000 and 700,000 new
cases are diagnosed each year. Mortality from diabetes and its associated
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complications is high: it is the seventh leading cause of death in the US. SYBD
estimates the global market for the implanted glucose sensor may exceed $1
billion.
MARKETING
The Company intends to search for strategic partners in Europe, the Far
East or elsewhere for the purposes of completing development of its products,
manufacturing, testing and marketing its products under development for
distribution in these areas. To date no agreements have been completed although
a number of negotiations are in progress. There can be no assurance that any
such agreement will be consummated.
The Company plans on initially contracting for the manufacturing of its
products in the United States for the purpose of supplying sufficient quantity
for the proposed clinical testing. The company then has the option to license
out on a royalty basis all or part of its manufacturing and distribution or
establish an organization for the distribution and sale of its products in North
and South America. These sales are anticipated to be made either through a sales
force selling to drug or medical distribution systems or direct sales to end
users such as hospitals and other institutions by future company sales force.
The marketing of the biosensor device if FDA approval is achieved will
probably be by manufacturing and distribution via licensing agreements with
companies presently involved with distributing products in the diabetic field.
Several of such companies have been contacted and are at present reviewing the
patents and discussing the technology with our Company.
COMPETITION
Synthetic blood research to date has been focused virtually exclusively
on red cell substitutes. PFC-based hemoglobin substitute, bovine hemoglobin,
modified human hemoglobin and recombinant (genetically engineered) human
hemoglobin are the four main categories of red cell substitutes currently being
pursued.
PFC's are based on elements and minerals which occur naturally and are in
abundant supply. PFC's must be emulsified with a surfactant before it can be
administered intravenously. Two other companies are developing products using
PFC's.
Bovine hemoglobin is derived from cow blood. It is not compatible with
human blood and, therefore, requires substantial processing in order to become
usable. Various proteins present in bovine blood must be eliminated lest they
cause an immune response in humans. One other company is working with bovine
hemoglobin.
Modified human hemoglobin is based on reconstituted, old or otherwise
discarded human blood. Although it is derived from human blood, modified human
hemoglobin can only be used after it has undergone substantial processing.
Several companies are developing modified human hemoglobin.
Recombinant human hemoglobin has been produced in bacteria, yeast and in
swine. Current efforts are underway to engineer genes which will allow
sufficient quantities of oxygen to be released for the oxygenation of tissues.
Organ toxicity remains a problem to be solved. One company is using bacteria to
grow human hemoglobin for developing a blood substitute.
One other company is involved with the development of a PFC based liquid
ventilation method utilizing a mechanical ventilator to move the PFC in and out
of the lung. It is currently in Phase II/III Clinical testing.
There are a number of companies and researchers attempting to develop an
implantable glucose sensor or other approaches which include the use of infrared
light rays, drawing glucose through the skin surface and other noninvasive
mechanical devices. None of these methods have been successful in spite of the
renewed emphasis on the development
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of such a sensor. There are over 10 public and closely held companies involved
worldwide in the development of synthetic blood and related products.
MANUFACTURING AND SOURCES OF SUPPLY
PFC'S, traditionally manufactured as lubricants for military and
industrial use, are available from a large number of sources. However, the
degree of purity ultimately required by the FDA for the use of PFC'S for medical
purposes could limit the sources for raw materials. Surfactants are also
generally available, although quality varies between different manufacturers.
Certain types of egg yolk phospholipids are superior to others.
PATENTS AND PROPRIETARY RIGHTS
Patent No. 5,674,9130, issued October 7, 1997,"A Method of Assisting
Normal Breathing in a Mammal Having a Lung Disorder". It utilizes one of the
PFC'S being developed for a synthetic blood emulsion for therapeutic treatment
of certain lung disorders. Foreign application filed in December 1996 in Canada,
Australia, Japan and in the European Communities.
Patent Application No. 603-03 A Continuation in Part, filed May 12, 1995
for 14 additional claims, was allowed and will be issued later this year.
Patent application No. 603-01 "Selected C-10 Perfluorinated Hydrocarbons
For Liquid Ventilation and Artificial Blood" was filed November 20, 1997 and is
pending.
A "Glucose Sensor" patent application was filed in December 1996 for a
method of restricting the flow of glucose through the outer filter membrane and
the ability to store oxygen in the sensor. This enables the implanted sensor to
operate in the low oxygen and high glucose levels found in body tissues. This
application contains 32 claims.
An "Implantable Sensor Employing an Auxiliary Electrode" patent
application was filed in January 1997 containing 20 claims covering the design
of the titanium case as a reference electrode. This alleviates the need to force
the reference electrode to carry the current allowing the reference electrode to
remain constant and stable, improving the accuracy of the glucose measurement.
Additional patent applications are in the process of preparation and will
be filed soon for "A Copolymer Screen Membrane with Enhanced Oxygen Transport
for Use in an Implanted Biosensor"and "A Method of Correcting the Temperature
Coefficient of the Glucose Probe Output Signal".
GOVERNMENT REGULATION
All of the Company's proposed products will require governmental approval
before production and marketing can commence. The regulatory approval process is
administered by the FDA in the United States, and by similar agencies in foreign
countries. FDA review of new drugs, devices or biologicals is an uncertain,
costly and lengthy process. Various state, federal and foreign statutes also
govern or influence the manufacturing, safety, labeling, storage, record keeping
and marketing of such products, ongoing compliance with these requirements can
require the expenditure of substantial resources.
At the present time, the Company intends to file a "Request for
Jurisdiction" with the FDA for its OXYCYTE(TM) artificial blood product and
FLUOROVENT(TM) for its liquid ventilation product. The FDA's response to these
requests will likely determine whether a subsequent filing by the Company for
that product will be classified as a drug, device or biological. The implantable
glucose sensor will be filed as a device and many of its parts are off-
the-shelf material already approved for human implantation by the FDA. The FDA
has different procedures for drugs, devices and biologicals.
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Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of marketing of the product in such countries. The requirement
governing the conduct of clinical trials and product approvals vary widely from
country to country, and the time required for approval may be longer or shorter
than that required for FDA approval. Although there are some procedures for
unified filings for certain European countries, in general, each country has its
own procedures and requirements.
EMPLOYEES
On April 30, 1998, the Company employed 9 individuals, four of whom were
scientific personnel with Ph.D.'s, four are executives, and one technician. None
of its employees are currently represented by a union or any other form of
collective bargaining unit.
ITEM 2 - PROPERTIES
The Company owns no real property and currently leases on a month to
month basis its administrative offices at 4667 MacArthur Blvd., Suite 423,
Newport Beach, California 92660. In addition the company leases office and
workshop space at the Kettering Research Center in Kettering, Ohio. The current
total monthly rent is $1,878 per month.
ITEM 3 - LEGAL PROCEEDINGS
A legal action against Wright State University and its officers and
directors to protect the privacy of research records held by them under the
Federal Animal Protection Act was settled satisfactorily in June 1996. In
addition, two legal actions filed against the company in Fiscal 1997 where a
liability of $124,000 was established were settled in Fiscal 1998 for a total of
$78,000.
