FORM
| Delaware | 8731 | 26-2593535 | ||
(State or
incorporation or |
(Primary Standard Industrial Classification Code Number) |
( Identification |
3189 Airway Avenue, Building C, Costa Mesa, CA 92626
(714) 427-6363
3189 Airway Avenue, Building C, Costa Mesa, CA 92626
(714) 427-6363
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies
Mark E. Lehman, Esq.
Parsons Behle
201 South Main Street,Jernigan, L.L.P.
Approximate date of commencement of proposed sale to the public: As soon as practicable From time to time after thethis registration statement becomes effective and from time to time thereafter.
effective.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | |||
Title of Each Class Of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Unit | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | ||||
Common Stock $0.0001 par value(1) | 5,167,066 Shares(1) | $0.49 | $2,531,863 | $100 | ||||
Common Stock $0.0001 par value(2) | 77,312,489 Shares(2) | $0.49 | $37,883,120 | $1,489 | ||||
Common Stock $0.0001 par value | 53,885,845 Shares(3) | $0.49 | $26,404,065 | $1,038 | ||||
Total | 136,365,400 Shares | $66,819,048 | $2,627 | |||||
Title of Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering Price(1)(2) | Amount of Registration Fee | ||||||
| Units consisting of: | $ | 15,000,000 | $ | 2,046.00 | ||||
| (i) Series C Convertible Preferred Stock, $0.0001 par value per share | — | — | ||||||
| (ii) Warrants to purchase common stock | — | (3) | — | |||||
| Common Stock issuable upon conversion of the Series C Convertible Preferred Stock and exercise of warrants(3) | — | (4) | — | |||||
| (1) |
| (2) | |
| (3) | No additional consideration is payable pursuant to Rule |
| (4) | No additional consideration is payable pursuant to Rule |
Completion, Dated March 22, 2013
OXYGEN BIOTHERAPEUTICS, INC.●
COMMON STOCK] Shares of Series C Convertible Preferred Stock
This prospectus relates
5,167,066and (2) a warrant exercisable for [●] shares of common stock that are issued and outstanding;
Upat an exercise price of $[—] per share. This prospectus also covers up to 77,312,489[●] shares of common stock issuable upon conversion of convertible notes in the aggregate principal amount of $19,096,174, which are convertible at the rate of $0.247 of principal per share;
UpSeries C Convertible Preferred Stock and up to 50,885,845 shares issuable upon the exercise of common stock purchase warrants that have an exercise price of $0.247 per share and expiration dates that range from February 28, 2013 to March 26, 2013; and
Up to 3,000,000 shares issuable upon the exercise of a common stock purchase warrant that has an exercise price of $0.245 per share and expires October 26, 2011.
The selling security holders may sell common stock from time to time at the prevailing market price or in negotiated transactions. The selling security holders may be deemed underwriters of the[●] shares of common stock that they are offering. We will pay the expenses of registering these shares.
Oxygen Biotherapeutics will benefit from a conversionissuable upon exercise of the convertible noteswarrants.
Quotations forof our common stock at a conversion price of $[●] per share. Subject to certain ownership limitations, the warrants are reportedexercisable beginning [●] and expire on the OTC Bulletin Board[●] anniversary of the date of issuance.
| Per Unit | Total | |||||||
| Public offering price | $ | [●] | $ | [●] | ||||
| Placement Agent fees(1) | $ | [●] | $ | [●] | ||||
| Proceeds, before expenses, to us | $ | [●] | $ | [●] | ||||
| (1) | In addition, we have agreed to reimburse the expenses of the Placement Agent as described in the Plan of Distribution herein. |
].
The date of this prospectus is , 2008
[●]
Prospectus Summary | for a discussion of the risks involved in investing in our securities. Oxygen Biotherapeutics, Inc. Company Overview We are engaged in the business of developing biotechnology products with a focus on oxygen delivery to Oxycyte Our Oxycyte oxygen carrier product is a PFC-based oil in water emulsion, which is provided to the patient intravenously. The physical-chemical properties of PFCs enable our product to concentrate oxygen from the lungs and transport it through the body releasing it along the way. Over a period of days Oxycyte is gradually exhaled through the lungs during the normal process of respiration. Oxycyte requires no cross matching, so it is immediately available and compatible with all patients’ blood types. Oxycyte has an extended shelf life compared to blood and is provided as a sterile emulsion ready for intravenous administration. Because it contains no biological components, there is reduced risk of transmission of blood-borne viruses from human blood products. Further, since Oxycyte is based on readily available inert compounds, we believe it can be manufactured on a cost-effective basis in amounts sufficient to meet demand. We Despite the FDA’s postponement of Oxycyte trials in the United States, we are authorized to continue our TBI clinical studies abroad. After receiving the FDA clinical hold, we filed a revised protocol as a dose-escalation study with the regulatory authorities in Switzerland and Israel. The relevant Swiss regulatory body approved the protocol in August 2009, and the Israel Ministry of Health approved the protocol in September 2009. The new study began in October 2009. In March 2010, we determined that it is feasible to simplify the trial design and also reduce the number of patients to be enrolled. In May 2010, we entered into a relationship with a contract research organization, or CRO, to assist us with plans to expand our study, possibly into India, and to initiate five to 10 new sites for our Phase IIb clinical trial. At that time, we believed study objectives as well as safety and efficacy endpoints would remain unchanged, and we believed the study could be concluded faster and more economically with these optimizations. The first of three cohorts has been completed and we were authorized by the Swiss and Israeli regulatory authorities to initiate the second cohort. Despite their authorization, we stopped enrollment in order to reevaluate the protocol’s patient enrollment parameters, secure our cGMP supply of Oxycyte, review our contractor and clinical sites, and examine the possibility of opening clinical sites in other countries. At this time, we have secured our cGMP supply of Oxycyte. We are in the process of reviewing our CRO agreement and existing clinical sites. Our objective is to resume enrollment in the second cohort during the third quarter of fiscal year 2013. Upon completion of the Phase II trials, a Phase III trial will need to be implemented. In that instance, we would seek a partner to either conduct the Phase III trials, or collaborate with us to conduct the trials. |
Should Oxycyte successfully progress in clinical testing and if it appears regulatory approval for one or more medical uses is likely, either in the United States or in another country, we intend to evaluate our options for commercializing the product. These options include licensing Oxycyte to a third party for manufacture and distribution, manufacturing Oxycyte ourselves for distribution through third party distributors, manufacturing and selling the product ourselves, or establishing some other form of strategic relationship for making and distributing Oxycyte with a participant in the pharmaceutical industry. We are currently investigating and evaluating all options. Dermacyte The Dermacyte line of topical cosmetic products contains our patented PFC technology and other known cosmetic ingredients to promote the appearance of skin health and other desirable cosmetic benefits. Dermacyte is designed to provide a moist and oxygen-rich environment for the skin when it is applied topically, even in small amounts. Dermacyte Concentrate has been formulated as a cosmetic in our lab and Dermacyte Eye Complex was created by a contract formulator, with the patent held by Oxygen Biotherapeutics. Both formulas have passed required safety and toxicity tests in the United States, and we have filed a Cosmetic Product Ingredient Statement, or CPIS with the FDA. The market for oxygen-carrying cosmetics includes anti-aging, anti-wrinkle, skin abrasions and minor skin defects. In September 2009, we started production of our first commercial product under our topical cosmetic line, Dermacyte Concentrate. We produced and sold a limited pre-production batch in November 2009 as a market acceptance test. The product was sold in packs of 8 doses of 0.4ml. Based on the test market results we identified specific market opportunities for this product and reformulated Dermacyte Concentrate for better product stability. Marketing and shipments of the new Dermacyte Concentrate formulation began in April 2010. We worked with a contract formulator in California to develop the Dermacyte Eye Complex which contains PFC technology as well as other ingredients beneficial to the healthy appearance of the skin around the eyes. Since June 2010 we have marketed and sold these products through www.DermacyteUS.com (previously www.buydermacyte.com) and to dermatologists, plastic surgeons and medical spas with a combination of in-house sales, independent sales agents and exclusive distributors. We had hired a sales director based in North Carolina, and had added sales people in South Florida and California. From October 2011 through February 2012, we evaluated that sales strategy. The outcome was that we adjusted our growth strategy to focus exclusively on the North Carolina and South Florida markets while we focused on developing new, improved packaging for the existing commercial products, as well as reformulating the products, and expanding the line to include more skin care products. On February 5, 2013, we entered into a License and Supply Agreement (the “Dermacyte Agreement”) with the Cosmetics Division of Valor SA, or Valor, with respect to Dermacyte. The Dermacyte Agreement grants Valor the exclusive right to sell, import, export, distribute, package, label and otherwise commercialize Dermacyte worldwide for a five year term. Valor is also authorized to sublicense the license granted under the Dermacyte Agreement provided that such sublicenses are consistent with the terms of the Dermacyte Agreement. The Dermacyte Agreement will become effective upon our receipt from Valor of 75% of the estimated costs to complete certain product formulation and safety studies requested by Valor. Under the Dermacyte Agreement, Valor will purchase bulk Dermacyte from us for 125% of our actual manufacturing cost, and must pay us an annual, non-refundable license fee of $140,000, payable on a quarterly basis, with the first year’s payment creditable against Dermacyte purchased by Valor in the first 12 months following the effective date of the Dermacyte Agreement. Valor must also pay us royalties of 5% of net sales of Dermacyte once Valor’s aggregate net sales of Dermacyte equals or exceeds $10,000,000. Dermatology We intend to develop additional clinical research protocols and conduct proof-of-concept studies for topical indications, such as the treatment of acne, rosacea, pruritis, psoriasis, and dermatitis. In January 2012 we initiated our first proof-of-concept study in India to assess the potential of our topical gel to reduce the itch (pruritis) associated with histamine-mediated allergic skin reactions. In May 2012, we revealed results of this study which showed that our topical gel elicited a larger reduction in Visual Analogue Scale scores following a standard histamine skin prick compared to placebo. The sample size of this study prevented a demonstration of statistical significance so further research is necessary to evaluate its effectiveness. We believe that we will need the support of partners in this sector to commercialize these dermatologic product candidates. We can provide no assurance that the topical indications we have under development will prove their claims and be successful commercial products. |
Wundecyte Wundecyte is a novel gel developed under a contract agreement with a lab in Virginia that is designed to be used as a wound-healing gel. In July 2009, we filed a 510K medical device application for Wundecyte with the FDA. Several oxygen-producing and oxygen-carrying devices were cited as predicate devices. The FDA response was that the application likely would be classified as a combination device. The drug component of the combination device will require extensive preclinical and clinical studies to be conducted prior to potential commercialization of the product. We have also developed a prototype for an oxygen-generating bandage that can be combined with Wundecyte gel. Wundecyte gel and the oxygen-generating bandage both entered preclinical testing in our Recent Developments As of March 13, 2013, we have cash and cash equivalents of $1.7 million. We believe that While our common stock is currently listed on the NASDAQ Capital Market, or NASDAQ, we are not currently in compliance with NASDAQ’s continued listing standards, and NASDAQ notified us by letter dated March 20, 2013 of the Staff’s decision to delist our securities from NASDAQ. The letter provides that, unless we request an time periods established by NASDAQ, or at all. See “Risk Factors” beginning on page 8 for additional information. Corporate Information Our principal executive offices are located at number is (919) 855-2100. Our Internet address is http://www.oxybiomed.com. The information on our website is not incorporated by reference into this prospectus, and you should not consider it part of this prospectus. Oxygen Biotherapeutics was originally formed as a New Jersey corporation in 1967 under the name Rudmer, David & Associates, Inc., and subsequently changed its name to Synthetic Blood International, Inc. Effective June 30, 2008, we changed the |
| Securities being offered by us | [●] units, with each unit consisting of (1) one share of Series C Convertible Preferred Stock and (2) a warrant exercisable for [—] shares of our common stock. Units will not be issued or certificated. The shares of Series C Convertible Preferred Stock and the warrants are immediately separable and will be issued separately. | ||
| Offering Price | $1,000 per unit | ||
| Description of Series C Convertible Preferred Stock | Each unit includes one share of Series C Convertible Preferred Stock. Series C Convertible Preferred Stock has a liquidation preference and is redeemable at the option of the Company. See “Description of Capital Stock – Series C Convertible Preferred Stock” beginning on page 16. | ||
| Conversion Price of Series C Convertible Preferred Stock | $[●] | ||
| Shares of common stock underlying the shares of Series C Convertible Preferred Stock included in units | Based on an assumed conversion price of $[●], which was the last reported sale price for our common stock on [●], [●], shares. | ||
| Conversion Rights | Subject to certain ownership limitations, the Series C Convertible Preferred Stock is convertible at any time at the option of the holder into shares of our common stock at a conversion ratio determined by dividing the stated value of the Series C Convertible Preferred Stock (or $1,000) by a conversion price of $[—] per share. The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. | ||
| Limitation on Conversion | Until such time that for at least 20 trading days during any 30 consecutive trading days, the volume weighted average price of our common stock exceed [●] of the initial conversion price and the average daily dollar trading volume during such period exceeds $150,000 per trading day, if we sell or grant any option to purchase or sell any common stock or common stock equivalents entitling any person to acquire shares of common stock at an effective price per share that is lower than the then conversion price (the “Base Conversion Price”), then the conversion price shall be reduced to equal the Base Conversion Price. Subject to limited exceptions, a holder of shares of Series C Convertible Preferred Stock will not have the right to convert any portion of its Series C Convertible Preferred Stock if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to its conversion. | ||
| Covenants | As long as any shares of Series C Convertible Preferred Stock are outstanding, we may not, without the affirmative vote of the holders of 50.1% or more of the then outstanding shares of the Series C Convertible Preferred Stock, (1) alter or change adversely the powers, preferences or rights given to the Series C Convertible Preferred Stock or alter or amend the certificate of designation, (2) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon liquidation senior to, or otherwise pari passu with, the Series C Convertible Preferred Stock, (3) amend our certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series C Convertible Preferred Stock, (4) increase the number of authorized shares of Series C Convertible Preferred Stock, or (5) enter into any agreement with respect to any of the foregoing. |
