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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 January 31, 1998
Commission File Number 2-31909
SYNTHETIC BLOOD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3067701
(State of Incorporation) (IRS Employer ID Number)
2685 Culver Avenue Kettering, Ohio 45429
937-298-6070
(Registrant's telephone number, including area code)
Indicate by the check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports).
YES (X) NO ( )
and (2) has been subject to such filing requirements for the past
90 days.
YES (X) NO ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1998.
46,480,950 shares of common stock par value $0.01
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
January 31, April 30,
1998 1997
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 2,862 $ 53,857
Prepaid Expense 23,849 17,425
----------- -----------
Total Current Assets $ 26,711 $ 71,282
Property & Equipment, net 102,217 137,433
Other Assets:
Patents and Technology 120,851 109,448
----------- -----------
Total Assets $ 249,779 $ 318,163
=========== ===========
LIABILITIES AND STOCKHOLDERS'S EQUITY
Current Liabilities:
Accrued Expenses $ 449,659 $ 473,974
Stockholders loans 14,787 75,979
Accrued Payroll & Other 233,852 50,722
----------- -----------
Total Current Liabilities $ 698,298 $ 600,675
Total Liabilities $ 698,298 $ 600,675
Stockholder's Equity:
Common Stock $0.01 par
Value: Authorized
100,000,000 shares
Issued & outstanding
46,480,950 & 42,829,500 $ 464,809 $ 428,295
Additional Paid in capital 8,116,081 7,576,325
Deficit Accumulated since
Development Stage (9,029,409) (8,287,132)
----------- -----------
Total Stockholder's Equity
(Deficit) $ ( 448,519) $ ( 282,512)
----------- -----------
Total Liabilities &
Stockholder's Equity $ 249,779 $ 318,163
=========== ===========
</TABLE>
See accompanying notes to financial statements
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Accumulated Three Months Ended Nine Months Ended
during the January 31, January 31,
development ------------------------------ ------------------------------
stage 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Expenses:
Research and
development $ 2,901,444 $ 26,733 $ 156,628 $ 109,011 $ 440,675
General and
administrative 6,072,039 122,949 165,790 630,711 890,736
Interest 105,403 442 2,401 3,731 6,724
------------ ------------ ------------ ------------ ------------
Total Expense 9,078,886 150,124 324,819 743,453 1,338,135
OTHER INCOME (49,477) (282) (68) (1,176) (331)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (9,029,409) $ ( 149,842) $ 324,751) (742,277) (1,337,804)
============ ============ ============ ============
NET LOSS PER SHARE
Basic $ (0.01) $ (0.01) $ (0.02) $ (0.04)
Diluted $ (0.01) $ (0.01) $ (0.02) $ (0.04)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING
Basic 46,276,391 38,485,094 44,404,874 32,274,295
Diluted 46,276,391 38,485,094 44,404,874 32,274,295
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
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SYNTHETIC BLOOD INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Accumulated Nine months Nine months
during the ended ended
development January 31, January 31,
stage 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(9,029,409) $ (742,277) $(1,351,554)
Adjustments to reconcile net
cash used in operating activities:
Depreciation and amortization 300,567 62,117 34,718
Write down other assets 126,800
Issuance of compensatory stk options 118,500
Contribution of capital through
services rendered 30,000
Issuance of stock for services rendered 936,924 402,675
Issuance of stock below FMV 720,000 180,000
Changes in operating assets and
liabilities:
Prepaid expenses & other assets (23,849) (6,424) 4,791
Accounts payable and accrued
expense 698,298 158,815 217,484
----------- ----------- -----------
Net cash used in operating
activities (6,122,169) (347,769) (691,886)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of other assets (342,914) (38,304) (19,060)
Proceeds from the sale of equipment 15,457
Purchase of property and equipment (270,640)
----------- ----------- -----------
Net cash used in investing
activities (629,011) (38,304) (19,060)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of common stock 5,224,491 266,270 629,500
Payments on capital lease obligations (35,765) (11,631)
Proceeds from issuance of notes
payable to stockholder 866,254 31,000 (66,825)
Contribution of capital stockholder 35,700
Proceeds from convertible debentures 780,000
Repayments of notes payable (116,638) 37,808 (42,500)
----------- ----------- -----------
Net cash provided by financing
activities 6,754,042 335,078 642,194
NET DECREASE IN CASH AND CASH
EQUIVALENTS: 2,862 (50,995) 68,752
CASH AND CASH EQUIVALENTS,
beginning of period 53,857 76,312
CASH AND CASH EQUIVALENTS,
end of period $ 2,862 $ 2,862 $ 7,560
=========== =========== ===========
Cash paid for Interest $ 105,403 $ 3,731 $ 5,724
Taxes 5,600 800 800
SUMMARY OF SIGNIFICANT NON-CASH
INVESTING & FINANCING ACTIVITIES:
Issuance of common stock to retire notes $ 36,000
Issuance of common stock to retire accrued wages 94,000
</TABLE>
See accompanying notes to financial statements
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
January 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 January 31, 1998 and the results of its operations and its cash
flows for the three month and nine month periods ended January 31, 1998 and
1997. Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission although the Company
believes that the disclosures in the financial statements are adequate to
make the information presented not misleading.