ITEM 4 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On February 26, 1993 the Common Stock of the Company began limited public
trading in the over-the-counter market with prices quoted in the "Pink Sheets"
published by the National Quotation Bureau under the symbol SYBD. On March 15,
1993 the Common Stock of the company began limited public trading on the OTC
Electronic Bulletin Board. From 1973 to February 26, 1993 Management believes
there was no public trading market for any of the registrant's securities. This
past year the lowest bid and highest ask prices as determined by Company records
were as follows:
<TABLE>
<CAPTION>
1998 1997
Quarter Low High Low High
<S> <C> <C> <C> <C>
lst $ .13 $.175 $.25 $.65
2nd .19 .36 .24 .55
3rd .15 .29 .13 .18
4th .125 .36 .13 .18
</TABLE>
As of April 30, 1998 the approximate number of holders of the Common
Stock of the Company was 989. To the best knowledge of management, the Company
has never paid dividends since the date of its incorporation. The Company does
not expect to declare or pay dividends in the foreseeable future.
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In March, 1998, a current stockholder of the Company acquired 2,000,000
shares of Common Stock for $.25 per share. The common stock was issued in
reliance upon the exemption from registration pursuant to Section 4(2) of the
Securities Act. Written investment representations were obtained from the
purchaser and a legend was placed on the shares.
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
April 30, April 30, April 30, April 30, April 30,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Income $ 698 $ 35,181 $ 5,916 $ 914 $ 3,069
------------ ------------ ------------ ------------ ------------
Total Expenses $ 874,997 $ 1,917,004 $ 2,352,143 $ 1,911,290 $ 1,284,101
------------ ------------ ------------ ------------ ------------
Net Loss from Operations $ 874,299 $ 1,881,823 $ 2,346,227 $ 1,910,376 $ 1,281,032
------------ ------------ ------------ ------------ ------------
Weighted average number of
shares outstanding
Basic and diluted 21,857,475 26,330,838 28,894,248 36,053,557 46,000,749
Net Loss per share $ (0.04) $ (0.07) $ (0.08) $ (0.05) $ (0.03)
Basic and diluted
Cash $ 1,653,497 $ 767,825 $ 76,312 $ 53,857 $ 740,215
Working Capital $ 1,296,560 $ 1,061,178 $ (581,030) $ (529,393) $ 228,400
Total Assets $ 3,075,689 $ 1,179,085 $ 393,939 $ 318,163 $ 985,914
Total Liabilities $ 490,299 $ 117,907 $ 974,969 $ 600,675 $ 531,340
Long Term Debt $ 0 $ 32,736 $ 16,573 $ 0 $ 103,021
Stockholder's Equity $ 1,585,390 $ 1,028,442 $ (597,603) $ (282,512) $ 351,553
(Deficit)
</TABLE>
ITEM 7 - MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
The Company is a development-stage company which is developing products
in the medical field and therefore has no revenue from operations.
For the fiscal year ended April 30, 1998, other income increased to
$3,069 from $914 for the fiscal year ended April 30, 1997. This increase was due
to more funds available to earn interest.
The General and Administrative expenses decreased 20% from $1,437,353 in
the fiscal year ended April 30, 1997 to $1,144,810 during the fiscal year ended
April 30, 1998. This decrease was the result lower legal fees, public relations
and travel expenses.
The Research and Development expenses decreased 76% from $460,978 for the
fiscal year ended April 30, 1997 to $111,766 during the fiscal year ended April
30, 1998. This decrease was due to a reduction in staffing and outside testing
and raw material costs associated with changing the focus from basic research to
product development with the emphasis on patent application filing.
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The interest expense increased 112% from $12,959 for the fiscal year
ended April 30, 1997 compared to the fiscal year ended April 30, 1998 of
$27,525. This increase was due to additional finance and carrying charges
necessitated by the reduced cash flow.
FISCAL 1997 COMPARED TO FISCAL 1996
For the fiscal year ended April 30, 1997, other income decreased to $914
from $5,916 for the fiscal year ended April 30, 1996 due to a reduction of funds
available for investment.
The General and Administrative expenses increased 1% from $1,422,809 for
the fiscal year ended April 30, 1996 to $1,437,353 during the fiscal year ended
April 30, 1997.
The Research and Development expenses decreased 50% from $924,093 for the
fiscal year ended April 30, 1996 to $460,978 for the fiscal year ended April 30,
1997. This decrease was due to a reduction in staffing and outside testing and
raw material costs associated with changing the focus from basic research to
product development with emphasis on patent application filing.
The interest expense increased for the fiscal year ended April 30, 1996
or $5,241 compared to $12,959 for the fiscal year ended April 30, 1997. This
increase was due to additional finance and carrying charges necessitated by the
reduced cash flow.
EQUITY AND CAPITAL RESOURCES
The Company has financed its operations since September 1990, when
current management became involved, through the issuance of debt and equity
securities and loans from stockholders. For the fiscal year ended April 30, 1998
the Company had $759,740 in total current assets and working capital of $251,182
compared to $71,282 in total current assets and a working capital deficit of
$529,393 during the fiscal year ended April 30, 1997.
The Company is in the pre-clinical trial stage in the development of its
products. These products must undergo further development and testing prior to
submission to the FDA for approval to market its products. This additional
development and testing will require significant additional financing.
Additional funds are needed immediately to continue to operate as a going
concern. Funding in the form of bridge loans and future options are currently
being negotiated. There can be no assurance these proposed funding arrangements
will be successful, or that if they are not the Company will be able to secure
additional capital.
As a result of the Company's accumulated losses from operations, its
accumulated deficit, and its necessity to obtain additional financing to fund
operations until the necessary regulatory approvals are obtained, if ever, its
continuation as a going concern is dependent on its ability to obtain additional
financing as may be required. These factors, among others, raise doubts about
the Company's ability to continue as a going concern.
FORWARD LOOKING STATEMENTS
Certain statements in this annual report include forward looking
statements which involve risks and uncertainties. Potential risks and
uncertainties include, but are not limited to the company's ability to obtain
financing and FDA approval to market their products.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data as required by this item
are set forth in a separate section of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
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None.
ITEM 10- DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The directors, officers and key employees of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Roger A. Ekbom 71 Chairman of the Board
Director
Robert W. Nicora 58 President and Chief Executive Officer
Director
Robert J. Larsen 69 Secretary-Treasurer
Director
Gerald D. Schlatter 64 Director
Leland C. Clark, Jr., Ph.D. 79 Director of Research
Richard Kiral, Ph.D. 57 Vice President, Product Development
Douglas Kornbrust, Ph.D. 47 Vice President, PreClinical Toxicology
& Pharmacology
Elmo Blubaugh, Jr., Ph.D. 45 Manager, Biosensor Research
James Reavis 63 Director of Marketing
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Roger A. Ekbom, Chairman of the Board of Directors since 1990, has
extensive experience with medical device companies including managing companies
from startup through full development and subsequent sale. He is the founder and
former President of Cardio Vista Systems, Inc., and founder and chairman of
Tronomed, Inc. From 1976 until 1993, Mr. Ekbom was Vice President of and a major
stockholder in Respiratory Support Products, Inc., and Tronomed International,
Inc. Mr. Ekbom was formerly the general manager of a division of Becton
Dickinson, an international pharmaceutical company, and of Marion Scientific, a
subsidiary of Marion Laboratories. Mr Ekbom graduated from the University of
Minnesota.