| Redemption of Series C Convertible Preferred Stock | We will have the right to redeem the Series C Convertible Preferred Stock for a cash payment equal to 120% of the stated value of the Series C Convertible Preferred Stock. Holders of Series C Convertible Preferred Stock will receive 20 trading days prior notice of any redemption and will have the ability to convert the Series C Convertible Preferred Stock into common stock during this notice period. | ||
| Liquidation Preference | Upon any liquidation, dissolution or winding up of the Company after payment or provision for payment of debts and other liabilities of the Company, but before any distribution or payment is made to the holders of any junior securities, the holders of Series C Convertible Preferred Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount equal to $1,000 per share, after which any remaining assets of the Company shall be distributed among the holders of the other class or series of stock in accordance with the Company’s Certificate of Incorporation. | ||
| Description of warrants | Each unit includes a warrant to purchase [●] shares of common stock. Warrants will entitle the holder to purchase shares of common stock for an exercise price equal to $[●] per share. The warrants will be exercisable beginning [●] and expire on the [●] anniversary of the date of issuance. See “Description of Securities We Are Offering – Warrants” beginning on page 18. | ||
| Anti-dilution adjustments | The exercise price and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our common stock, and also upon any distributions of assets, including cash, stock or other property to our stockholders. | ||
| Fundamental Transactions | In the event we consummate a merger or consolidation with or into another person or other reorganization event in which our common shares are converted or exchange for securities, cash or other property, or we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding common shares, then following such event, the holders of the warrants will be entitled to receive upon exercise of the warrants the same kind and amount of securities, cash or property which the holders would have received had they exercised the warrants immediately prior to such fundamental transaction. | ||
| Shares of common stock outstanding before this offering | 38,305,765 shares | ||
| Common stock to be outstanding after this offering, including shares of common stock underlying shares of Series C Convertible Preferred Stock included in units | [●] shares | ||
| Use of proceeds | Assuming all units are sold, we estimate that the net proceeds to us from this offering will be approximately $[—] million. We intend to use the net proceeds received from the sale of the securities for furthering our clinical trials and efforts to obtain regulatory approval for Oxycyte, developing our other product candidates, supporting manufacturing Oxycyte, distribution for Dermacyte, research and development and general corporate purposes. See “Use of Proceeds.” | ||
| Limitations on beneficial ownership | Notwithstanding anything herein to the contrary, the Company will not permit the conversion of the Series C Convertible Preferred Stock or exercise of the warrants of any holder, if after such conversion or exercise such holder would beneficially own more than 4.99% of the shares of common stock then outstanding. | ||
| Risk factors | Investing in our securities involves a high degree of risk. See the “Risk Factors” section of this prospectus on page 8 and in the documents we incorporate by reference in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our |
| ● | 15,188,200 shares of common stock issuable upon the |
| 4,160,000 shares of common stock issuable upon the exercise of outstanding Series B-1 and Series B-2 preferred stock with a weighted average exercise price of $0.25 per share; | |
| 225,713 shares of |
| Consolidated Statement of Operations Data | ||||||||
Interim Periods (unaudited): | ||||||||
| Three Months Ended | ||||||||
| July 31, 2008 | July 31, 2007 | |||||||
Net loss | $ | (4,248,215 | ) | $ | (1,027,227 | ) | ||
Net loss per share | ||||||||
Basic | $ | (0.028 | ) | $ | (0.007 | ) | ||
Diluted | $ | (0.075 | ) | $ | (0.007 | ) | ||
Annual Periods and From Inception: Net loss Net loss per share Basic Diluted Year ended April 30, Inception
(5/26/67) to
April 30, 2008 2008 2007 $ (6,721,168 ) $ (3,330,870 ) $ (37,741,362 ) $ (0.05 ) $ (0.02 ) $ (0.08 ) $ (0.02 )
| Consolidated Balance Sheet Data: | ||||||
| July 31, 2008 | April 30, 2008 | |||||
| (unaudited) | ||||||
Total assets | $ | 11,873,339 | $ | 10,556,713 | ||
Current liabilities | $ | 577,924 | $ | 264,991 | ||
Long-term portion of convertible notes, net of debt discount of $18,815,711 | $ | 1,101,005 | $ | 539,786 | ||
Cash dividends per common share | $ | 0 | $ | 0 | ||
| outstanding restricted stock grants; | ||||
| 5,564,822 shares | ||||
| ● | 2,172,950 shares of common stock issuable upon the conversion of | |||
| ● | [●] shares of common stock issuable upon exercise of | |||
This
This prospectus contains forward-looking statements, many assuming that Oxygen Biotherapeutics secures adequate financing and is able to continue as a going concern, including statements regarding,require, among other things, (a) Oxygen Biotherapeutics’ plansthat for clinical trials30 consecutive trading days (i) the closing minimum bid price for our listed securities not be lower than $1.00 per share and (ii) our market capitalization not be lower than $35 million. The closing bid price for our shares has been less than $1.00 per share since August 21, 2012 and our market capitalization has been less than $35 million since August 8, 2012.
as well as in this prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks discussed under the section entitled “Risk Factors” and matters described in this prospectus generally. In light of these risks and uncertainties,filed. However, there can be no assurance that the forward-looking statements contained in this prospectusPanel will in fact occur.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on Oxygen Biotherapeutics’ forward-looking statements.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with respect to the common stock covered by this prospectus with the SEC in accordance with the Securities Act of 1933, and the rules and regulations enacted under its authority. This prospectus, which constitutes a part of the registration statement, does not contain all of the information included in the registration statement and its exhibits and schedules. Statements contained in this prospectus regarding the contents of any document referred to in this prospectus are not necessarily complete, and in each instance, we refer you to the full text of the document, which is filed as an exhibit to the registration statement. Each statement concerning a document that is filed as an exhibit should be read along with the entire document. For further information regarding us and the common stock offered in this prospectus, we refer you to the registration statement and its exhibits and schedules, which may be inspected without charge at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at (800) 732-0330grant our request for further information on the Public Reference Room.
We currently file periodic reports pursuant to the Securities Exchange Act of 1934. All of our annual, quarterly, and other reports, are filed electronically with the SEC. The SEC maintains a web site at (http://www.sec.gov) that contains reports and other information regarding registrants that file electronically with the SEC. Copies of the reports, proxy statements, and other information may be read and copied at the SEC’s Public Reference Room.
The following is a discussion of risks we believe to be significant with respect to our business, operations, financial condition, and other matters pertaining to an investment in our common stock. It is not possible to anticipatecontinued listing or predict every risk that may, in the future, prove to have a significant affect on Oxygen Biotherapeutics. Additional risks, including those that are currently not known to us or that we currently deem immaterial, may also impair our prospects and business operations.
Risks related to our business
We will need to generate income, or raise additional capital to continue our business.
We will need to raise substantial amounts of additional capital to complete the clinical testing of Oxycyte and, if approved for commercial use, establish commercial production of Oxycyte. In addition, we will require funding to pursue development of our wound treatment applications and Fluorovent, and to cover our ongoing administrative and corporate obligations. Our future capital requirements will depend on many factors, including the scope and results of our clinical trials, the timing and outcome of regulatory reviews, administrative and legal expenses, the status of competitive products, the establishment of manufacturing capacity, and the establishment of collaborative relationships. We cannot ensure that this additional funding will be available or, if it is available, that it can be obtained on terms and conditions we find acceptable.
As a result of the foregoing circumstances our independent registered public accounting firm has, and is likely in the future to, include an explanatory paragraph in their audit opinions based on uncertainty regarding our ability to continue as a going concern. An audit opinion of this type may interfere with our ability to obtain debt or equity financing. Any additional funding derived from the sale of equity securities may result in significant dilution to our existing stockholders.
We are limited in the number of products we can pursue so our future depends on our success with a small number of product opportunities.
We have limited financial resources, so at present we are using these resources on developing our Oxycyte oxygen carrier product and to begin the process of developing our potential wound treatment applications. We have halted development on Fluorovent, our oxygen carrying liquid, until we find a license partner willing to pursue development or obtain additional financing to pursue development ourselves. We licensed our implantable glucose sensor to a third party for further development, so how that product may progress is, to a large extent, outside of our control. At present we intend to commit most of our resources to advancing Oxycyte to the point it receives regulatory approval for one or more medical uses, and if this effort is unsuccessful we may not have resources to pursue development of our other products and our business would terminate. Furthermore, by delaying development of Fluorovent, this technology may become obsolete by the time we have sufficient capital to resume development and testing, so the funds expended on this product to date would be lost, as well as our opportunity to benefit if the product could be successfully developed.
We are required to conduct additional clinical trials in the future, which are expensive and time consuming, and the outcome of the trials is uncertain.
We completed Phase I clinical trials on Oxycyte in December 2003, and completed Phase II-A clinical testing in the fourth quarter of 2004 with filings completed in the second quarter of 2008. If we are successful with our Phase II-B trials (of which there is no assurance) we will need to conduct Phase III trials. All of these clinical trials and testing will be expensive and time-consuming and the timing of the FDA review process is uncertain. Our lack of capital over the past two years has prevented us from advancing our clinical testing the way we would have preferred resulting in delays in advancing the testing of Oxycyte. The FDA or we may in the future suspend clinical trials at any time if it is believed that the subjects participating in such trials are being exposed to unacceptable health risks. We cannot ensure that we will be able to complete our clinical trials successfullyregain compliance with NASDAQ listing standards within the time periods established by NASDAQ, or obtain FDA approval of Oxycyte, or that FDA approval, if obtained, will not include limitations on the indicated uses for which Oxycyte may be marketed. Our business, financial condition and results of operations are critically dependent on obtaining capital to advance our testing program and receiving FDA approval of Oxycyte. A significant delay in our planned clinical trials or a failure to achieve FDA approvalat all. Delisting from NASDAQ would have a material adverse effect onnegatively impact us and could result in major setbacks, up to the cessation of our business.
Our activities are and will continue to be subject to extensive government regulation, which is expensive and time consuming, and we won’t be able to sell our product without regulatory approval.
Our research, development, testing, manufacturing, marketing and distribution of products are, and will continue to be, subject to extensive regulation, monitoring and approvalstockholders by, the FDA. There are significant risks at each stage of the regulatory scheme.
Product approval stage
During the product approval stage we attempt to prove the safety and efficacy of our product for its indicated uses. There are numerous problems that could arise during this stage, including:
The data obtained from laboratory testing and clinical trials are susceptible to varying interpretations, which could delay, limit or prevent FDA regulatory approval.
The lack of established criteria for evaluating the effectiveness of blood substitute products could delay or prevent FDA regulatory approval.
At any time the FDA could change policies and regulations that could result in delay and perhaps rejection of our products.
Even after extensive testing and clinical trials, there is no assurance regulatory approval will ever be obtained for any of our products.
Commercialization approval stage
We will be required to file a Biologics License Application, or BLA, with the FDA in order to obtain regulatory approval for the commercial production and sale of Oxycyte in the United States. Under FDA guidelines, the FDA may comment upon the acceptability of a BLA following its submission. After a BLA is submitted there is an initial review by the FDA to be sure that all of the required elements are included in the submission. There can be no assurance that the submission will be accepted for filing or that the FDA may not issue a refusal to file, or RTF. If an RTF is issued, there is opportunity for dialogue between the sponsor and the FDA in an effort to resolve all concerns. There can be no assurance that such a dialogue will be successful in leading to the filing of the BLA. If the submission is filed, there can be no assurance that the full review will result in product approval.
Post-commercialization stage
Discovery of previously unknown problems with Oxycyte or another product, or unanticipated problems with our manufacturing arrangements, even after FDA approval of Oxycyte or another product for commercial sale, may result in the imposition of significant restrictions, including withdrawal of the product from the market.
Additional laws and regulations may also be enacted that could prevent or delay regulatory approval of Oxycyte or our other products, including laws or regulations relating to the price or cost-effectiveness of medical products. Any delay or failure to achieve regulatory approval of commercial sales of our products is likely to have a material adverse effect on our financial condition.
The FDA continues to review products even after they receive agency approval. If and when the FDA approves one of our products, its manufacture and marketing will be subject to ongoing regulation, including compliance with current good manufacturing practices, adverse event reporting requirements and the FDA’s general prohibitions against promoting products for unapproved or “off-label” uses. We are also subject to inspection and market surveillance by the FDA for compliance with these and other requirements. Any enforcement action resulting from failure, even by inadvertence, to comply with these requirements could affect the manufacture and marketing of Oxycyte. In addition, the FDA could withdraw a previously approved product from the market upon receipt of newly discovered information. The FDA could also require us to conduct additional, and potentially expensive, studies in areas outside our approved indicated uses.
We are a development stage company without revenues or profits, which raises doubt about our ability to continue as a going concern.