The financial statements included herein should be read in conjunction with
the financial statements of the Company, included in the Company's Annual
Report on Form 10-K for the year ended April 30, 1997 filed with the
Securities and Exchange Commission on August 29, 1997.
Going Concern - The accompanying financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the financial statements, the Company is in the development stage and, at
January 31, 1998 has accumulated losses from operations amounting to
$9,029,409, a working capital deficit of $671,587. 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,
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and ultimately to attain successful operations. However, no assurance can
be given at this time as to whether the Company will achieve any of these
conditions or that the FDA approval will be granted, once applied for.
These factors, among others, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern for a reasonable period of time. Additional funding will be
necessary which will require future private placements and/or joint
ventures to enable the Company to continue the required testing through
Phase I, II and III human testing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage - Because the Company has not commenced principal
operations, it is considered a "Development Stage Enterprise" as defined by
Statement of Financial Accounting Standards No. 7, Accounting and Reporting
by Development Stage Enterprises.
Pricing of Common Stock and Options to Purchase Common Stock - The
Company's Board of Directors determines the fair market value of its
common stock and options to purchase common stock, based on a good faith
estimate which is derived from recent issuance of common stock to
unrelated parties and/or from common stock market quotations, after
giving effect to the restricted nature of the stock issued.
Property and Equipment - Property is recorded at cost. Depreciation and
amortization are computed using the straight-line method over the shorter
of the estimated useful lives of the related assets, ranging from three to
ten years, or lease term, if applicable.
Patents - Patent costs are being amortized over the lesser of the remaining
life of the patent or the estimated useful life of the related product,
ranging from eight to ten
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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 had employment agreements with certain
officers and an employee with aggregate future commitments of $240,000 in
1998.
During fiscal 1995, the Company entered into a consulting agreement with an
unrelated party which required monthly payment of $5,000. This agreement
expired in December 1995. In conjunction with this agreement, the Company
issued warrants to purchase 100,000 shares of the Company's common stock at
$1.00 per share, which exceeded the fair market value at the date of the
agreement. The warrants expire in April 1999.
Litigation - The Company is subject to litigation in the normal course of
business, none of which management believes will have a material adverse
effect on the Company's financial statements as of January 31, 1998, except
as follows:
The Company has two legal matters pending at January 31, 1998. These legal
actions were filed by former employees alleging unfair treatment during a
temporary layoff in December 1995. These cases are presently in discovery.
Company management's communications with legal counsel have indicated that
the Company's exposure related to these legal actions could amount to
$124,000. Thus, while the outcome of such litigation is uncertain, the
Company has provided an accrual for such loss contingency using the best
available estimate of $124,000, as initially disclosed in audited April 30,
1997 Financial Statements.
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4. STOCKHOLDERS' EQUITY
On August 1, 1997 convertible debentures were issued to a stockholder that
are convertible into 516,667 shares of the Company's common stock, for an
investment of $31,000 with a annual interest rate of 8%. An amount
representing the fair market value less the conversion price of the
Company's common stock as of the date the debentures were issued was
recognized as an expense related to this issuance.
On September 22, 1997 the Company issued 2,000,000 shares of its common
stock under a Regulation S subscription agreement to Argos Invest Consult
AG, a Zurich Switzerland asset manager, for an $260,000 investment. An
amount representing the difference between the fair market value of the
Company's common stock at the date of the agreement less the purchase
price, was recognized as expense related to this issuance. As part of this
agreement, warrants to purchase one million shares of common stock at an
exercise price of $0.70 per share were issued.
On September 23, 1997 the Company issued 1,044,450 shares of its common
stock under Regulation 144 to officers and directors for the cancellation
of $94,000 of loans made to the corporation remaining unpaid as of
September 23, 1997. An amount representing the fair market value of the
Company's common stock at the date of the issuance less the loan balance,
was recognized as expense.