Robert W. Nicora became the President, Chief Executive Officer and
Director on March 1, 1998. Mr. Nicora has a BS in chemistry, five years of
graduate study in biochemistry and medical sciences, and over 30 years of
experience in various laboratory, management and regulatory positions with
pharmaceutical and medical device companies. While at McGaw Laboratories, he was
responsible for the development and FDA approval of hetastarch, a synthetic
blood expander, now marketed by DuPont Pharma. He led the team that evaluated a
joint partnership with Green Cross to develop their perfluorocarbon blood
substitute, Fluosol. From 1994 through March, 1998, he was director of
scientific and regulatory services with Quintiles, the world's largest global
contract pharmaceutical company. He provided preclinical and clinical drug and
device consulting services to a number of startup biomedical companies,
including SYBD.
Robert J. Larsen, Secretary-Treasurer and Director since 1990, is a
former President and Chief Executive Officer of Bay Hospital Medical Center,
Chula Vista, California. Mr. Larsen has 25 years of experience in the
development and management of hospitals and other related enterprises in
California and Oregon. Mr. Larsen is a former trustee of
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the California Hospital Association and the past president of the San Diego
Healthcare Financial Management Association. Mr. Larsen received his graduate
degree in Hospital Administration from the University of California, Santa
Barbara, and his B.A. from the University of Washington.
Gerald D. Schlatter, Director and former President from 1990 to 1998, has
over 25 years of experience in sales and marketing of medical supplies and
devices. He has served as sales manager with both American Hospital Supply and
Xerox in their new medical products division. He is the founder and former
president of Delamesa Leasing Co., Irvine, California specializing in equipping
and financing new start up medical, dental and optical health care clinics. Mr.
Schlatter obtained his B.S. degree in business finance and labor law from the
University of California, Fresno.
Leland C. Clark, Jr., Ph.D., director of research, is recognized for
pioneering several medical milestones credited with saving thousands of lives
and advancing the technology of modern medicine. His research accomplishments
include the development of the first successful heart-lung machine in 1949, the
advancement of technology leading to the development of one of the first
intensive care units in the world, and pioneering research in biomedical
application of perfluorocarbons and biosensors. He has published more than 400
scientific papers in biomedicine and has generated numerous US and foreign
patents, mainly in the field of medical instrumentation and fluorocarbons. He is
the recipient of numerous honors and awards. He received his Ph.D. in
biochemistry and physiology at the University of Rochester School of Medicine.
KEY EMPLOYEES
Richard Kiral, Ph.D., Vice President of Product Development, holds a
Ph.D. in analytical chemistry and has over 20 years of experience in the
pharmaceutical and medical device industries. He has held vice president
positions in R&D at Anthony Products, Ioptex Research, Allergan and McGaw
Laboratories, where he was responsible for development of a nutritional fat
emulsion.
Douglas Kornbrust, Ph.D., director of toxicology, holds a Ph.D., in
toxicology and currently is vice president and scientific director at Sierra
Biomedical, a leading contract primate testing facility for the pharmaceutical
and biotechnology industries. He previously held senior technical and management
positions at ISIS Pharmaceuticals, Rhone-Poulenc-Rorer, Merck and Alliance
Pharmaceuticals, where he was responsible for the development and implementation
of preclinical toxicology programs for their perfluorocarbon liquid ventilation
and blood substitute products.
Elmo Blubaugh, Ph.D., manager of biosensor research, is an
electro-chemist specializing in the chemical modification of electrode surfaces
with thin polymer films. Dr. Blubaugh previously was laboratory research manager
at the University of Cincinnati. He taught both graduate and undergraduate
courses at the university and holds a patent in the field of polymer-film
electrodes. He received his graduate degree in analytical chemistry from the
University of Cincinnati.
James Reavis, director of marketing, received a BS in chemistry and has a
career of over 35 years in sales and marketing of pharmaceutical products and
biomedical devices. He has owned and operated full-service advertising agencies
and, for the last ten years, has consulted with high technology healthcare
clients. His client roster includes Abbott, Baxter Edwards, Allergan, Genentech,
Invacare, Kyocera, Advanced Cardiovascular Systems, IVAC and IMED. Mr. Reavis
provides qualitative and quantitative market research services to help guide
product development, product positioning and partnering strategies.
ITEM 11 - EXECUTIVE COMPENSATION
The summary compensation table shows the compensation for Roger A.
Ekbom, Chairman, Robert W. Nicora, President, Robert J. Larsen, Chief Financial
Officer and Secretary-Treasurer of the Company and Mr. Schlatter, former
President. Mr. Ekbom, Mr. Larsen and Mr. Schlatter have been directors and
executive officers for six years ended April 30, 1998. Mr. Nicora became
President on the resignation of Mr. Schlatter on March 1, 1998. This information
10
<PAGE> 11
includes the dollar amount of base salaries, bonus awards, stock options and all
other compensation, if any, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------------------- ------------
Securities
Other Annual Underlying All Other
Salary Bonus Compensation Options/SARs Compensation
Name & Principal Position Year ($) ($) ($) ($) ($)
- ------------------------- ---- --------- ----- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Roger A. Ekbom 1998 $ 46,250* 0 0 26,911 0
1997 $ 43,746 0 0 0 0
1996 100,000 0 0 0 0
Chairman 1995 34,333 0 0 0 0
1994 13,000 0 0 0 0
Robert W. Nicora 1998 $ 20,833(1) 45,000 0 0 0
President
Gerald D. Schlatter 1998 $ 75,750* 0 0 26,911 0
1997 $ 87,000 0 0 0 0
1996 96,000 0 0 0 0
Former President 1995 85,500 0 0 0 0
1994 13,000 0 0 0 0
Leland C. Clark, Jr. 1998 $ 63,750* 0 0 0 0
1997 96,000 0 0 0 0
1996 114,000 0 0 0 0
Vice President 1995 114,000 0 0 0 0
1994 96,000 0 0 0 0
Robert J. Larsen 1998 $ 46,252* 0 0 26,911 0
1997 $62,502 0 0 0 0
1996 100,000 0 0 0 0
Chief Financial Officer 1995 72,333 35,000 0 0 0
1994 55,000 0 0 0 0
</TABLE>
* Of the total $232,002 reported as paid, $186,851 was contributed to the
company as additional paid in capital, leaving $45,151 salaries accrued.
(1) Mr. Nicora began his employment on March, 1998 at an annual base salary
of $125,000.