Oxygen Biotherapeutics began research and development activities in 1990 and is a development stage company. We have been engaged for the past 18 years in the development and testing of Oxycyte, Fluorovent, and our glucose biosensor. No revenues have been generated to date from commercial sales of any of our products. Our revenues to date have consisted solely of interest earned on funds held until applied in the development of our products. At July 31, 2008 our accumulated deficit during the development stage is $41,989,577. We will require substantial amounts of outside financing to fund future testing and development of our products. We cannot ensure that our clinical testing will be successful, that regulatory approval of Oxycyte or any of our other products will be obtained, that Oxycyte or any of our other products can be manufactured at an acceptable cost and in appropriate quantities, or that there will be a viable market for any of our products. The foregoing factors raise substantial doubt about our ability to continue as a going concern.
Presently we are focusing on developing Oxycyte, which is subject to a high level of technological risk.
We completed Phase I clinical trials on Oxycyte in December 2003, and we expect we will devote a substantial portion of our financial and managerial resources to pursuing Phase II and Phase III clinical trials on this product over the next three years. As our other products are not as far along in the development and approval process as Oxycyte, our opportunity to generate product revenues within the next four to five years is most likely dependent on successful testing and commercialization of Oxycyte for surgical and similar oxygen delivery applications. The biomedical field has undergone rapid and significant technological changes. Technological developments may result in Oxycyte becoming obsolete or non-competitive before we are able to recover any portion of the research and development and other expenses we have incurred to develop and clinically test Oxycyte. Any such occurrence would have a material adverse effect on our operations and could result in the cessation of our business.
We are not certain that we will be able to manufacture Oxycyte commercially.
Commercial-scale manufacturing of Oxycyte will require development of a manufacturing capability that is significantly larger than the capacity currently in place to produce Oxycyte for our clinical trials. We do not intend to build our own production facility, but instead will rely on third party manufacturers to produce our product. We are currently in the process of establishing an arrangement for commercial production of Oxycyte with a manufacturer in North Carolina, but there can be no assurance that we will be able to establish such an arrangement on terms acceptable to us. Moreover, in order to seek FDA approval of the sale of Oxycyte produced at a third party manufacturing facility, we may be required to conduct a portion of our clinical trials with product manufactured at that facility. Accordingly, a delay in achieving scale-up of commercial manufacturing capabilities when needed will have a material adverse effect on sales of Oxycyte. Additionally, the manufacture of Oxycyte will be subject to extensive government regulation. Among the conditions for marketing approval is that our quality control and manufacturing procedures conform to the FDA’s good manufacturing practice regulations. We cannot ensure that we will be able to obtain the necessary regulatory clearances or approvals to manufacture Oxycyte on a timely basis or at all.
There are significant competitors developing similar products.
If approved for commercial sale, Oxycyte will compete directly with established therapies for oxygen delivery, and acute blood loss and may compete with other technologies currently under development. We cannot ensure that Oxycyte will have advantages, which will be significant enough to cause medical professionals to adopt it rather than continue to use established therapies or to adopt other new technologies or products. We also cannot ensure that the cost of Oxycyte will be competitive with the cost of established therapies or other new technologies or products. The development of blood substitute products is a rapidly evolving field. As there is currently no oxygen delivery product of our kind on the market, competition to develop an efficacious and accepted product is intense. Several companies have developed or are in the process of developing technologies that are, or in the future may be, the basis for products that will compete with Oxycyte. Certain of these companies are pursuing different approaches or means of accomplishing the therapeutic effects sought to be achieved through the use of Oxycyte.
These companies and others have substantially greater financial resources, larger research and development staffs, more extensive facilities and more experience than Oxygen Biotherapeutics in testing, manufacturing, marketing and distributing medical products. We cannot ensure that one or more other companies will not succeed in developing technologies or products that will become available for commercial use prior to Oxycyte, which could be more effective or less costly than Oxycyte or would render Oxycyte obsolete or non-competitive.
We do not have experience in the sale and marketing of medical products.
We have no experience in the sale or marketing of medical products. We have not decided upon a marketing strategy. We do not know of any third party that is prepared to distribute Oxycyte should it be approved. If we decide to establish our own marketing capability, we will need to recruit, train and retain a marketing staff and sales force with sufficient technical expertise. We do not know whether we can establish a marketing program at a cost that is acceptable in relation to revenue or whether we can be successful in marketing our product. Failure to successfully market Oxycyte or to do so on a cost effective basis would likely result in failure of our business.
We have a history of losses and our future operating results are uncertain.
During fiscal year ended April 30, 2008, we incurred a net loss of $6.7 million, and we incurred a net loss of $3.3 million in fiscal year 2007. Our net loss for the three-month period ended July 31, 2008, was $4.2 million. We will not generate operating revenue unless and until one of our products is approved for commercial sale and sales activity begins. We will require substantial additional funds to complete clinical trials, pursue regulatory approval for our products, establish commercial scale manufacturing capabilities, and establish marketing, sales, and administrative capabilities. Expenditures for these purposes will result in substantial losses for at least the next several years. The expense and the time required to realize any product revenues or profitability are highly uncertain. We cannot ensure that we will be able to achieve product revenues or profitability on a sustained basis, or at all, and we may be unable to ever establish Oxygen Biotherapeutics as a going concern.
The market may not accept our product.
Human blood collection, distribution, and medical application are well established and accepted. Competitors may develop new technologies or products, which are effective, competitively priced, and accepted for various medical uses. We cannot ensure that the efficacy and pricing of Oxycyte, considered in relation to Oxycyte’s expected benefits, will be perceived by health care providers and third party payers as cost-effective, or that the price of Oxycyte will be competitive with transfused blood or with other new technologies or products. Our results of operations may be adversely affected if the price of Oxycyte is not considered cost-effective or if Oxycyte does not otherwise achieve market acceptance.
Our patents and other proprietary rights may not protect our technology.
Our ability to compete effectively with other companies will depend, in part, on our ability to protect and maintain the proprietary nature of our technology. We cannot be certain as to the degree of protection offered by our patents or as to the likelihood that additional patents in the United States and certain other countries will be issued based upon pending patent applications. Patent applications in the United States are maintained in secrecy until patents are issued. We cannot be certain that we were the first creator of the inventions covered by our patents or pending patent applications or that we were the first to file patent applications for our inventions. The high costs of enforcing patent and other proprietary rights may also limit the degree of protection afforded to us. We also rely on unpatented proprietary technology, and we cannot ensure that others may not independently develop the same or similar technology or otherwise obtain access to our proprietary technology. We cannot ensure that our patents or other proprietary rights will be determined to be valid or enforceable if challenged in court or administrative proceedings or that we will not become involved in disputes with respect to the patents or proprietary rights of third parties. An adverse outcome from these proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to stop using this technology, any of which would result in a material adverse effect on our results of operations.
Our viability will be affected if we incur product liability claims in excess of our insurance coverage.
The testing and marketing of medical products, even after FDA approval, have an inherent risk of product liability. We maintain limited product liability insurance coverage for our clinical trials in the total amount of $3 million. However, our profitability will be adversely affected by a successful product liability claim in excess of our insurance coverage. We cannot guarantee that product liability insurance will be available in the future or be available on reasonable terms.
We depend on the services of a limited number of key personnel.
Our success is highly dependent on the continued services of a limited number of scientists and support personnel. The loss of any of these individuals could have a material adverse effect on us. In addition, our success will depend, among other factors, onthings, reducing the recruitmentliquidity and retention of additional highly skilled and experienced management and technical personnel. We cannot ensure that we will be able to retain existing employees or to attract and retain additional skilled personnel on acceptable terms given the competition for such personnel among numerous large and well-funded pharmaceutical and health care companies, universities, and non-profit research institutions.
Health care reform and controls on health care spending may limit the price we can charge for Oxycyte and the amount we can sell.
The federal government and private insurers have considered ways to change, and have changed, the manner in which health care services are provided in the United States. Potential approaches and changes in recent years include controls on health care spending and the creation of large purchasing groups. In the future, it is possible that the government may institute price controls and limits on Medicare and Medicaid spending. These controls and limits might affect the payments we collect from sales of our product. Assuming we succeed in bringing Oxycyte to market, uncertainties regarding future health care reform and private market practices could affect our ability to sell Oxycyte in large quantities at profitable pricing.
Uncertainty of third-party reimbursement could affect our future profitability.
Sales of medical products largely depend on the reimbursement of patients’ medical expenses by governmental health care programs and private health insurers. There is no guarantee that governmental health care programs or private health insurers will reimburse our sales of Oxycyte, or permit us to sell our product at high enough prices to generate a profit.
Risks related to our common shares
Our stock price could be volatile and your investment could suffer a decline in value.
The market price of our common stock has fluctuated significantlyand adversely affecting our ability to raise additional capital.
Regulatory developments relating to our Oxycyte oxygen carrier product;
Announcementsunits and, as a result, the net proceeds actually received by us relatingmay be considerably less than the estimated net proceeds above.
Developments relating to ourand efforts to obtain additional financing to fund our operations;
Announcements by us regarding transactions with potential strategic partners;
Announcements relating to oxygen carrier, or blood substitute products being developed by our competitors;
Changes in industry trends or conditions;
Our issuance of additional debt or equity securities; and
Sales of significant amounts of our common stock or other securities in the market.
In addition, the stock market in general, and the over-the-counter market and the biotechnology industry market in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of other public companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our company specific results.
There are a large number of shares that may be sold in the future in the public market, which may depress the market price of our common stock.
The authorized capital stock of Oxygen Biotherapeutics consists of an aggregate of 400 million shares of common stock, of which 159,761,386 shares are issued and outstanding as of October 8, 2008 and approximately 211,244,408 million shares are reserved for issuance upon conversion or exercise of issued and outstanding notes, options, and warrants. The substantial number of shares available now and that may become available in the future for sale in the public market could cause the market price of our common stock to decline or have a depressive effect on the market price.
As we complete additional equity financings in the future, the existing shareholders will experience dilution.
As noted above, we will need to raise substantial amounts of additional capital to complete the clinical testing of Oxycyte and, if approved for commercial use, establish commercial production of Oxycyte. We will seek and pursue both equity and debt financing opportunities to fund our working capital requirements in the future. Any additional equity financing that we obtain would have the effect of diluting the ownership interest of existing shareholders.
General
Oxygen Biotherapeutics, Inc. is engaged in the business of developing biotechnology products with a focus on oxygen delivery to tissue. We are currently developing Oxycyte™, a product we believe is a safe and effective alternative to transfused blood for use in surgical and similar medical situations. We are pursuing application of the same perfluorocarbon oxygen carrier technology to development of topical wound healing therapies. We also have under development Fluorovent™, an oxygen exchange fluid for facilitating the treatment of lung conditions. We recently licensed to a third party for development our biosensor implant product that uses an enzyme process for measuring the glucose level in subcutaneous fluid.
We received approval of our Investigational New Drug application for Oxycyte filed with the U.S. Food and Drug Administration (FDA) and began Phase I clinical studies in October 2003, which were completed in December 2003. We submitted a report on the results, which were in line with our expectations, to the FDA along with a Phase II protocol in 2004. Phase II-A clinical studies began in the fourth quarter 2004, and were completed in 2006. A further Phase II study protocol was filed with the FDA in the spring of 2008. Management is hopeful the protocol will be approved and the new study begun in 2008, and if this comes to pass the study would continue into 2009. We expect to commit a substantial portion of our financial and business resources over the next three years to testing Oxycyte and advancing this product to the point it has regulatory approval for use in one or more medical applications. While pursuing Oxycyte, we are increasing our focus on a new application of perfluorocarbon oxygen carrier technology to therapies applied to the skin, rather than infused, for treating wounds and abrasions. To that end we recently licensed certain technology related that application from Virginia Commonwealth University and engaged the services of an independent consultant to pursue research and development of the therapies.
Fluorovent is still at the animal testing stage and we have not filed any applications with the FDA for human testing of this product. Since we will likely devote less of our time and resources to advancing this product because of the priority placed on Oxycyte and topical therapies, we do not expect we will be in a position to file any application for this product with the FDA in the near future. Since our priority for the foreseeable future is Oxycyte and topical wound therapy, the following discussion of our business focuses primarily on those products.
Our biosensor implant is still at the animal testing stage and we have not filed any applications with the FDA for human testing. Since we do not expect to commit significant resources to development of this technology in the foreseeable future, we recently licensed the technology to an unrelated party who is more focused on research and development in the area of glucose testing and related technologies.
Oxygen Biotherapeutics was originally formed as a New Jersey corporation in 1967 under the name Rudmer, David & Associates, Inc., and subsequently changed its name to Synthetic Blood International, Inc. On June 17, 2008, the stockholders of Synthetic Blood International approved the Agreement and Plan of Merger dated April 28, 2008, between Synthetic Blood International and Oxygen Biotherapeutics, Inc., a Delaware corporation. Oxygen Biotherapeutics was formed on April 17, 2008, by Synthetic Blood International to participate in the merger for the purpose of changing the state of domicile of Synthetic Blood International, Inc. from New Jersey to Delaware. Certificates of Merger were filed with the states of New Jersey and Delaware, and the merger was effective June 30, 2008. Under the Plan of Merger, Oxygen Biotherapeutics, Inc. is the surviving corporation and each share of Synthetic Blood International, Inc. common stock outstanding on June 30, 2008, was converted to one share of Oxygen Biotherapeutics, Inc. common stock.
Oxygen to Tissue Delivery Market
The principal function of human blood is to transport oxygen throughout the body. The lack of an adequate supply of oxygen as a result of blood loss can lead to organ dysfunction or death. The transfusion of human blood is presently the only effective means of immediately restoring diminished oxygen-carrying capacity resulting from blood loss. According to the AABB 2005 Nationwide Blood Collection and Utilization Report, over 14 million units of whole blood and red blood cells were transfused in the United States in 2004. This includes transfusions for trauma, surgery (emergency and elective), unexpected blood loss, chronic anemia, and other general medical applications.