On November 3, 1997 the Company issued 75,800 shares of its common stock
under Regulation 144 to a stockholder for cancellation of debt of $5,000
and $6,270 in services.
On December 5, 1997 the holder of convertible debentures converted $31,000
of debt and accrued interest to stock. In conjunction with such transaction
the Company issued 531,200 shares.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted SFAS No.128, Earnings per Share, which replaces the
presentation of "primary" earnings per share with "basic" earnings per
share and the presentation of "fully diluted"
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earnings per share with "diluted" earnings per share. All previously
reported earnings per share amounts have been restated based on the
provisions of the new standard. Basic earnings per share are based upon the
weighted average number of common shares outstanding. Diluted earnings per
share are based upon the weighted average number of common and common
equivalent shares for each period presented. Common equivalent shares
include stock option assuming conversion under treasury stock method.
6. SUBSEQUENT EVENTS
During February 1998 all officers and directors agreed to forfeit the total
accumulated compensation for their services rendered the current fiscal
year. This commitment was given as a condition of a new funding agreement
which provided for funding in the amount of $1,000,000 which was received
March 13, 1998. Pursuant to such agreement the accrued payroll was reduced
by $186,851 and the amount transferred to paid in capital to recognize
services contributed to the company. An additional condition of the
agreement required that certain officers transfer one-half of their
stockholdings, approximately 4.6 million shares, to an individual involved
in the fund raising activities. The value of the stock transferred has been
recorded as a cost of raising capital, and netted against the funds
obtained. The funding represents the sale of four million shares of stock
at $0.25 per share.
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SYNTHETIC BLOOD INTERNATIONAL, INC
(A Development Stage Company)
Part I- Financial Information
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Third Quarter of 1998 and 1997.
The Research and Development expenses for the three and nine month periods ended
January 31, 1998 were $26,733 and $109,011 respectively, compared to $156,628
and $440,675 for the same periods in the prior year. This decrease was due to a
significant reduction in research personnel, outside laboratory confirmation of
test results and the purchase of fewer animals and supplies.
General and Administrative expenses for the three and nine month periods ended
January 31, 1998 were $122,949 and $ 630,711 respectively, compared to $165,790
and $890,736 for the same periods in the prior year. This decrease was due to a
significant reduction in legal fees, licensing fees, and research staff. In
addition wages and salaries for the officers and directors that had been
expensed for the full fiscal year to date, have been voluntarily waived and
canceled.
The net loss for the three and nine month periods ended January 31, 1998 was
$149,842 and $742,277, compared to $324,751 and $ 1,337,804 for the same periods
in the prior year. This represented a substantial reduction of research and
general administrative expenses, including salaries of officers and directors,
as the primary activity was writing patent applications during this period.
LIQUIDITY AND CAPITAL SOURCES
The Company has financed its operations since September 1990, when the current
management became involved, through the issuance of debt and equity securities
and loans from stockholders. As of January 31, 1998 the Company had $26,711 in
total current assets and a working capital deficit of $671,587.
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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.
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SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
Part II-Other Information
Item 1. Legal Proceedings.
Described in Financial Statement notes.
Item 2. Changes in Securities.
On November 3, 1997, the Company issued 75,800 shares of its common
stock to one existing stockholder for the cancellation of debt of
$5,000 and for a total of $6,270 in consulting fes pursuant to
Section 4/2 of the Securities Act for transactions not involving a
public offering, and a legend was placed on the certificates issued.
On December 5, 1997, one individual holder of convertible debentures
converted $31,000 of debt and accrued interest to common stock of the
Company. In connection with this conversion, the Company issued
531,200 shares of its common stock pursuant to Section 4/2 of the
Securities Act for transactions not involving a public offering, and
a legend was placed on the certificates.
Item 3. Defaults Upon Senior Securities.
None
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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.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SYNTHETIC BLOOD INTERNATIONAL, INC.
(Registrant)
3/16/98 //SS//SS//
- ------------------------- -----------------------------------
(Date) Robert J. Larsen, Secretary/Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIRD
QUARTER ENDED JANUARY 31, 1998 SYNTHETIC BLOOD INTERNATIONAL, INC.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 2,862
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,711
<PP&E> 303,518
<DEPRECIATION> 201,301
<TOTAL-ASSETS> 249,779
<CURRENT-LIABILITIES> 698,298
<BONDS> 0
0
0
<COMMON> 464,809
<OTHER-SE> (913,328)
<TOTAL-LIABILITY-AND-EQUITY> 249,779
<SALES> 0
<TOTAL-REVENUES> 1,176
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 743,453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,731
<INCOME-PRETAX> (742,277)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (742,277)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