11
<PAGE> 12
OPTION GRANTS
The following table sets forth certain information as of April 30, 1998
concerning the stock option grants to all of the Company's executive officers
made for the fiscal year ended April 30, 1998. No stock appreciation rights,
restricted stock awards or long-term performance awards have been granted as of
the date hereof and no options have been exercised.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF
UNDERLYING OPTIONS GRANTED STOCK PRICE
OPTIONS TO EMPLOYEES EXERCISE OR BASE EXPIRATION APPRECIATION OF
NAME GRANTED IN FISCAL YEAR PRICE PER SHARE DATE OPTION TERMS
- ---- ---------- ---------------- ---------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
Roger A. Ekbom 300,000 25% $.13 February 2008 $25,295 $66,976
Robert J. Larsen 300,000 25% $.13 February 2008 $25,295 $66,976
Gerald D. Schlatter 300,000 25% $.13 February 2008 $25,295 $66,976
Robert W. Nicora 300,000 25% $.28 February 2008 $54,480 $144,256
</TABLE>
STOCK OPTION PLAN
The Company's 1995 Stock Option Plan ("Plan") was adopted by the Board of
Directors in April 1995. Pursuant to the Plan, the Company may grant both
incentive stock options intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonstatutory stock options that do not qualify for such treatment. Incentive
stock options may be granted only to employees, while consultant, employees,
officers and directors are eligible for the grant of nonstatutory options. The
Plan also provides for the grant of stock purchase rights, stock appreciation
rights and long term performance awards.
The purpose of the plan is to provide an incentive to eligible employees,
consultants and officers whose present and potential contributions are important
to the continued success of the company, to afford those individuals the
opportunity to acquire a proprietary interest in the Company and to enable the
Company to enlist and retain in its employment qualified personnel for the
successful conduct of its business.
The total number of shares of Common Stock of the Company reserved and
available for distribution under the Plan is 2,500,000 shares. Pursuant to the
Plan, the administrators of the Plan shall be either the Board of Directors or
one or more committees designated by the Board of Directors to administer the
Plan. Subject to the express terms of the Plan, the administrators have full
power to select, from among the officers, employees and consultants of the
Company eligible for award rights and options, the individuals to whom awards,
rights or options will be granted, and to determine the specific terms of each
award or grant.
The maximum term of a stock option under the Plan is ten years, but if
the optionee at the time of the grant has voting power over more than 10% of the
Company's outstanding capital stock, the terms is five years. The exercise price
of incentive stock options granted under the Plan must be at least equal to the
fair market value of such shares on the date of the grant. The exercise price of
nonstatutory stock options granted under the Plan is determined by the
administrators. Option may be exercisable in installments, and the
exercisability of options may be accelerated by the administrators.
12
<PAGE> 13
Options and rights granted pursuant to the Plan are nontransferable by
their participants, other than by will or by the laws of descent or
distribution, and may be exercised during the lifetime of the participant only
by the participant. Appropriate transfer restrictions shall apply to any such
stock awards.
In the event of any change in capitalization in the company that results
in an increase or decrease in the number of outstanding shares without receipt
of consideration by the Company, an appropriate adjustment shall be made in the
number of shares which have been reserved for issuance under the Plan and the
price per share or number of shares covered by each outstanding option or right.
The Plan may be amended by the Board at any time. However, stockholder
approval will be required to increase the number of shares reserved for issuance
under the Plan or where an amendment to the Plan would materially increase the
benefits accruing to participants under the Plan or materially modify the
requirements as to eligibility for participation in the Plan.
DEFINED BENEFIT AND ACTUARIAL PLANS
The Company has not supplied Defined Benefits, or similar Pension,
Benefit or Actuarial Plan Benefits to its Executive Officers.
COMPENSATION OF DIRECTORS
Mr. Ekbom became a full time employee in April 1995, prior to that he
received compensation as a board member. Mr. Schlatter became a full time
employee in August 1994 and prior to that received compensation as a board
member. Mr. Larsen became a full time consultant and prior to that time received
compensation as a board member and part time consultant.
EMPLOYMENT CONTRACTS
On March 1, 1998 the Board of Directors approved a three year employment
contract with Robert W. Nicora, President and Chief Operating Officer. The
employment contract specifies a base annual salary of $125,000, an automobile
allowance, Medical and Dental coverage, $200,000 life insurance payable by the
corporation and payable to a beneficiary named by the insured, and participation
in the 1995 Stock Plan with the right to have an option for 100,000 shares to be
granted annually. The contract covers the duties and responsibilities as chief
Executive officer for the corporation. As of May 18, 1998 Mr. Nicora assumed the
title of Chief Executive Officer. Mr. Nicora's employment agreement provides
that Mr. Nicora may, at his election, receive a severance payment equal to 299%
of his average annual salary and bonuses received during the prior two-year
period in the event of a change in control as defined.
On March 31, 1998 the three year employment contract with Roger A. Ekbom
expired and was not renewed. On March 31, 1998 the three year employment
contract with Gerald D. Schlatter expired and was not renewed. On March 31, 1998
the three year employment contract with Robert J. Larsen expired and was not
renewed.
On October 1, 1991, Dr. Leland C. Clark, Jr., signed a five year contract
with the Company as Research and Development Director. That contract has been
extended on a month to month basis since October 1, 1996. On April 18, 1998 Dr.
Clark submitted his resignation as Vice President and Director and agreed to
continue managing research activities on a consulting basis.
REPRICING OF OPTIONS
During the last fiscal year the Company has not adjusted or amended the
exercise price of stock options.
13
<PAGE> 14
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE, INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Company does not presently have a Compensation Committee of the Board
of Directors, or other Board Committees performing equivalent functions, and did
not at any time during the last four years. The entire Board of Directors
presently performs these functions. All of the Executive officers are members of
the Company's Board of Directors.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth the stock ownership of all persons who,
to the registrants knowledge, own of record and beneficially five (5%) per cent
or more of its outstanding Common Stock, and for the officers and directors as a
group.
MANAGEMENT OWNERS
<TABLE>
<CAPTION>
Amount & Nature of Percent
Title of Class Name of Beneficial Owner Beneficial Owner of Class
<S> <C> <C> <C>
Common Stock Roger A. Ekbom 891,670(2) 1.94%
Common Stock Robert W. Nicora 50,000 0.10%
Common Stock Gerald D. Schlatter 612,860(2) 1.27%
Common Stock Robert J. Larsen(1) 814,445(2) 1.61%
Common Stock Leland C. Clark, Jr. 2,440,785(2) 4.81%
All Directors and Officers as a group (5 persons) 4,809,760 9.48%
</TABLE>
(1) Robert J. Larsen owns 814,445 beneficial by virtue of his control of
Peso, Inc. and Jada, Inc.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Roger A. Ekbom, a Chairman of the board of directors, loaned the Company
$5,000 as of April 30, 1998. Gerald D. Schlatter, a director, loaned the Company
$5,000 as of April 30, 1998. Robert J. Larsen, a director and Chief Financial
officer, loaned the Company $5,000 as of April 30, 1998. These loans totaling
$15,000 were made to enable the Company to continue its business operations,
pending receipt of additional funding.
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM S-K
Response to Item 8.
A. Documents Filed as a Part of This Report:
(1) FINANCIAL STATEMENTS
(a) Independent Auditors Report.
(b) Balance Sheets as of April 30, 1998 & 1997.
14
<PAGE> 15
(c) Statements of operations for each of the three years in the period ended
April 30, 1998.