The use of donated blood in transfusion therapy, while effective in restoring an adequate supply of oxygen in the body of the recipient, has several limitations. Although testing procedures exist to detect the presence of certain diseases in blood, these procedures cannot eliminate completely the risk of blood-borne disease. Transfused blood also can be used only in recipients having a blood type compatible with that of the donor. Delays in treatment, resulting from the necessity of blood typing prior to transfusion, together with the limited shelf life of blood and the limited availability of certain blood types, impose constraints on the immediate availability of compatible blood for transfusion. There is no commercially available blood substitute in this country that addresses these problems.
Oxycyte is intended as an oxygen carrier and substitute for blood transfusion that ordinarily would be applied in cases of trauma, surgery (emergency and elective), unexpected blood loss and other general medical applications. For trauma and emergency surgical procedures, the immediate availability and universal compatibility of Oxycyte are expected to provide significant advantages over transfused blood, because we believe Oxycyte is capable of transporting higher levels of oxygen than red blood cells are able to transport.
We believe there exist potential sources of demand for which blood is not currently utilized and for which Oxycyte may be suitable. These include applications in which the required blood type is not immediately available or in which transfusions are desirable but not given for fear of a transfusion reaction due to difficulty in identifying compatible blood. For example, we believe emergicenters and surgicenters both experience events where an oxygen-carrying fluid may be useful. We also believe Oxycyte may be used by emergency medical technicians in ambulances, medical helicopters and other pre-hospital settings. In addition, the military has expressed a high level of interest in oxygen-carrying products for the resuscitation of battlefield casualties.
Based on these circumstances, we believe there may be a substantial and meaningful market for an effective oxygen carrier, and we believe Oxycyte is a viable candidate for exploiting that market.
Our primary product—Oxycyte
Our Oxycyte oxygen carrier product is a perfluorocarbon emulsified with water and a surfactant, which is provided to the patient intravenously. The physical properties of perfluorocarbon enable our product to gather oxygen from the lungs and transport the oxygen through the body releasing it along the way. Over a period of days Oxycyte gradually evaporates in the lungs from where it is
exhaled. Oxycyte requires no cross matching, so it is immediately available and compatible with all blood types. Oxycyte has an extended shelf life compared to blood. Since Oxycyte is not based on any biological component, it is sterile and free of potential contamination from a donor. Further, since Oxycyte is based on readily available inert compounds, we believe it can be manufactured on a cost effective basis in amounts sufficient to meet demand.
After receiving clearance from the FDA, we conducted a Phase I clinical study on Oxycyte, which was completed in December 2003. We submitted a report on the results, which were in line with our expectations, to the FDA along with a Phase II protocol in 2004. Phase II-A clinical studies began in the fourth quarter 2004, and were completed in 2006. A further Phase II study protocol was filed with the FDA in the spring of 2008. Management is hopeful the protocol will be approved and the new study begun in 2008, and if this comes to pass the study would continue into 2009.
We use a proprietary process of perfluorocarbon production and emulsification to produce Oxycyte. We use a contract manufacturer to produce Oxycyte for our clinical testing. Our contract manufacturer for trial batches is PrimaPharm, Inc. located in San Diego, California. Based on production testing and inspection, the FDA has determined that PrimaPharm satisfies its good manufacturing practices standards with respect to the production of Oxycyte. Based on the composition and manufacturing process for Oxycyte, management believes there are a number of other manufacturers capable of producing Oxycyte in accordance with FDA regulations and in sufficient quantities for current needs. For larger batches we intend to employ the contract manufacturing services of a major pharmaceutical company in North Carolina.
Should Oxycyte successfully progress through Phase II and III testing and it appears regulatory approval for one or more medical uses is likely, we will evaluate our options for realizing revenue on the product. These options include licensing Oxycyte to a third party for manufacture and distribution, manufacturing Oxycyte ourselves for distribution through third party distributors, manufacturing and selling the product ourselves, or establishing some other form of strategic relationship for making and distributing Oxycyte with a participant in the pharmaceutical industry. We are currently investigating and evaluating all options.
If approved for one or more medical uses, Oxycyte will compete directly with established therapies for acute blood loss and replacement and may compete with other technologies currently under development. We cannot ensure that Oxycyte will have advantages, which will be significant enough to cause medical professionals to adopt it rather than continue to use established therapies or other new technologies or products. We also cannot ensure that the price of Oxycyte, in light of Oxycyte’s potential advantages, will be competitive with the price of established therapies or other new technologies or products.
Several companies have developed or are in the process of developing technologies that are, or in the future may be, the basis for products that will compete with Oxycyte. We are aware of five other products at various stages of development that are intended to achieve the same result as Oxycyte. Three of these products are based on hemoglobin derivates, two from outdated human blood and the third from bovine blood. One product is also based on perfluorocarbon and the other on nanobubble oxygen technology. None of these products is approved for use in the United States. The bovine-source hemoglobin-based oxygen-carrier has been approved for human use in South Africa and a Biologics License Application, or BLA, was submitted to the FDA for its use in the United States, and it was not approved and no clinical trials in the United States are currently underway. All hemoglobin based products were targets of a very critical meta-analysis in the JAMA, the Journal of the American Medical Association, (May 21, 2008, p. 2304ff,www.jama.com) which concluded that “based on the available data, use of HBBSs (Hemoglobin-based blood substitutes) is associated with a significantly increased risk of death or MI (myocardial infarction)”. Phase III clinical trials on the other perfluorocarbon product in the U.S. were halted in 2001 and have not resumed. That product has now been licensed for development with a drug manufacturer in China.
We believe that important competitive factors in the market for oxygen carrier products will include the relative speed with which competitors can develop their respective products, complete the clinical testing and regulatory approval process, and supply commercial quantities of their products to the market. In addition to these factors, competition is expected to be based on the effectiveness of oxygen carrier products and the scope of the intended uses for which they are approved, the scope and enforceability of patent or other proprietary rights, product price, product supply, and marketing and sales capability. We believe that our competitive position will be significantly influenced by the timing of the clinical testing and regulatory filings for Oxycyte, our ability
to maintain and enforce our proprietary rights covering Oxycyte and its manufacturing process, and our ability to develop capabilities for manufacturing and distributing the product ourselves or with others, should we obtain regulatory approval.
Our other products
Wound Treatment Applications
In May 2008, we entered into a license agreement with Virginia Commonwealth University whereby we acquired a worldwide, exclusive license to three of the University’s patent applications that relate to methods for non-pulmonary delivery of oxygen to tissue and the products based on those patent applications. We obtained the license to use the technology in conjunction with our Oxycyte technology to develop over-the-counter and clinical treatment applications that are used externally to treat wounds, abrasions and burns.
According to the National Institute of General Medical Sciences, more than 36 million topical wounds are treated every year. The wound care product market is projected to reach $12.5 billion by 2012. It is clear there is a substantial market for products that are efficacious in treating these injuries, and we believe the new applications we are now pursuing show promise for meeting the product needs of that market. Our objective is to develop products that are an improvement over existing technology by producing a better healing result, shortening the healing process, and/or mitigating complications.
Our license with Virginia Commonwealth University if for a term equal to the life of the patents covered by the patent applications, except that we can terminate the agreement at any time on not less than 90 days advance notice. It includes the right to sub-license to third parties. We have an obligation to diligently pursue product development and pursue, at our expense, prosecution of the patent applications covered by the agreement. We paid an initial fee of $50,000 in cash and paid an additional $16,288 to the Licensor as reimbursement of costs paid by the Licensor on patent applications and related work. We also issued to the licensor a warrant for the purchase of 500,000 shares of our restricted common stock at an exercise price of $0.42 per share that expires May 22, 2013. We agreed to pay to the Licensor a running royalty on net sales of licensed products equal to 25% of the first $10 million of net sales, 15% of the next $39 million of net sales and 10% of net sales over $49 million. We also agreed to pay to the University a percentage of sublicensing revenue received from sub-licensees or other third parties in regards to the licensed patent rights equal to 33% of any such third party payments, which may be reduced to 25% if we complete pre-clinical studies on a licensed product, reduced further to 20% if we complete Phase I clinical studies, reduced further to 17% if we complete Phase II clinical studies, and reduced further to 10% if we complete Phase III clinical studies on a licensed product. We agreed to pay the University a $20,000 annual maintenance fee and $50,000 annual minimum royalty starting in May 2009 as long as the agreement is in force. We are entitled to credit the maintenance fee and minimum royalty payments against future royalty or sublicensing revenue payments to the University under the license agreement. Finally, we agreed to make certain regulatory milestone payments to the University up to a maximum of $275,000 for each product that goes through the medical device application and marketing approval process, and up to a maximum of $1,125,000 for each product that goes through the clinical trial and marketing approval process.
To facilitate development of wound treatment products, we entered into a consulting agreement with Robert F. Diegelmann, Ph.D., Professor of Biochemistry, Anatomy and Emergency Medicine at Virginia Commonwealth University Medical Center. Dr. Diegelmann has agreed to conduct research, advance development, and assist with permitting for topical wound-healing therapies. The agreement is for a term of three years, and we agreed to pay Dr. Diegelmann $9,000 per month for his services. The agreement also provides for additional incentive compensation. Upon successful registration of a 510K application for the first product, the agreement provides we will issue to Dr. Diegelmann an option to purchase 100,000 common shares under our stock plan. In addition, we agreed to pay Dr. Diegelmann a success fee equal to one percent of net revenue from our direct product sales. If we sell or license the product rights to a third party we agreed to pay Dr. Diegelmann a transaction fee based on the aggregate consideration we receive equal to five percent of the first $1,000,000, four percent of the next $1,000,000, three percent of the next $1,000,000, two percent of the next $1,000,000 and one percent for each $1,000,000 of consideration above $4,000,000 up to a maximum of $250,000.
Fluorovent
Fluorovent is an oxygen-carrying perfluorocarbon liquid that, when dispensed directly into the lungs, acts as a surfactant and effective medium for gas exchange, which increases pulmonary function and the diffusion of oxygen and carbon dioxide through the
lungs into the body. The development of this product capability has applications in the treatment of acute lung disease, such as infant respiratory distress syndrome and adult respiratory syndrome. Further development of this product is currently on hold, until we have found a partner to bring this product to market.
Implanted glucose biosensor
We have developed an implanted glucose biosensor to monitor blood glucose. Termed a biosensor because it utilizes an enzyme specific for glucose, we believe the technology is capable of producing glucose measurement significantly more accurate than possible from current portable measuring devices. On September 22, 2008, we entered into a license agreement with Glucometrics, Inc., an unrelated third party, pursuant to which we licensed the intellectual property pertaining to our biosensor implant product for the development, manufacture, and marketing of products that use or incorporate the intellectual property. In exchange for the license we acquired:
a 10% equity interest in Glucometrics;
the right to receive a royalty payment on implantable products equal to 10% of the first $10 million in net sales, 8% of the next $40 million of net sales, and 6% of net sales equal to or greater than $50 million;
the right to receive a royalty payment on non-implantable products equal to 8% of the first $5 million in net sales, 6% of the next $20 million of net sales, and 4% of net sales equal to or greater than $25 million; and
participation in fees and payments made under sublicensing arrangements.
The term of the license agreement is for the life of the patent right licensed under the agreement.
Our patents and intellectual property
Perfluorocarbon products
We hold four U.S. patents (5,674,913; 5,824,703; 5,840,767; 6,167,887), three Australian patents (690,277; 722,417; 759,557), two Canadian Patents (2,239,170; 2,311,122) and, one European patent (EPO 8697678B1) pertaining to the use and application of perfluorocarbons as gas transport agents in blood substitutes and liquid ventilation. Additionally, the process of manufacturing the perfluocarbon contained in our products is extremely complicated and protected by numerous perfluorocarbon manufacturing process patents of our supplier.
Biosensor
We have three U.S. patents (5,914,026; 5,964,993 6,343,225) and two Australian patents (720,712; 734,003) that protect what we believe are important design features of our implanted glucose biosensor. We also hold exclusive licenses to three fundamental biosensor patents that represent the core technology used on our product. These patent and intellectual property rights were licensed in September 2008, to Glucometrics, Inc.
Government regulation
The manufacture and distribution of Oxycyte, as well as our other products, and the operation of any manufacturing facility we may establish will require the approval of United States government authorities as well as those of foreign countries. In the United States, the FDA regulates medical products, including the category known as “biologicals” which includes Oxycyte. The Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of Oxycyte. In addition to FDA regulations, we are also subject to other federal and state regulations, such as the Occupational Safety and Health Act and the Environmental Protection Act. Product development and approval within this regulatory framework requires a number of years and involves the expenditure of substantial funds.
The steps required before a biological product may be sold commercially in the United States include pre-clinical testing, the submission to the FDA of an Investigational New Drug application, clinical trials in humans to establish the safety and effectiveness of the product, the submission to the FDA of a Biologics License Application, or BLA, relating to the product and the manufacturing facilities to be used to produce the product for commercial sale, and FDA approval of a BLA. After a BLA is submitted there is an initial review by FDA to be sure that all of the required elements are included in the submission. There can be no assurance that the
application will be accepted for filing or that the FDA may not issue a refusal to file, or RTF. If an RTF is issued, there is opportunity for dialogue between the sponsor and the FDA in an effort to resolve all concerns. There can be no assurance that such a dialogue will be successful in leading to the filing of the BLA. If the submission is filed, there can be no assurance that the full review will result in product approval.