(d) Statements of Stockholders, Equity for each of the three years in the
period ended April 30, 1998.
(e) Statements of Cash Flows for the three years in the period ended April
30, 1998.
(f) Notes to the Financial Statements.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Required by Exhibits To Exhibits to
Item 601 of Regulation S-K Prior Reports This Year
<S> <C> <C>
3 (a) Registrants Amended Articles of Incorporation A-1
3 (b) Specimen Form of Common Stock Certificate x
4 (a) Specimen three year Warrants to Purchase Stock dated x
July 24, 1992 with amendments
4 (b) Specimen three years Warrants to Purchase Stock dated x
September 30, 1992 with amendments
4 (c) Specimen three year Warrants to Purchase Stock dated x
4 (d) Warrant to Purchase Stock issued February 28,1994 to
American Heritage Fund
4 (e) Warrant to Purchase Stock issued July 24, 1992 to Cato x
Portfolio AG
4 (f) Specimen two year Warrant to Purchase Stock dated x
September 30, 1992 and November 20, 1992
4 (g) Warrant to Purchase Stock issued April 29, 1994 to Cato x
Portfolio AG
(k) Warrant to Purchase Stock issued August 19, 1993 and x
September 9, 1993 to Cato Portfolio
(1) Specimen two year Warrants to Purchase Stock issued on x
various dates from January 21, 1993 to February 23, 1994
10(a) Agreement between the Registrant and Leland C. Clark, Jr., x
Ph.D. dated October 1, 1991 with amendments, Re:
Assignment of Intellectual Property and Trade Secrets
10(b) Agreement between the Registrant and Keith R. Watson, x
Ph.D. Re: Assignment of Invention
10(c) Agreement between the Registrant and Children's Hospital x
Medical Center dated July 6, 1992
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Exhibits Required by Exhibits To Exhibits to
Item 601 of Regulation S-K Prior Reports This Year
<S> <C> <C>
10(d) Agreement between the Registrant and Children's x
Hospital Medical Center dated July 6, 1993
10(e) Agreement between the Registrant and Children's x
Hospital Medical Center dated July 6, 1993
10(f) Agreement between the Registrant and Roger A. Ekbom x
dated April 1, 1995
10(g) Agreement between the Registrant and Gerald D. x
Schlatter dated July 11, 1994 with Amendments
10(h) Agreement between the Registrant and Robert J. Larsen x
dated April 1, 1995
10(i) Agreement between the Registrant and L.G. Kurtz & x
Associates dated July 22, 1994
10(j) Agreement between the Registrant and Broadgate x
Consultant, Inc. dated July 29, 1994
10(k) Agreement between the Registrant and San Diego Contract x
Research Associates, Inc. dated November 21, 1995
10(l) Agreement between the Registrant and Glen Wegner, M.D., x
J.D. dated April 27, 1995
10(m) Employee Stock Plan dated April 28, 1995 x
10(n) Indemnification Agreement between the Registrant and x
members of the Board of Directors dated April 26, 1995
10(o) Agreement between the Registrant and Air Products & x
Chemical, Inc. dated January 30, 1995
</TABLE>
Pursuant to the requirements of Section 13 of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
16
<PAGE> 17
SYNTHETIC BLOOD INTERNATIONAL, INC.
Roger A. Ekbom, Chairman & CEO
By: /S/ ROGER A. EKBOM
Robert J. Larsen, Secretary & Chief Financial Officer
BY: /S/ ROBERT J. LARSEN
Dated: 7/22/98
Pursuant to the requirements of Instruction D to Form 10-K under the Securities
and Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated. The following represent at least a majority of the Board of Directors
of the Registrant.
Date Name & Title
Roger A. Ekbom
Chairman of the
7/22/98 Board of Directors
By: /S/ ROGER A. EKBOM
Robert W. Nicora
7/22/98 President & Director
By: /S/ ROBERT W. NICORA
Robert J. Larsen
Director & Secretary
7 / 22 / 98 Treasurer
By: /S/ ROBERT J. LARSEN
Gerald D. Schlatter
7/22/98 Director
By: /S/GERALD D. SCHLATTER
Howard Jones
7/22/98 Director
By: /S/ HOWARD JONES
17
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Synthetic Blood International, Inc.:
We have audited the accompanying balance sheets of Synthetic Blood
International, Inc. (a development stage enterprise) (the Company) as of April
30, 1998 and 1997, and the related statements of operations, stockholders'
equity (deficiency) and cash flows for each of the three years in the period
ended April 30, 1998 and for the period from May 26, 1967 (date of
incorporation) to April 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits. The financial
statements for the period May 26, 1967 through April 30, 1994 were audited by
other auditors and reflected an accumulated net loss of $2,148,706. The other
auditors' report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for such prior period, is based solely on the
report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
financial statements present fairly, in all material respects, the financial
position of Synthetic Blood International, Inc. as of April 30, 1998 and 1997,
and the results of its operations and its cash flows for the three years in the
period ended April 30, 1998, and for the period from May 26, 1967 (date of
incorporation) to April 30, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing certain medical products. As discussed in Note
1 to the financial statements, the Company's accumulated losses from operations
and negative operating cash flows; its necessity to obtain additional financing
to fund operations until the necessary regulatory approvals are obtained, if
ever; and its ability to ultimately attain successful operations raise
-18-
<PAGE> 19
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Costa Mesa, California
June 26, 1998
-19-
<PAGE> 20
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
AS OF APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 740,215 $ 53,857
Prepaid expenses:
Insurance 9,125 11,925
Other 10,400 5,500
--------- ---------
19,525 17,425
--------- ---------
Total current assets 759,740 71,282
PROPERTY AND EQUIPMENT:
Laboratory equipment 235,133 235,133
Furniture and fixtures 69,147 68,385
--------- ---------
304,280 303,518
Less accumulated depreciation (219,627) (166,085)
--------- ---------
PROPERTY AND EQUIPMENT, net 84,653 137,433
PATENTS, net (Note 2) 141,521 109,448
--------- ---------
$ 985,914 $ 318,163
========= =========
</TABLE>
See independent auditors' report and
notes to financial statements.
-20-
<PAGE> 21
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
AS OF APRIL 30, 1998 AND 1997 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of capital lease obligation $ -- $ 16,573
Current portion of notes payable (Note 5) 59,972
Accounts payable 339,540 323,401
Accrued payroll 78,189 50,722
Other accrued liabilities 38,639 134,000
Notes payable to stockholders (Note 4) 15,000 75,979
----------- -----------
Total current liabilities 531,340 600,675
NOTES PAYABLE, less current portion (Note 5) 103,021
COMMITMENTS AND CONTINGENCIES (Notes 1 and 3)
STOCKHOLDERS' EQUITY (DEFICIENCY) (Notes 6 and 7):
Common stock, par value $0.01 per share; authorized 100,000,000
shares; 50,729,302 and 42,829,477 shares issued and outstanding
at April 30, 1998 and 1997, respectively 507,293 428,295
Additional paid-in capital 9,412,424 7,576,325
Deficit accumulated during the development stage (9,568,164) (8,287,132)
----------- -----------
Total stockholders' equity (deficiency) 351,553 (282,512)
----------- -----------
$ 985,914 $ 318,163
=========== ===========
</TABLE>
See independent auditors' report and
notes to financial statements.