Pre-clinical tests include evaluation of product chemistry and studies to assess the safety and effectiveness of the product and its formulation. The results of the pre-clinical tests are submitted to the FDA as part of the Investigational New Drug application. The goal of clinical testing is the demonstration in adequate and well-controlled studies of substantial evidence of the safety and effectiveness of the product in the setting of its intended use. The results of pre-clinical and clinical testing are submitted to the FDA from time to time throughout the trial process. In addition, before approval for the commercial sale of a product can be obtained, results of the pre-clinical and clinical studies must be submitted to the FDA in the form of a BLA. The testing and approval process requires substantial time and effort and there can be no assurance that any approval will be granted on a timely basis, if at all. The approval process is affected by a number of factors, including the severity of the condition being treated, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. Additional pre-clinical studies or clinical trials may be requested during the FDA review process and may delay product approval. After FDA approval for its initial indications, further clinical trials may be necessary to gain approval for the use of a product for additional indications. FDA may also require post-marketing testing, which can involve significant expense, to monitor for adverse effects.
Among the conditions for BLA approval is the requirement that the prospective manufacturer’s quality controls and manufacturing procedures conform to FDA requirements. In addition, domestic manufacturing facilities are subject to biennial FDA inspections and foreign manufacturing facilities are subject to periodic FDA inspections or inspections by the foreign regulatory authorities with reciprocal inspection agreements with FDA. Outside the United States, we are also subject to foreign regulatory requirements governing clinical trials and marketing approval for medical products. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country.
Our regulatory strategy is to pursue clinical testing and FDA approval of Oxycyte in the United States. We intend to arrange for testing and seek regulatory approval of Oxycyte, outside the United States through licensing or other arrangements with other foreign or domestic companies. To date, we have not conducted any clinical trialsdevelop our product candidates, including dermatologic indications using our topical gel, support manufacturing of Oxycyte, outsidefor research and development and for general corporate purposes, including working capital and potential acquisitions. We currently do not have any arrangements or agreements for any acquisitions. We cannot precisely estimate the allocation of the United States.
Employees
We currently employ six individuals, two are executive officers, two are scientific personnel, one isnet proceeds from this offering. Accordingly, our corporate secretary, and one is our office manager/bookkeeper. Our employees are not represented by a union or any other form of collective bargaining unit. Our Chief Executive Officer devotes part of his time to our business under a consulting agreement. We also use the services of two directors and two other scientific consultants on a part-time basis through consulting arrangements.
Offices
Oxygen Biotherapeutics owns no real property and currently leases its principal administrative and laboratory facilities at 3189 Airway Avenue, Building C, Costa Mesa, California 92626. The current rent is approximately $15,400 per month. We also lease a laboratory facility at 800 East Leigh Street, Richmond, VA 23219 for rent of approximately $500 per month.
Legal Proceedings
There are no legal proceedings material to Oxygen Biotherapeutics to which it is a party or to which any of its property is subject, and Oxygen Biotherapeutics is not aware of any such proceedings that are contemplated.
Wemanagement will receive funds if any of the warrants held by the selling security holders are exercised. Assuming all of the warrants pertaining to the shares that may be reoffered by the selling security holders under this prospectus are exercised, we would receive approximately $13,303,804. We intend to use funds we receive from the exercise of warrants for continuing to advance clinical testing and development of Oxycyte and general corporate purposes. We have broad discretion in the allocation and useapplication of these funds, and will determine as and when funds are received from the exercise of warrants how the funds will be used. Investors in the shares will not have the opportunity to evaluate the economic, financial, or other information on which we base our decisions on how to use the funds derived from the exercise of warrants. If we fail to apply the net proceeds effectively, our business could be negatively affected. We will not receive any funds obtained byof this offering. Pending the selling security holders from their reoffer and saleuse of net proceeds, we intend to invest these net proceeds in certificates of deposit or direct or guaranteed obligations of the common stock covered by this prospectus.
U.S. government.
Market Price
Oxygen Biotherapeutics’ common stock trades in the over-the-counter market under the symbol “OXBO” and quotations for the common stock are listed on the Over the Counter Bulletin Board (“OTCBB”). The following table sets forth, for the respective periods indicated, the prices of our common stock in the over-the-counter market. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
| Fiscal Year 2009 | Fiscal Year 2008 | Fiscal Year 2007 | ||||||||||||||||
| Low | High | Low | High | Low | High | |||||||||||||
Quarter | ||||||||||||||||||
1st | $ | 0.56 | $ | 0.93 | $ | 0.10 | $ | 0.15 | $ | 0.10 | $ | 0.18 | ||||||
2nd | N/A | N/A | $ | 0.07 | $ | 0.20 | $ | 0.04 | $ | 0.15 | ||||||||
3rd | N/A | N/A | $ | 0.16 | $ | 0.34 | $ | 0.12 | $ | 0.22 | ||||||||
4th | N/A | N/A | $ | 0.26 | $ | 1.01 | $ | 0.11 | $ | 0.18 | ||||||||
Dividend Policy
No dividends have been paid on the common stock of Oxygen Biotherapeutics during the past three years. Oxygen Biotherapeutics intends to retain any earnings for use in its business activities, so it is not expected that any dividends on the common stock will be declared and paid in the foreseeable future.
At October 8, 2008, there were approximately 1,345 holders of record of the common stock.
Equity Compensation Plan Information
The following table provides certain information regarding securities authorized for issuance under equity compensation plans of Oxygen BiotherapeuticsOur net tangible book value as of the end of its most recently completed fiscal year on April 30, 2008.
Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants, and rights | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a)) | ||||||
Equity compensation plans | 3,330,000 | $ | .0234 | 670,000 | (2) | ||||
Equity compensation plans | 4,490,000 | (1) | $ | .0208 | 0 | ||||
Total | 7,820,000 | $ | .0219 | 670,000 | |||||
The following tables sets forth our capitalization (unaudited) as of July 31, 2008, and as adjusted to give effect to the conversion of all outstanding convertible notes held by selling security holders to common stock, exercise of all warrants held by the selling security holders, and payment of our estimated offering expenses. No effect is given to the exercise of any rights arising under other outstanding options or warrants of Oxygen Biotherapeutics not covered by this prospectus. This table should be read in conjunction with our financial statements and notes thereto.
| July 31, 2008 | ||||||||
| (unaudited) | As Adjusted | |||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 101,797 | $ | 101,797 | ||||
Accrued liabilities | 55,384 | 55,384 | ||||||
Consulting fees payable to Fiona International SA | 205,770 | 205,770 | ||||||
Due to stockholders | 140,000 | 140,000 | ||||||
Related party payables | 63,994 | 63,994 | ||||||
Note payable | 10,979 | 10,979 | ||||||
Total current liabilities | 577,924 | 577,924 | ||||||
LONG TERM PORTION of convertible notes, net of debt discount of $18,815,711 and $0, as adjusted | 1,101,005 | — | ||||||
Total liabilities | 1,678,929 | 577,924 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Preferred stock, undesignated, authorized 10,000,000 shares; none issued or outstanding | — | — | ||||||
Common stock, par value $.0001 per share; authorized 400,000,000 shares; issued and outstanding 155,668,106 and 290,188,469, as adjusted | 15,567 | 29,019 | ||||||
Additional paid-in capital | 52,168,420 | 85,250,488 | ||||||
Deficit accumulated during the development stage | (41,989,577 | ) | (65,827,051 | ) | ||||
Total stockholders’ equity (deficit) | 10,194,410 | 19,452,456 | ||||||
| $ | 11,873,339 | $ | 20,030,380 | |||||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Since 1990, Oxygen Biotherapeutics has pursued the development of medical products based on perfluorocarbon technology. These products include Oxycyte™, a synthetic oxygen carrier substance, and Fluorovent™, an oxygen exchange fluid for facilitating the treatment of lung conditions. Since 1993 Oxygen Biotherapeutics has also pursued development of a glucose biosensor implant, which we recently licensed to a third party for development. In September 2008 we engaged a researcher to pursue application of the same perfluorocarbon oxygen carrier technology to development of topical wound healing therapies.
The nature of our business is to spend years in development and testing of pharmaceutical and medical device products, take products through a lengthy and expensive process of regulatory review by the FDA, and, if successful in showing the product is efficacious and obtaining FDA approval, commercialize the product. During the periods of development and regulatory review we have no product to sell and no revenue. Nevertheless, we incur substantial costs pursuing this process, which require cash that comes from outside sources. We rely on outside financing to fund our operations, and will for the foreseeable future. That means we must continue to show progress with our products and be able to locate investors willing to commit their funds to a speculative venture that will ultimately be successful only if we can actually bring a product to market and gain a meaningful level of market acceptance and penetration. Because of these factors a larger number of biotechnology products under development fail, and there is no assurance that the products we have under development will not suffer the same fate.
We received approval of the Investigational New Drug application we filed with the FDA on Oxycyte and began Phase I clinical tests in October 2003. We completed the clinical tests in December 2003. The results of the Phase I tests were in line with our safety and efficacy expectations for the performance of Oxycyte. We started Phase II testing in 2004.
Five clinical sites have received local Institutional Review Board (IRB) approval to participate in the first Phase II trial with Oxycyte in hip surgery patients. In this first Phase II trial we were evaluating both efficacy and safety in the prevention of tissue hypoxia (the effects of reduced oxygen levels) in hip surgery patients who experience mild to moderate blood loss during surgery. While blood transfusions are typically not given during such procedures, blood loss may result in postoperative complications caused by tissue hypoxia. We closed this study in 2006 due to a lack of enrollment and completed this study and reported our findings in April 2008.
A Phase II-A trial in severe brain injury patients was started in 2006 and has been completed with good results. The Phase II-B trial protocol was filed in April 2008 and is currently under review of the FDA. A revised Phase II protocol for a study in patients with sickle cell pain crisis is ready to be filed with the FDA, as soon as the severe brain injury Phase II-B trial has been approved. Our future plans include testing Oxycyte in stroke, myocardial infarction, malignant tumors, trauma, coronary bypass surgery and decompression sickness. We expect Phase II studies will continue over at least the next two years, after which Phase III studies may be able to commence depending on results of Phase II trials, the development of acceptable protocols for Phase III trials, and the availability of financial and other resources to pursue the Phase II trials.
While pursuing Oxycyte, we are increasing our focus on a new application of perfluorocarbon oxygen carrier technology to therapies applied to the skin, rather than infused, for treating wounds and abrasions. To that end we recently licensed certain technology related that application from Virginia Commonwealth University and engaged the services of an independent consultant to pursue research and development of the therapies.
Fluorovent is still at the animal testing stage and we have not filed any applications with the FDA for human testing of this product. Since we will likely devote less of our time and resources to advancing this product because of the priority placed on Oxycyte and topical therapies, we do not expect we will be in a position to file any application for this product with the FDA in the near future. Since our priority for the foreseeable future is Oxycyte and topical wound therapy, the following discussion of our business focuses primarily on those products.
Our biosensor implant is still at the animal testing stage of development and we have not filed any applications with the FDA for human testing. Since we do not expect to commit significant resources to development of this technology in the foreseeable future, we recently licensed the technology to an unrelated party who is more focused on research and development in the area of glucose testing and related technologies.
Results of operations
Quarter ended July 31, 2008 compared to quarter ended July 31, 2007
Research and Development expenses for the three months ended July 31, 2008 were $308,288, compared to $151,492 for the same period in the prior year. Due to the financing we obtained during the third and fourth quarters of fiscal 2008, we were able to resume funding of our Phase II clinical trials and increase our laboratory supplies and related expenses. Phase II expenses totaled $49,071 for the quarter ended July 31, 2008, compared to $800 for the quarter ended July 31, 2007. Laboratory supplies totaled $34,553 during the quarter ended July 31, 2008, compared to $917 during the quarter ended July 31, 2007. Consulting fees for our clinical studies totaled $20,570 during the quarter ended July 31, 2008, compared to $0 during the quarter ended January 31, 2007. Additionally, we incurred $19,700 in contract manufacturing costs for Oxycyte and $14,755 of equipment rental costs in the current quarter that we did not incur in the quarter ended July 31, 2007. Because of the nature of our ongoing research and development activities and depending on our cash flow levels, accounting periods may reflect significant changes in expenses resulting from the timing of research related to our developmental products.
General and Administrative expenses for the three months ended July 31, 2008 were $2,818,581, compared to $213,486 for the same period in the prior year. During the current quarter we incurred $2,168,202 of consulting fees that we did not incur during the same period in the prior year. Of this $2,168,202 total, $1,874,932 was non-cash expense through the issuance of common stock purchase warrants. Our contract management costs increased by $149,799 in the current quarter, and this change is primarily due to our current Chief Executive Officer being compensated as an independent contractor, and an increase in consulting fees paid to two of our non-officer directors. Other significant changes in our administrative expenses during the quarter ended July 31, 2008 included a $56,694 increase in our noncash compensation relating to the issue of compensatory stock options, a $51,161 increase in our administrative payroll, an $83,117 increase in our investor relations, a $41,020 increase in our accounting expenses and a $27,653 increase in our legal expenses over the amounts incurred during the quarter ended July 31, 2007.
The net loss for the three months ended July 31, 2008 was $4,248,215 compared to a net loss of $1,027,227 for the same period in the prior year. Total operating expenses increased $2,761,891 during the quarter ended July 31, 2008 over the comparable period in 2007. In addition to the items noted above, interest expense increased $499,537. This increase during the current quarter was due to the $319,135 of interest expense we incurred in the current quarter on a debt conversion. We also incurred additional interest costs associated with our notes payable and related amortization of associated debt discounts as a result of our $6.3 million financing and the exchange of our short-term notes for 5 year convertible notes during the third and fourth quarters of fiscal 2008. Additionally, other income increased $40,440 in the quarter ended July 31, 2008 compared to the same period ended January 31, 2007 due to additional interest that we earned on our cash and cash equivalents.
Fiscal year 2008 compared to fiscal year 2007
For the fiscal year ended April 30, 2008, other income decreased to $105,629 from $120,027 in the fiscal year ended April 30, 2007. Other income consists principally of rental income. The decrease during 2008 is attributed to a one-time gain from the settlement of a vendor payable in fiscal 2007.
Research and development expenses increased from $752,614 for the fiscal year ended April 30, 2007, to $939,998 for the fiscal year ended April 30, 2008. Because of the nature of our ongoing research and development activities, accounting periods may reflect significant changes in expenses resulting from the timing of research related to our three developmental products. We decreased expenditures relating to Oxycyte™ Phase II clinical trials during fiscal 2007 and into fiscal 2008 due to a shortage of working capital. Due to the $6.3 million financing we obtained during the third and fourth quarters of fiscal 2008, we were able to resume funding of our Phase II clinical trials and increase our lab personnel and related expenses.
General and administrative expenses of $1,992,687 for fiscal year 2008 increased 95 percent or $972,892 over fiscal year 2007 expenses of $1,019,795. This change is primarily due to a $716,000 increase in our noncash compensation relating to the issue of compensatory stock options and warrants, an increase in our payroll expenses of $144,000, and an increase in our accounting expenses of $71,000 over the amounts incurred in fiscal 2007.
Interest charges associated with the convertible notes and short-term notes, including amortization of the original issue discount, debt issue costs, common stock purchase warrant value and beneficial conversion features, aggregated to $3,611,902 for fiscal 2008 as compared to $1,678,488 for fiscal 2007. This increase is a result the significant additional financing costs related to our $6.3 million financing and the exchange of our short-term notes for five-year convertible notes during the third and fourth quarters of fiscal 2008. During the year ended April 30, 2008, we also incurred a debt extinguishment loss of $250,097 related to the exchange of our short-term notes for five-year convertible notes. The debt extinguishment was recognized in accordance with EITF 96-19 and results principally from the write off of unamortized debt discounts and debt issue costs. We also incurred a $32,113 impairment loss on our lab equipment during fiscal 2008.
For the year ended April 30, 2008, we incurred a loss of $6,721,168 compared to a loss of $3,330,870 for the previous fiscal year.
Liquidity, capital resources and plan of operation
We have financed our operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. As of July 31, 2008, we had $6,140,495 of total current assets and working capital of $5,562,571. Our practice is to invest excess cash, where available, in short-term money market investment instruments.
During the third quarter of fiscal year 2008, the Company exchanged its outstanding short term loans for five-year convertible notes with a face amount of $6,204,767. The notes are unsecured, convertible into shares of common stock at $0.247 per share, and were issued with a 55% original issue discount totaling $3,412,622. In addition, the Company issued five-year warrants to purchase 12,560,257 shares of common stock at $0.247 per share to investors. Additional discounts of $1,739,499 and $1,052,646 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively. Pursuant to this exchange transaction, the Company recorded a debt extinguishment loss of $250,097.
During the third and fourth quarters of fiscal year 2008, the Company received a total of $6,335,000 in cash from the sale of convertible notes, with a total face amount of $14,077,778. The notes are convertible at any time prior to maturity into a total
of 56,995,053 shares of common stock, or $0.247 per share. In connection with the issuance of these obligations, the Company recorded a 55% original issue discount of $7,742,778, and additional discounts of $4,864,998 related to the relative fair value of the 28,497,501 five-year warrants to purchase common stock at $0.247 per share that were issued in the transaction, and $1,470,002 for the relative fair value of the embedded beneficial conversion feature. The Company also incurred total costs of $5,510,562 for capital raising services on these transactions. The costs of the capital raising services include a $369,215 cash fee, plus $768,337 for the fair value of 2,088,272 restricted shares of common stock, plus $4,373,010 for the fair value of warrants to purchase 21,853,086 common shares at prices ranging from $0.20 to $0.28.
During the quarter ended July 31, 2008, net cash provided by financing activities was $2,115,061, which included $2,147,714 proceeds from the exercise of warrants, less $32,653 in repayments on a short term note. Of the $2,147,714 proceeds received from warrant exercises, we have an obligation to return $140,000 due to a pricing error in the exercise. This obligation is included in our current liabilities at July 31, 2008. Net cash of $874,169 was used to fund operating activities and $33,699 was used for investing activities, which included $14,079 in lab equipment expenditures, $16,228 for the purchase of licensing rights on three patents, and $3,392 of other capitalized patents costs. Consequently, our cash and cash equivalents increased from $1,207,193 at April 30, 2008 to $6,087,826 at July 31, 2008. We do not have any lines of credit or other borrowing arrangements with lenders.
We are in the pre-clinical and clinical trial stages in the development of our products. Under an Investigational New Drug application filed with the FDA, we completed Phase I clinical studies on Oxycyte in December 2003. The results of the Phase I study were in line with our expectations for the performance of Oxycyte. We submitted a report to the FDA along with a Phase II protocol, received FDA approval, and started Phase II testing in the fourth quarter of 2004, which is expected to continue through 2009 for Phase II-b studies in severe traumatic brain injury. Even if we are successful with our Phase II study, we must then conduct a Phase III clinical study and, if that is successful, file with the FDA and obtain approval of a Biologics License Application to begin commercial distribution, all of which will take more time and funding to complete. Our other products, Fluorovent and the glucose biosensor, must undergo further development and testing prior to submission to the FDA for approval to initiate clinical trials, which also requires additional funding. Management is actively pursuing private and institutional financing, as well as strategic alliances and/or joint venture agreements to obtain the necessary additional financing and reduce the cost burden related to the development and commercialization of our products. We expect our primary focus will be on funding the continued testing of Oxycyte, since this product is the furthest along in the regulatory review process. Our ability to continue to pursue testing and development of our products beyond 2009 depends on achieving license income, or obtaining outside financial resources. There is no assurance that needed license agreement, or financing will occur or that we will succeed in obtaining the necessary resources.
We are entirely dependent on outside financing to continue our operations. We will not generate operating revenue unless and until one of our products is approved for commercial sale and sales activity begins. We will require substantial additional funds to complete clinical trials, pursue regulatory approval for our products, establish commercial scale manufacturing capabilities, and establish marketing, sales, and administrative capabilities. Expenditures for these purposes will result in substantial losses for at least the next several years. The expense and the time required to realize any product revenues or profitability are highly uncertain. We cannot ensure that we will be able to achieve product revenues or profitability on a sustained basis, or at all. The foregoing factors highlight that the Company must achieve license agreements, or additional financing by end of 2009.
We do have the working capital necessary to fund our operations in fiscal year 2009. By end of 2009, we will need additional financing to cover administrative expenses and on-going expenses of testing Oxycyte. Management is actively seeking additional sources of equity and/or debt financing; however there is no assurance that any additional funding will be available in time. Should we be unable to obtain additional financing to meet mid-term needs, we may be forced to cease operations. Our ability to continue as a going concern depends on success of these activities.
Critical accounting policies
Our discussion and analysis of our financial condition and results of operations is based upon the financial statements presented in this report, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate our estimates, including those related to stock-based compensation and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:
Stock-Based Compensation—We account for stock-based compensation as prescribed by of SFAS No. 123R, which requires stock options and warrants issued to employees and nonemployees to be valued using the fair value method. Under the fair value based method, compensation cost is recorded based on the value of the award at the grant date and is recognized over the service period.
The fair value of each option and warrant grant was estimated at the grant date using the Black-Scholes option-pricing model. The Black–Scholes option valuation model was developed for use in estimating the fair value of traded options and warrants that 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 and expected term.
Convertible Notes—If the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), Accounting for Convertible Securities with Beneficial Conversion Features or Contingency Adjustable Conversion Ratio, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5 to Certain Convertible Instruments. In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
Registration Payment Arrangements—In connection with prior private placements of our common stock and warrants to purchase shares of our common stock, we entered into agreements that committed us to timely register the shares of common stock purchased as well as the shares underlying the issued warrants. Those registration agreements specified potential cash penalties if we did not timely register the related shares with the SEC.
In accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company’s Own Stock,” when the potential cash penalties were included in registration payment arrangements, the estimated fair value of the warrants would be recorded as a liability, with an offsetting reduction to additional paid-in capital received from the private placement. The fair value of the warrants would be estimated using the Black-Scholes option pricing model.
Under EITF 00-19, the estimated fair value of the warrants would be re-measured at each reporting date and on the date of effectiveness of the related registration statement, with the increase in fair value recorded as other expense in our Statement of Operations. As of the date of effectiveness of the registration statement, the warrant liability would be reclassified to additional paid-in capital, evidencing the non-impact of these adjustments on our financial position and business operations.
In December 2006, the FASB issued FASB Staff Position, or FSP, EITF No. 00-19-2, “Accounting for Registration Payment Arrangements.” This FSP specifies that companies that enter into agreements to register securities will be required to recognize a liability if a payment to investors for failing to fulfill the agreement is probable and can be reasonably estimated. This accounting differs from the guidance in EITF 00-19, which required a liability to be recognized and measured at fair value, regardless of probability.
EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that we enter into or modify after the date of issuance of this FSP. For our registration payment arrangements and financial instruments subject to those arrangements that were entered prior to the issuance of this FSP, the guidance was effective beginning January 1, 2007.
Long-Lived Assets—Our intangible assets consist of patents related to our various technologies. These assets are amortized on a straight-line method over their estimated useful life, which ranges from eight to ten years. We review these intangible assets for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”).
Recent Accounting Pronouncements—
SFAS 157—In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair
value by providing a fair value hierarchy used to classify the source of the information. SFAS 157 was originally effective for fiscal years beginning after November 15, 2007, but was partially delayed by one year for non-financial assets and liabilities as detailed within FASB Staff Position 157-2. Oxygen Biotherapeutics is currently evaluating SFAS 157 and FASB Staff Position 157-2, and does not believe these pronouncements will materially affect its financial position or results of operations.
SFAS 159—In February 2007, the FASB issued SFAS 159,The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115(“SFAS 159”), which permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of fiscal years after November 15, 2007. Oxygen Biotherapeutics adopted SFAS 159 on May 1, 2008, and does not believe it will materially affect its financial position or results of operations.
SFAS No. 141(R)—In December 2007, the FASB issued Statement No. 141(R),Business Combinations. This Statement replaces FASB Statement No. 141,Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called thepurchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. Statement 141 did not define the acquirer, although it included guidance on identifying the acquirer, as does this Statement. This Statement’s scope is broader than that of Statement 141, which applied only to business combinations in which control was obtained by transferring consideration. By applying the same method of accounting—the acquisition method—to all transactions and other events in which one entity obtains control over one or more other businesses, this Statement improves the comparability of the information about business combinations provided in financial reports. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. Oxygen Biotherapeutics is currently evaluating SFAS 141(R), and has not yet determined its potential impact on its future results of operations or financial position.
SFAS No. 160—In December 2007, the FASB issued Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this Statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This Statement improves comparability by eliminating that diversity. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The effective date of this Statement is the same as that of the related Statement 141(R). This Statement shall be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. Oxygen Biotherapeutics is currently evaluating SFAS 160 and has not yet determined its potential impact on its future results of operations or financial position.
SFAS No. 161—In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Oxygen Biotherapeutics has not determined the impact, if any SFAS No. 161 will have on its financial statements.
Directors and executive officers
Our officers and directors manage our business. The following persons are the officers and directors of Oxygen Biotherapeutics:
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
|
Robert J. Larsen served as Chief Executive Officer and Chief Financial Officer from November 2007 until his unexpected death on March 24, 2008. Chris J. Stern was appointed Chief Executive Officer at the end of March 2008, and served as interim Chief Financial Officer from July through most of September 2008.
Our directors serve for a term beginning with election and ending with resignation, removal by the stockholders, or election of a successor by the stockholders. Executive officers serve by appointment at the discretion of the board of directors.
The following are brief biographies of each of our directors and officers.
In November 2007 Chris J. Stern joined Oxygen Biotherapeutics as Chairman of the Board. He became Chief Executive Officer in March 2008, and Chief Financial Officer ad interim in July 2008. During the past five years Mr. Stern has been the principal of the Institute for Efficient Management, which he founded in 1996 to provide consulting services to business on strategic planning and global marketing. Since May 2001 Mr. Stern has served as a non-executive director on the Board of Directors of Klocke of America (contract packaging) in Ft. Myers, FL. From April 2000 to March 2007 he also served as a Director of Boehme Filatex, Inc. in Reidsville, NC (specialty chemicals). Mr. Stern holds an MBA from the Graduate School of Business Administration in Zurich, which is affiliated with the State University of New York at Albany, and a doctorate in business administration from Trinity University.
Dr. Richard Kiral became President and Chief Operating Officer of Oxygen Biotherapeutics in March 2008. For over five years prior to March 2008, he served as our vice president of research and development and has been responsible for developing products from Oxygen Biotherapeutics’s perfluorocarbon technology platforms. Dr. Kiral holds a Ph.D. in Analytical Chemistry from the University of Notre Dame in South Bend, Indiana and a B.S. degree in Chemistry from St. Vincent College in Latrobe, Pennsylvania. He is a cofounder of a pharmaceutical contract manufacturer in San Diego and currently serves on its Board of Directors.