-21-
<PAGE> 22
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 26, 1967
(INCORPORATION)
TO
APRIL 30, 1998 1998 1997 1996
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
EXPENSES:
Research and development $ 2,904,199 $ 111,766 $ 460,978 $ 924,093
General and administrative 6,586,138 1,144,810 1,437,353 1,422,809
Interest 129,197 27,525 12,959 5,241
------------ ------------ ------------ ------------
Total expenses 9,619,534 1,284,101 1,911,290 2,352,143
OTHER INCOME (51,370) (3,069) (914) (5,916)
------------ ------------ ------------ ------------
NET LOSS $ (9,568,164) $ (1,281,032) $ (1,910,376) $ (2,346,227)
============ ============ ============ ============
NET LOSS PER SHARE -
Basic and diluted ($0.03) ($0.05) ($0.08)
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING -
Basic and diluted 46,000,749 36,053,557 28,894,248
============ ============ ============
</TABLE>
See independent auditors' report and
notes to financial statements.
-22-
<PAGE> 23
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER OF COMMON PAID-IN DEVELOPMENT EQUITY
SHARES STOCK CAPITAL STAGE (DEFICIENCY)
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, May 26, 1967 -- $ -- $ -- $ -- $ --
Issuance of common stock 25,907,710 259,077 3,780,019 4,039,096
Conversion of convertible
debentures into common
stock 870,199 8,702 771,298 780,000
Issuance of common stock
to employees and
compensatory options 218,800 2,188 81,312 83,500
Common stock issued upon
conversion of notes
payable 500,000 5,000 120,000 125,000
Exercise of warrants 13,750 137 1,238 1,375
Contributions of capital
through services rendered 30,000 30,000
Net loss (4,030,529) (4,030,529)
---------- ------- --------- ---------- ---------
BALANCES, April 30, 1995 27,510,459 275,104 4,783,867 (4,030,529) 1,028,442
</TABLE>
See independent auditors' report and
notes to financial statements.
-23-
<PAGE> 24
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER OF COMMON PAID-IN DEVELOPMENT EQUITY
SHARES STOCK CAPITAL STAGE (DEFICIENCY)
--------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock 358,333 $ 3,583 $ 71,417 $ -- $ 75,000
Issuance of common stock
in conjunction with funding
agreements and services
rendered (Note 6) 1,444,090 14,441 317,291 331,732
Issuance of common stock
to officers (Note 6) 26,250 263 8,362 8,625
Common stock issued upon
conversion of notes
payable (Note 6) 400,000 4,000 76,000 80,000
Exercise of warrants
(Note 7) 1,291,250 12,913 116,212 129,125
Issuance of warrants
(Note 7) 60,000 60,000
Contribution of capital from
officer (Note 6) 35,700 35,700
Net loss (2,346,227) (2,346,227)
----------- ----------- ----------- ----------- -----------
BALANCES,
April 30, 1996 31,030,382 310,304 5,468,849 (6,376,756) (597,603)
</TABLE>
See independent auditors' report and
notes to financial statements.
-24-
<PAGE> 25
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER OF COMMON PAID-IN DEVELOPMENT EQUITY
SHARES STOCK CAPITAL STAGE (DEFICIENCY)
--------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock 4,000,000 $ 40,000 $ 1,100,000 $ -- $ 1,140,000
Common stock issued upon
conversion of note
payable (Note 6) 133,500 1,335 18,165 19,500
Common stock issued upon
conversion of notes
payable to officers (Note 6) 3,733,320 37,333 423,442 460,775
Issuance of common stock
in exchange for services
rendered (Note 6) 3,932,275 39,323 565,869 605,192
Net loss (1,910,376) (1,910,376)
----------- ----------- ----------- ----------- -----------
BALANCES, April 30, 1997 42,829,477 428,295 7,576,325 (8,287,132) (282,512)
Issuance of common stock 6,000,000 60,000 850,033 910,033
Issuance of common stock
upon conversion
of debentures (Note 6) 531,200 5,312 46,936 52,248
Issuance of common stock
to officers to retire
shareholder loans (Note 6) 1,044,450 10,444 177,556 188,000
Issuance of common stock
for services rendered
(Note 6) 324,175 3,242 49,350 52,592
Contribution of capital
by shareholders (Note 6) 581,818 581,818
Issuance of warrants
(Note 7) 130,406 130,406
Net loss (1,281,032) (1,281,032)
----------- ----------- ----------- ----------- -----------
BALANCES, April 30, 1998 50,729,302 $ 507,293 $ 9,412,424 $(9,568,164) $ 351,553
=========== =========== =========== =========== ===========
</TABLE>
See independent auditors' report and
notes to financial statements.
-25-
<PAGE> 26
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 26, 1967
(INCORPORATION)
TO
APRIL 30, 1998 1998 1997 1996
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $(9,568,164) $(1,281,032) $(1,910,376) $(2,346,227)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 309,557 71,107 83,073 87,459
Write-down of other assets 126,800
Issuance of compensatory stock options/
warrants 248,906 130,406 60,000
Issuance of stock below fair market value 695,248 155,248 540,000
Issuance of stock for services rendered 989,516 52,592 605,192 331,732
Contribution of capital through services
rendered by stockholders 216,851 186,851
Changes in operating assets and liabilities:
Prepaid expenses (19,525) (2,100) 12,387 60,282
Accounts payable and accrued expenses 619,361 111,238 (202,423) 608,263
----------- ----------- ----------- -----------
Net cash used in operating activities (6,381,450) (575,690) (872,147) (1,198,491)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (271,402) (762) (2,128) (33,699)
Proceeds from sale of property and
equipment 15,457 15,457
Purchase of other assets (354,248) (49,638) (40,011) (35,866)
----------- ----------- ----------- -----------
Net cash used in investing activities (610,193) (50,400) (42,139) (54,108)
</TABLE>
See independent auditors' report and
notes to financial statements.
-26-
<PAGE> 27
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 26, 1967
(INCORPORATION)
TO
APRIL 30, 1998 1998 1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of notes payable
to stockholder $ 915,792 $ 79,538 $ 309,553 $ 326,701
Repayments of notes payable
to stockholder (121,517) (46,517)
Proceeds from issuance of convertible
debentures 811,000 31,000
Payments on capital lease obligation (52,338) (16,573) (17,722) (14,065)
Contribution of capital from stockholders 40,700 5,000 35,700
Proceeds from issuance of common stock 6,138,221 1,260,000 600,000 212,750
----------- ----------- ----------- -----------
Net cash provided by financing activities 7,731,858 1,312,448 891,831 561,086
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 740,215 686,358 (22,455) (691,513)
CASH AND CASH EQUIVALENTS,
beginning of period 53,857 76,312 767,825
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period 740,215 740,215 53,857 76,312
----------- ----------- ----------- -----------
CASH PAID FOR:
Interest $ 88,281 $ 3,174 $ 3,339 $ 5,241
=========== =========== =========== ===========
Taxes $ 4,527 $ 527 $ 800 $ 800
=========== =========== =========== ===========
SUPPLEMENTAL INFORMATION:
During fiscal 1998:
Transfer of trade accounts payable and
accrued liabilities to notes payable $ 162,993
===========
</TABLE>
For information relating to equity noncash
transactions, see Note 6
See independent auditors' report and
notes to financial statements.