Charles H. Seeman, age 45, was appointed our Chief Financial Officer in September 2008. From August 2006 to March 2008, Mr. Seeman was employed by Control Solutions International, a global provider of independent internal audit, compliance, risk management and technology solutions, where he managed teams engaged in testing client internal controls and procedures. In June 2005, Mr. Seeman was employed by the Lenovo Group, a global manufacturer of personal computers, as an internal auditor, and in December 2006, changed his position to managing control functions at the senior management level in the areas of accounting, finance, treasury, and tax accounting. From January 2003 to May 2005, Mr. Seeman served as the chief financial officer of Carrot-Top Industries, a privately held consumer products catalog company.
Dr. Bruce D. Spiess, MD, FAHA, joined Oxygen Biotherapeutics Inc as a consultant, member of the Board of Directors and Chair of the Medical Advisory Board. in March 2008. During the past five years Dr. Spiess has served as Vice Chair of the Department of Anesthesiology, Chief of Cardiothoracic Anesthesia and Director of Research at Virginia Commonwealth University Health Systems. His undergraduate degree in biology was from Denison University in Granville, Ohio and his medical school training was received at Rush Medical College in Chicago. From there three years were spent at the Mayo Graduate School of medicine in Rochester, Minnesota. The last year of that training as chief resident was specialized in cardiovascular anesthesia.
Dr. Gerald Klein became a director of the Oxygen Biotherapeutics in March 2008. He has served as Vice President of Global Medical and Clinical Affairs and Chief Medical Officer for Talecris Biotherapeutics, headquartered in Research Triangle Park, North Carolina, since September 2005. His responsibilities there include global clinical development and medical affairs. For two years prior to September 2005, he was the Vice President of Medical Affairs and Clinical Research at Dey LP in Napa, California. Dr. Klein earned his medical degree from the University of Brussels Medical School in Belgium, and holds board certifications issued by the American Board of Pediatrics and the American Board of Allergy and Clinical Immunology. Dr. Klein completed his undergraduate work at the University of Florida and medical degree at the Free University of Brussels. He completed a pediatric residence at New Jersey College of Medicine and fellowship in Allergy and Immunology at the University of California, Irvine.
Summary of Compensation
The following table provides certain summary information concerning compensation earned for services rendered in all capacities to Oxygen Biotherapeutics for the fiscal years ended April 30, 2008, 2007 and 2006, by the Chief Executive Officer and the other most highly compensated executive officers of Oxygen Biotherapeutics (“Named Executive Officers”). This information includes the dollar amount of base salaries, bonus awards, stock options and all other compensation, if any, whether paid or deferred.
Name and Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Options Awards ($)(2) | All Other Compensation ($)(3) | Total | |||||||
Robert Nicora (including severance pay) | 2008 | 15,750 | — | — | 13,947 | 347,310 | 377,007 | |||||||
President until November 19, 2007 | 2007 2006 | 173,250 189,000 | — — | — — | 32,500 — | 30,492 35,719 | 236,242 224,719 | |||||||
Richard Kiral | 2008 | 192,840 | — | — | 23,756 | 21,337 | 237,933 | |||||||
President & COO | 2007 | 152,847 | — | — | 8,000 | 16,379 | 177,226 | |||||||
Product Development | 2006 | 167,742 | — | — | — | 23,066 | 190,808 | |||||||
Chris J. Stern | 2008 | 75,000 | — | 12,460 | 89,644 | 12,460 | 102,104 | |||||||
Chairman & CEO | 2007 | — | — | — | — | — | — | |||||||
March 25, 2008 to present | 2006 | — | — | — | — | — | — | |||||||
Robert Larsen(4) | 2008 | 50,000 | — | — | 218,429 | 2,750 | 221,179 | |||||||
CEO and President from | 2007 | — | — | — | — | — | — | |||||||
November 20, 2007 to March 24, 2008 | 2006 | — | — | — | — | — | — | |||||||
Charles H. Seeman was elected Chief Financial Officer in September 2008, so he was not compensated by Oxygen Biotherapeutics during the fiscal year ended April 30, 2008. David H. Johnson held the position of Chief Financial Officer until his resignation August 17, 2007, which was immediately following the filing of Oxygen Biotherapeutics’ annual report on Form 10-K for the year ended April 30, 2007. Accordingly, Mr. Johnson did not perform services or functions normally associated with the office of chief financial officer for the financial reporting periods in fiscal year 2008 and Oxygen Biotherapeutics did not accrue or pay to Mr. Johnson any compensation in relation to fiscal year 2008. For his services as Chief Financial Officer in fiscal years 2007 and 2006, his compensation was $40,000 in each year.
Option grants
Oxygen Biotherapeutics adopted a stock option plan in October 1999, which was ratified by a vote of the shareholders during fiscal year ended April 30, 2001. The 1999 plan provides for the granting of incentive and non-qualified options to officers, directors, consultants and key employees to purchase up to 4,000,000 shares of Oxygen Biotherapeutics’s common stock at prices not less than the fair market value of the stock at the date of grant for incentive options. The option expiration dates are determined at the date of grant, but may not exceed ten years. The total number of options issued under the Plan at April 30, 2008 were 3,345,000 with a weighted average exercise price of $0.23.
In addition, Oxygen Biotherapeutics has issued options outside the Plan. At April 30, 2008 the total non-qualified options outstanding were 4,490,000 with a weighted average exercise price of $0.21.
The following table summarizes certain information as of April 30, 2008 concerning the stock options granted to the Named Executive Officers during the fiscal year ended April 30, 2008. No stock appreciation rights, restricted stock awards or long-term performance awards have been granted as of the date hereof and no options have been exercised.
| Grant Date | Number of Securities Underlying Options(1) | Exercise Price of Option Awards ($/Sh) | Grant Date Fair Value of Option Awards ($)(2) | ||||||||
Robert Nicora | 8/1/07 | 150,000 | 0.13 | 18,000 | |||||||
President until November 19, 2007 | 11/15/07 | 750,000 | (3) | 0.33 | (3) | 7,947 | (3) | ||||
Richard Kiral | 11/19/07 | 100,000 | (3) | 0.13 | (3) | 3,121 | (3) | ||||
President & COO | 1/9/08 | 150,000 | 0.28 | 37,665 | |||||||
Product Development | 4/1/08 | 20,000 | 0.85 | 16,426 | |||||||
Chris J. Stern | 11/20/07 | 1,000,000 | 0.245 | 89,644 | |||||||
Chairman & CEO | |||||||||||
March 25, 2008 to present | |||||||||||
Robert Larsen | 11/19/07 | 300,000 | (3) | 0.13 | (3) | 15,291 | (3) | ||||
CEO and President from November 20, | 11/30/07 | 30,000 | 0.18 | 3,064 | |||||||
2007 to March 24, 2008 | 12/31/07 | 30,000 | 0.31 | 5,430 | |||||||
| 1/31/08 | 30,000 | 0.30 | 5,322 | ||||||||
| 2/29/08 | 30,000 | 0.33 | 8,820 | ||||||||
| 3/25/08 | 300,000 | 0.30 | 180,502 | ||||||||
Outstanding Equity Awards
The following table sets forth certain information with respect to outstanding equity awards at April 30, 2008 with respect to the Named Executive Officers.
Name Robert W. Nicora President until November 19, 2007 Richard Kiral President & COO Product Development Chris J. Stern Robert Larsen CEO and President from November 20, 2007 to March 24, 2008 Option Awards Stock Awards Number of
securities
underlying
unexercised
options
(#)
exercisable Number of
securities
underlying
unexercised
options
(#)
unexercisable Option
exercise
price
($) Option
expiration
date Number
of shares
or units
of stock
that have
not vested
(#) Market value
of shares
of units
of stock
that have
not vested
($) 300,000 — $ 0.15 11/15/10 — — 150,000 — $ 0.12 11/15/10 — — 300,000 — $ 0.62 11/15/10 — — 150,000 — $ 0.21 04/20/11 — — 150,000 — $ 0.17 08/01/12 — — 150,000 — $ 0.22 08/01/13 — — 150,000 — $ 0.28 08/17/14 — — 100,000 50,000 $ 0.22 08/04/15 — — 50,000 100,000 $ 0.13 08/10/16 — — — 150,000 $ 0.13 08/01/17 — — 100,000 — $ 0.15 10/13/09 — — 75,000 — $ 0.12 02/01/10 — — 250,000 — $ 0.21 04/20/11 — — 75,000 — $ 0.30 02/01/12 — — 75,000 — $ 0.15 02/01/13 — — 75,000 — $ 0.15 03/01/14 — — 75,000 — $ 0.24 02/01/15 — — 50,000 25,000 $ 0.09 03/28/16 — — 25,000 50,000 $ 0.12 03/09/17 — — 20,000 — $ 0.85 04/01/11 — — — 150,000 $ 0.28 01/09/18 — —
Chairman & CEO 1,000,000 — $ 0.245 11/19/10 14,000 $ 12,460 215,000 — $ 0.12 02/01/10 — — 10,000 — $ 0.80 05/01/10 — — 300,000 — $ 0.13 11/19/10 — — 300,000 — $ 0.30 03/25/11 — — 30,000 — $ 0.33 02/29/11 — — 10,000 — $ 0.255 05/01/11 — — 10,000 — $ 0.155 01/04/12 — — 30,000 — $ 0.18 11/30/17 — — 30,000 — $ 0.31 12/31/17 — — 30,000 — $ 0.28 01/31/18 — —
David H. Johnson held the position of Chief Financial Officer until his resignation August 17, 2007. On October 13, 1999 he was granted an option to purchase 100,000 shares at an exercise price of $0.15 per share that expires October 13, 2009, and on December 16, 2002, he was granted an option to purchase 100,000 shares at an exercise price of $0.17 per share that expires December 16, 2012.
Employment Contracts
Effective March 25, 2008, Chris J. Stern, our Chairman of the Board, was appointed to the office of Chief Executive Officer and is continuing in the position of Chairman. At the time Mr. Stern was elected to the Board in November 2007 and appointed Chairman, we agreed to pay to Mr. Stern’s consulting firm a monthly fee of $15,000 for consulting services Mr. Stern provides to us.
Furthermore, we agreed (i) to issue to Mr. Stern, as of the date of his election to the Board, options to purchase 1,000,000 common shares at an exercise price of $0.245 per share that expire three years from the date of grant, and (ii) if, in the two years following the date of the agreement, Oxygen Biotherapeutics enters into a license agreement or is sold, to issue to Mr. Stern at the closing of the transaction options to purchase an additional 4,000,000 common shares at an exercise price of $0.245 per share that expire three years from the date of grant. In September 2008, we entered into a license agreement pertaining to our biosensor implant product, and we issued the option on 4,000,000 shares to Mr. Stern. As a result of Mr. Stern’s appointment as Chief Executive Officer, the Board has agreed to pay Mr. Stern’s consulting company an additional $5,000 per month by way of consulting fees and also to pay the consulting company $2,500 per month for additional secretarial and administration expenses. Furthermore, the Board has also agreed (i) to issue to Mr. Stern an aggregate of 14,000 shares of Oxygen Biotherapeutics’ common stock on the 1st of every month, commencing with April 1, 2008, for so long as Mr. Stern serves on the Board, and (ii) to issue and pay to Mr. Stern, upon his termination as a board member for whatever reason, with or without cause, an aggregate of 100,000 shares of Oxygen Biotherapeutics’ common stock and the sum of $200,000, payable upon such termination.
Richard Kiral served as Vice President of Product Development through much of fiscal year 2008 for which he was compensated at the rate of $167,000 per year and was paid additional compensation in the form of an automobile allowance, medical and dental coverage, participation in the Executive Bonus Plan, $200,000 life insurance paid for by the corporation and payable to a beneficiary named by the insured, and the grant of an option for 75,000 shares annually. Effective March 25, 2008, the Board appointed Dr. Kiral to serve as President and Chief Operating Officer of Oxygen Biotherapeutics. Pursuant to an agreement executed on March 26, 2008, Dr. Kiral’s employment agreement with Oxygen Biotherapeutics was amended to provide for an increase in annual salary to $239,000, payment of a sum equal to annual base salary and performance bonus upon termination without cause (as defined in the agreement), issuance on the first day of each month commencing April 1, 2008, of options to purchase 20,000 common shares with an exercise price based on market value, for so long as Dr. Kiral serves on the Board, and payment of 100,000 common shares and the sum of $200,000 upon Dr. Kiral’s termination by Oxygen Biotherapeutics as a board member, with or without cause.
We have agreed to pay Charles H. Seeman an annual salary of $100,000, as well as an $800 per month car allowance, participation in our employee benefit plans, and other customary benefits. We will also pay Mr. Seeman a $10,000 cash bonus within fifteen days following the filing of our first periodic report under the Securities Exchange Act of 1934 that reports our disclosure controls and procedures are effective, provided such periodic report is filed before September 22, 2009. We will pay an additional bonus of $10,000 on or before October 7, 2009, if all required reports under the Securities Exchange Act of 1934 are filed during the one-year period ending September 22, 2009 within applicable deadlines, subject to Mr. Seeman’s continues employment on September 22, 2009. Mr. Seeman will be granted an option effective December 23, 2008 (subject to his continued employment) under our 1999 Amended Stock Plan to purchase 50,000 common shares that will vest, subject to continued employment, on September 23, 2009, and be exercisable for a term of three years from vesting at an exercise price of $0.46 per share, which was market price on the date of employment. Subject to his continued employment we will grant options under the 1999 Amended Stock Plan to Mr. Seeman annually in September to purchase 50,000 common shares that will vest, subject to continued employment, one year following the date of grant and be exercisable for a term of three years from vesting at an exercise price equal to the market price for the common stock on the trading day prior to the date of grant.