-27-
<PAGE> 28
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998
- --------------------------------------------------------------------------------
1. GENERAL
The Company was incorporated on May 26, 1967 and was inactive through
September 1990, when it began conducting operations for the purpose of
developing a synthetic blood emulsion to act as a human blood
substitute, and a method of using a perfluorocarbon compound to
facilitate oxygen exchange for individuals with respiratory distress
syndrome. Shortly after commencing these operations, the Company changed
its name to Synthetic Blood International, Inc. The Company is also
developing an implantable, continuous reading glucose biosensor to be
used primarily by individuals with diabetes. All of the Company's
products are currently in the preclinical trial stage. This stage
requires a sufficient level of animal testing to be performed in order
to file certain applications with the United States Food and Drug
Administration (FDA), which is necessary to obtain FDA approval to
proceed with human testing and, ultimately, approval to market the
products. No assurances can be given that such approvals, once applied
for, will be granted.
Going Concern - The accompanying financial statements have been prepared
on a going-concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
The Company is in the development stage and, at April 30, 1998, has
accumulated losses from operations amounting to $9,568,164 and, in
fiscal 1998, incurred negative cash flow of $575,690 from operations. As
mentioned in the preceding paragraph, the Company is in the preclinical
trial stage of its products. These products must undergo further
development and testing prior to submission to the FDA for approval to
market the products. The additional development and testing will require
significant additional financing. Management intends to seek such
additional financing through future private placement offerings and/or
joint ventures. The Company's continuation as a going concern is
dependent on its ability to obtain additional financing to fund
operations until the necessary regulatory approvals are obtained, if
ever, and its ability to ultimately attain successful operations. 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 that might result from the outcome of this
uncertainty.
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 (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises.
-28-
<PAGE> 29
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
Cash and Cash Equivalents - The Company considers highly-liquid
investments with original maturities of three months or less to be cash
equivalents.
Property and Equipment - Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line
method over the shorter of the estimated useful lives of the related
assets, ranging from three to ten years, or the lease term, if
applicable.
Patents - Patent costs are being amortized over the lesser of the
remaining life of the patent or the estimated useful life of the related
product, ranging from eight to ten years. Patent costs totaled $199,439
and $149,801, net of accumulated amortization of $57,918 and $40,353, at
April 30, 1998 and 1997, respectively. The Company evaluates
recoverability of patents on at least an annual basis by comparing the
estimated resale value of the patents to the remaining carrying values.
An adjustment to the carrying value of the patent rights would be made
if the estimated resale value of the patents is determined to be
insufficient to recover such value.
Pricing of Common Stock and Options to Purchase Common Stock - The
Company's Board of Directors determines the issuance price of its common
stock and the exercise price of options to purchase common stock, based
on a good faith estimate of fair market value, which is derived from
recent issuances of common stock to unrelated parties and/or from common
stock market quotations, after giving effect to the restricted nature of
the stock issued. In the event that stock is issued at a price below
fair market value, an expense is recorded for the difference between
fair market value and the issuance price and is included in general and
administrative expenses.
Loss Per Share - In fiscal 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share (EPS),
which replaces the presentation of "primary" EPS with "basic" EPS and
the presentation of "fully diluted" EPS with "diluted" EPS. All
previously reported EPS amounts have been restated based on the
provisions of the new standard. Basic loss per share, which would
include no dilution, would be computed by dividing loss available to
common shareholders by the weighted-average number of shares outstanding
for that particular period. In contrast, diluted loss per share
considers the potential dilution that could occur from other financial
instruments that would increase the total number of outstanding shares
of common stock. Common stock equivalents, however, have not been
included in the diluted loss per share computation because their effect
is antidilutive.
Income Taxes - The Company accounts for its income taxes in accordance
with the standards specified in SFAS No. 109, Accounting for Income
Taxes.
Reclassifications - Certain amounts as previously reported have been
reclassified to conform to the 1998 presentation.
-29-
<PAGE> 30
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of other income and expenses during the reporting
periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments - The Company's balance sheet
includes the following financial instruments: cash and cash equivalents,
accounts payable, accrued expenses, capital lease obligation and notes
payable to stockholders. The Company considers the carrying amount in
the financial statements to approximate fair value for these financial
instruments because of the relatively short period of time between
origination of the instruments and their expected realization. The
Company considers the carrying value of its notes payable to approximate
fair market value based on the borrowing rates currently available to
the Company for bank loans with similar terms and maturities.
Stock-Based Compensation - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees (Note 6).
3. COMMITMENTS AND CONTINGENCIES
Employment Contracts - The Company has an employment agreement with a
certain officer, with an aggregate future commitment of $125,000 in
1998.
Litigation - The Company is subject to litigation in the normal course
of business, none of which management believes will have a material
adverse effect on the Company's financial statements.
4. NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders amounted to $15,000 and $75,979 at April
30, 1998 and 1997, respectively. Such loans are due on demand and are
noninterest-bearing.
-30-
<PAGE> 31
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
5. NOTES PAYABLE
Notes payable consist of the following at April 30, 1998:
<TABLE>
<S> <C>
Unsecured subordinated notes payable to former employees, bearing interest at
10% per annum, payable in monthly principal and interest installments of
$1,500, due at various dates through June 2003 $ 70,692
Unsecured subordinated notes payable to vendor, bearing interest at 10% per
annum, payable in monthly principal and interest installments of $5,000,
remaining balance due in August 1999 92,301
---------
162,993
Less current maturities of notes payable (59,972)
---------
$ 103,021
=========
</TABLE>
Principal payments on notes payable are due approximately as follows:
<TABLE>
<S> <C>
1999 $ 59,972
2000 56,416
2001 13,967
2002 15,430
2003 15,667
2004 1,541
--------
$162,993
========
</TABLE>
6. STOCKHOLDERS' EQUITY
During fiscal 1996, the Company issued 1,200,000 shares of its common
stock in conjunction with a standby funding agreement with a
stockholder, which allowed the Company to borrow up to $450,000 from
this stockholder during the period from August 1995 through October
1995. As a result of this agreement, the Company recognized an expense
of $240,000, which represented the fair market value of the shares at
the date of the agreement.
-31-
<PAGE> 32
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
During fiscal 1996, the Company issued 26,250 shares of common stock to
officers for $8,625 in cash, which represented the fair market value at
the date of issuance. The officers exercised warrants granted during
1994 to purchase 91,250 shares of common stock. The exercise price of
the warrants of $.10 per share approximated the fair market value of the
warrants on the date of grant.
During fiscal 1996, the Company converted an outstanding note payable to
a stockholder of $80,000 into 400,000 shares of the Company's common
stock, pursuant to a conversion option granted by the Company.
During fiscal 1996, an officer of the Company contributed $35,700 in
cash to fund operations.
During fiscal 1996, the Company expensed $45,000, which was paid to a
stockholder as an inducement to retain shares of the Company's common
stock.
During fiscal 1997, the Company converted an outstanding note payable to
a stockholder in the amount of $19,500 into 133,500 shares of the
Company's common stock. As a result of this transaction, the Company
recognized expense of $14,685, representing the difference between the
fair market value and the issuing value of the common stock.
During fiscal 1997, the Company converted outstanding notes payable to
officers totaling $460,775 into 3,733,320 shares of the Company's common
stock. In addition, the Company issued 3,330,175 shares of the Company's
common stock in exchange for services rendered by officers, which were
valued at an average per share price of $.15.
During fiscal 1997, the Company issued 602,100 shares of the Company's
common stock in exchange for services rendered by stockholders, which
were valued at an average per share price of $.18.
During fiscal 1998, the Company issued and subsequently converted
outstanding debentures to shareholders totaling $31,000 into 531,200
shares of common stock. As a result of this transaction, the Company
recorded $21,248 of interest expense associated with the conversion
feature, which represents the difference between the fair market value
and the conversion price of the common stock.
During fiscal 1998, the Company issued 1,044,450 shares of common stock
to retire $94,000 of officer loans. As a result of this transaction, the
Company recognized expense of $94,000, representing the difference
between the fair market value and the issuing value of the common stock.
During fiscal 1998, the Company issued 324,175 shares of common stock in
exchange for services rendered by stockholders. As a result of this
transaction, the Company recognized expense of $52,592, representing the
fair market value of the common stock issued.
-32-
<PAGE> 33
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
During fiscal 1998, the Company issued 6,000,000 shares in private
placements for aggregate proceeds of $1,260,000. In conjunction with
such offerings, the Company recognized a charge of $40,000, which
represents the difference between the fair market value and issuance
price of one of the offerings. Additionally, the Company's officers
contributed personal holdings of the Company's stock to certain
investors on behalf of the Company. The fair market value of such stock
was $389,967. Such has been recorded in the financial statements as a
contribution of capital by the shareholders and as a direct cost of the
private placement, offset against the proceeds received.
During fiscal 1998, the Company's officers forgave salaries totaling
$186,851, related to services performed in fiscal year 1998.
Additionally, a stockholder contributed $5,000. Such have been recorded
in the financial statements as contributions of capital.
7. STOCK OPTIONS AND WARRANTS
In April 1995, the Company adopted a stock option plan providing for the
granting of options to officers, directors, consultants and key
employees to purchase up to 2,500,000 shares of the Company's common
stock at prices not less than the fair market value of the stock at the
date of grant. The option expiration dates are determined at the date of
grant, but may not exceed ten years.
Changes in shares under options for the years ended April 30, 1998, 1997
and 1996 are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------------------------------------------------
1998 1997 1996
------------------------ --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING, beginning of year 100,000 $ 0.25 100,000 $ 0.25 100,000 $ 0.25
Granted 1,200,000 $ 0.17
Forfeited (100,000) $ 0.25
--------- ------- -------
OUTSTANDING, end of year 1,200,000 $ 0.17 100,000 $ 0.25 100,000 $ 0.25
========= ======== ======= ======== ======= ========
Options exercisable, end of year 900,000 $ 0.13
========= ========
Weighted average fair value granted
during the year $ 0.11
========
</TABLE>
-33-
<PAGE> 34
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
The Company accounts for its stock option plan in accordance with the
provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees. Had compensation cost for the stock option plan been
determined based on the fair value at the grant date consistent with the
method of SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's net loss and net loss per share would have been the pro forma
accounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Actual net loss $ (1,281,032) $ (1,910,376) $ (2,346,227)
Pro forma net loss (1,364,429) (1,910,376) (2,346,227)
Actual net loss per share (.04) (.05) (.08)
Pro forma net loss per share (.04) (.05) (.08)
</TABLE>
The fair value of each option grant was estimated at the grant date
using the Black-Scholes option-pricing model for the year ended April
30, 1998, assuming a risk-free interest rate of 6.35%, volatility of
97%, zero dividend yield, and expected lives of 24 to 120 months.
Options outstanding at the beginning of fiscal 1996 were fully vested at
the date of grant.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options and warrants which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's
employee stock options and warrants have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
Furthermore, in connection with various agreements for the sale of the
Company's common stock (Note 6) and in lieu of payment for services
rendered, the Company issues warrants to purchase shares of its common
stock.
-34-
<PAGE> 35
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
WARRANTS SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING, beginning of
year 600,000 $0.67 600,000 $0.67 2,189,973 $1.31
Granted 2,000,000 $0.53 1,200,000 $0.10
Expired (600,000) $0.67 (1,498,723) $1.64
Exercised (1,291,250) $0.10
--------- ------- ----------
OUTSTANDING, end of year 2,000,000 $0.53 600,000 $0.67 600,000 $0.67
========= ===== ======= ===== ========== =====
Warrants exercisable, end of
year 2,000,000 $0.53
========= =====
Weighted average fair value
granted during the year $0.07
=====
</TABLE>
The aggregate estimated fair value of warrants issued in fiscal 1998 was
$130,406, which was recorded as expense in the accompanying statement of
operations.
Outstanding stock options and warrants at April 30, 1998 consist of the
following:
<TABLE>
<CAPTION>
AVERAGE
LIFE AVERAGE
SHARES REMAINING PRICE
---------------------------------------
(YEARS)
<S> <C> <C> <C>
OPTIONS OUTSTANDING
Range of exercise prices - $.13-$.28 1,200,000 9.77 $ 0.17
WARRANTS OUTSTANDING
Range of exercise prices - $.35-$.70 2,000,000 1.50 $ 0.53
</TABLE>
-35-
<PAGE> 36
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
APRIL 30, 1998 AND FOR THE PERIOD MAY 26, 1967 (DATE OF INCORPORATION)
TO APRIL 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
8. INCOME TAXES
As of April 30, 1998 and 1997, the Company had net deferred tax assets
of approximately $3,373,000 and $2,818,000, respectively, all of which
has been offset by a valuation allowance. These deferred tax assets are
comprised of net operating loss and research and development credit
carryforwards that expire from 2005 to 2013.
9. RELATED PARTIES
During fiscal 1998, 1997 and 1996, the Company recorded expenses of
approximately $49,000, $63,000 and $100,000, respectively, for services
provided by a company in which an officer of the Company has a
controlling interest.
Included in accounts payable at April 30, 1998 and 1997 are payables to
officers of $56,540 and $52,038, respectively.
-36-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 740,215
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 759,740
<PP&E> 304,280
<DEPRECIATION> 219,627
<TOTAL-ASSETS> 985,914
<CURRENT-LIABILITIES> 531,340
<BONDS> 0
0
0
<COMMON> 507,293
<OTHER-SE> (155,740)
<TOTAL-LIABILITY-AND-EQUITY> 985,914
<SALES> 0
<TOTAL-REVENUES> 3,069
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,284,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,525
<INCOME-PRETAX> (1,281,032)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,281,032)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