On November 19, 2007, Robert Nicora, the former President and Chief Executive Officer resigned his positions. We entered into a severance agreement that provides for a one year severance payroll and benefits package consisting of $198,450 in gross salary, a medical plan benefit of $21,244, a car benefit of $3,850, a life insurance benefit of $4,765, and a retirement benefit of $5,198. We also paid Mr. Robert Nicora unpaid salaries of $99,225 and repaid a $39,500 loan plus $6,001 for income taxes. The payment schedule was $125,000 December 31, 2007, and three equal payments of $84,411 on February 15, 2008, May 15, 2008, and August 15, 2008, and has been paid in full. Oxygen Biotherapeutics also extended the term of any employee stock options that expire within three years of the effective date of the resignation.
Robert J. Larsen became interim President and Chief Executive Officer on November 20, 2007, and died unexpectedly on March 24, 2008. At the time he became an officer we agreed to pay to Mr. Larsen for his services at the rate of $120,000 per year and a car allowance of $550 per month, and issue to him for each month of service options to purchase 30,000 shares of our common stock exercisable for a term of three years following issuance with an exercise price equal to the market price on the date of each monthly issuance. In addition, we agreed to pay for Mr. Larsen’s housing cost in California during his service as an officer. Further,
an option that Mr. Larsen held to purchase 300,000 shares of our common stock at an exercise price of $0.13 per that was scheduled to expire in February 2008 was extended to November 19, 2010. On March 25, 2008, the Board of Directors approved the issuance of options to the Estate of Robert J. Larsen to purchase 300,000 shares of common stock at an exercise price of $0.30 per share.
Director Compensation
The following table summarizes the compensation paid to directors who are not executive officers for the year ended April 30, 2008.
Name | Fees Earned or Paid in Cash | Option Awards(1) | Total | ||||||
Jonathan J. Spees—Former Director | $ | 8,000 | $ | — | $ | 8,000 | |||
Bruce Spiess—Director | $ | 9,000 | $ | 220,164 | $ | 229,164 | |||
Gerald Klein—Director | $ | 9,000 | $ | 220,164 | $ | 229,164 | |||
Until November 19, 2007 each outside board member received compensation of $12,000 per year and options to purchase 10,000 shares of common stock exercisable over a term of ten years at an exercise price based on the closing market price of our common stock on the date of issuance. We also reimburses Directors for customary expenses related to attending board, committee and stockholder meetings.
Oxygen Biotherapeutics has agreed to pay to each of Drs. Klein and Spiess a consulting fee of $200/hour, resulting in a monthly fee of approximately $9,000. Furthermore, we agreed to issue to each of Dr. Spiess and Dr. Klein, as of the date of their respective elections, options to purchase 300,000 common shares at an exercise price of $0.30 per share that expire three years from the date of grant. If in the next two years Oxygen Biotherapeutics enters into a license agreement for its technology or is sold, it will also issue to each of Dr. Klein and Dr. Spiess at the closing of the transaction options to purchase an additional 300,000 common shares at an exercise price of $0.30 per share that expire three years from the date of grant. In September 2008, we entered into a license agreement pertaining to our biosensor implant product, and we issued an option on 300,000 shares to each of Drs. Klein and Spiess.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of October 8, 2008, the number and percentage of the outstanding shares of common stock and warrants and options that, according to the information supplied to Oxygen Biotherapeutics, were beneficially owned by (i) each person who is currently a director, (ii) each executive officer, (iii) all current directors and executive officers as a group and (iv) each person who, to the knowledge of Oxygen Biotherapeutics, is the beneficial owner of more than five percent of the outstanding common stock. Except as otherwise indicated, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.
Name and Address | Common Shares | Percent of Class(1) | |||
| Principal stockholders | |||||
Roland Schaub Aventis Invest Ltd. OPM Invest Ltd. (2) Limmatquai 72, CH-8001 Zurich, Switzerland | 29,244,763 | 15.5 | % |
Name and Address Victor Gallus Biotrocite Ltd. Bluebird Invest Ltd. (3) Limmatquai 72, CH-8001 Zurich, Switzerland Hanspeter Jaberg Horizon Finance Capital Group Ltd. (4) In den Klostermatten 15, 4052 Basel, Switzerland Chris J. Stern (5) 9431 Oglebay Court Raleigh, N.C. 27617 Gerald L. Klein (5) 3044 Wyntre Ridge Way Raleigh, NC 27606 Bruce Spiess (5) 620 Dover Bluff Court Manakin-Sabat, VA 23103 Richard Kiral (5) 25505 Nottingham Ct. Laguna Hills, CA 92653 Charles H. Seeman 6516 Austin Creek Drive Wake Forest, NC 27587 All officers and directors as a group (5 persons) Common
Shares Percent
of Class(1) 27,241,218 0.4 % 18,973,390 10.7 % Officers and directors 5,098,000 3.1 % 600,000 0.4 % 600,000 0.4 % 1,165,000 0.7 % -0- -0- % 7,463,000 4.5 %
|
|
Related Party Transactions
Aventis/ OPM/ Schaub
Aventis Invest Ltd. and OPM Invest Ltd. are both located in Zurich, Switzerland, and managed by Roland Schaub. Aventis Invest purchased bridge notes from us in 2006 and 2007 with face amounts totaling $164,835 and $58,500, respectively. In connection with the 2006 bridge notes, we issued Aventis Invest warrants to purchase 1,648,352 common shares at $0.245 per share that expire March 22, 2011. In connection with the 2007 bridge notes, we issued Aventis Invest warrants to purchase 3,296,704 common shares at $0.245 per share that expire May 23, 2011, and warrants to purchase 585,000 common shares at $0.245 per share that expire April 27, 2012. Aventis Invest also provided advisory services to Oxygen Biotherapeutics during the fiscal year ended April 30, 2008, in connection with the placement of bridge notes and warrants in 2007 and convertible notes and warrants in 2008. In consideration for the advisory services provided, we paid to Aventis Invest $250,579 in cash and issued to Aventis Invest:
Warrants to purchase 249,286 common shares at $0.245 per share that expired April 30, 2008
Warrants to purchase 2,250,714 common shares at $0.245 per share that expire August 30, 2011
Warrants to purchase 3,750,000 common shares at $0.245 per share that expire January 31, 2012
Warrants to purchase 75,000 common shares at $0.245 per share that expire April 5, 2012
Warrants to purchase 4,835,000 common shares at $0.245 per share that expire April 30, 2012
Warrants to purchase 3,000,000 common shares at $0.247 per share that expire February 1, 2010
In March 2008, Aventis Invest became the beneficial owner of 249,286 additional common shares pursuant to a cash exercise of 249,286 common stock purchase warrants at $0.245 per share, totaling $61,075.
OPM also provided advisory services to Oxygen Biotherapeutics during the fiscal year ended April 30, 2008, in connection with the placement of convertible notes and warrants in 2008. In consideration for the advisory services provided, we paid to OPM Invest $14,000 in cash, issued to OPM Invest 522,068 common shares, and issued to OPM Invest a warrant to purchase 3,000,000 common shares at an exercise price of $0.247 per share that expires February 1, 2010.
Horizon/ Jaberg
Hanspeter Jaberg manages Horizon Finance Capital Group Ltd., which is located in Basel Switzerland. Mr. Jaberg purchased a bridge note from us in 2006 with a face amount of $35,000. In connection with the 2006 bridge notes, we issued to him warrants to purchase 1,050,000 common shares at $0.245 per share that expire April 19, 2011. Horizon Finance Capital Group provided advisory services to Oxygen Biotherapeutics during the fiscal year ended April 30, 2008, in connection with the placement of bridge notes and warrants in 2007 and convertible notes and warrants in 2008. In consideration for the advisory services provided, we paid to Horizon Finance Capital Group $66,915 in cash, issued to Horizon Finance Capital Group 1,566,204 common shares, issued to Horizon Finance Capital Group a warrant to purchase 2,500,000 common shares at an exercise price of $0.245 per share that expires January 31, 2013 and issued to Horizon Finance Capital Group a warrant to purchase 8,353,086 common shares at an exercise price of $0.247was approximately $ (2.5) million, or approximately $ (0.08) per share that expires March 26, 2013.
Gontersweiler
Till Gontersweiler, formerly a principal beneficial shareholder, purchased bridge notes in 2006 and April 2007. In January 2008, Mr. Gontersweiler agreed to exchange the bridge notes and all accrued interest in the amount of $348,220 for our convertible notes in
the aggregate principal amount of $773,822, which represents an original issue discount of 55 percent, and warrants to purchase 1,566,439 common shares at an exercise price of $0.247stock. Net tangible book value per share that expire January 31, 2013. In April 2008, Till Gontersweiler became the beneficial owner of 567,124 additional common shares pursuantis equal to a cash exercise of 567,124 common stock purchase warrants at $0.245 per share, totaling $138,945. Mr. Gontersweiler also provided advisory services to Oxygen Biotherapeutics in connectionour total tangible assets less our total liabilities, with the placement of bridge notes and warrants in 2007. In consideration for the advisory services provided, we issued to Mr. Gontersweiler a warrant to purchase 3,750,000 common shares at an exercise price of $0.245 per share that expires January 31, 2012, and a warrant to purchase 4,835,000 common shares at an exercise price of $0.245 per share that expires April 30, 2012.
Nicora
Robert Nicora, an officer and director, purchased a bridge note from us in July 2007 in the principalthis amount of $5,300 and warrants to purchase 53,000 common shares at an exercise price of $0.245 per share that expire July 26, 2012. Mr. Nicora’s service as an officer and director ended in November 2007. In January 2008, Mr. Nicora agreed to exchange the bridge note and all accrued interest in the amount of $5,565 for our convertible notes in the aggregate principal amount of $12,367, which represents an original issue discount of 55 percent, and warrants to purchase 25,034 common shares at an exercise price of $0.245 per share that expire January 31, 2013.
Director Independence
Our board of directors has four members. Chris J. Stern is our Chairman, Chief Executive Officer and Chief Financial Officer, Richard M. Kiral is our President and Chief Operating Officer, and Bruce Spiess and Gerald Klein are directors. Mr. Stern, Dr. Spiess, and Dr. Klein are non-employee directors and compensateddivided by consulting agreements. The Board has determined that none of its directors is “independent” under the criteria set forth in Rule 4200(15) of the Nasdaq Marketplace Rules.
The following table sets forth as of October 8, 2008, the name of each of the selling security holders, the number of shares of common stock that each selling security holder owns beneficially,outstanding as of January 31, 2013. After giving effect to the numbersale of [—] shares of Series C Convertible Preferred Stock in this offering and assuming the conversion of all the shares of Series C Convertible Preferred Stock sold in the offering at an assumed conversion price of $[—] which was the last reported sale price for our common stock on [—] (and excluding shares of common stock issuable upon exercise of warrants), after deducting the placement agent’s fees and estimated expenses of this offering, our as adjusted net tangible book value would have been approximately $[—], or $[—] per share of common stock. Assuming the completion of this offering, this represents an immediate increase in net tangible book value of $[—] per share to our existing stockholders and an immediate dilution of $[—] per share to anyone who purchases our Series C Convertible Preferred Stock and warrants in this offering. The following table illustrates this calculation on a per share basis:
| Public offering price per unit | [●] | |
| Net Tangible book value per share as of January 31, 2013 | (0.08) | |
| Increase per share attributable to the offering | [●] | |
| Adjusted net tangible book value per share as of January 31, 2013 after giving effect to this offering | [●] | |
| Dilution per share to new investors | [●] |
Someexercise of the selling security holders may distribute their convertible notes,outstanding options and warrants or shares, from timehaving an exercise price less than the per share offering price to time, to their limited and/or general partners and members, who may sell shares pursuant tothe public in this prospectus. Each selling security holder may also transfer convertible notes, warrants or shares by gift, and upon any such transferoffering.
Selling Security Holder | No. of Shares Owned(1) | No. of Shares Offered | No. of Shares After Offering(1) | Percent Owned After Offering(1) | ||||
Holders of Convertible Notes and Warrants | ||||||||
Steven Abbadessa(2) | 3,067,268 | 1,989,268 | 1,971,089 | 1.2 | ||||
Dirk Albrecht | 2,939,527 | 2,689,527 | 250,000 | 0.2 | ||||
Bruce Anthony | 128,103 | 75,103 | 53,000 | nil | ||||
James Apteker | 1,349,528 | 1,349,528 | -0- | -0- | ||||
Ivan Bergamin | 1,385,304 | 1,225,304 | 159,000 | 0.1 | ||||
Biotrocite Ltd.(3) | 13,461,971 | 13,461,971 | -0- | -0- | ||||
Sal and Anette Craparotta | 1,349,528 | 1,349,528 | -0- | -0- | ||||
FIONA International SA(4) | 711,250 | 300,000 | 411,250 | 0.3 | ||||
Selling Security Holder Ryan Fisher Lowell Fox Andreas Geiger Daniel Gnepf Till Gontersweiler(5) Guggenheim & Partner(6) Charles Hegglin Edgar Holdener Barbara Homberger Hanspeter Jaberg(7) JWR Realty LLC(8) Oskar Kaelin Kristian Kiilerich Peter Kleb Shell Kulick Roger Kutner Harold Margreff Robert Mahan André Meuter Money Worth Ltd.(9) Mark Nelson Robert Nicora OPM Invest Ltd.(10) Todd Patkin(11) Arnold Pfister Dieter Reiff Nadine Reiff Richard Rendon SINITUS Nominees, LTD(12) Anne-Marie Solari Bozzi Ronald A. Saltman Erwin Schaeli, Jr. Peter Tschirky Christian Walliker(4) Kevin Walsh Wots-Red LLC(13) Charles Yacoobian Holders of Convertible Notes Joe Achermann Claire Alexander Ruedi Baer Hans-Jörg Bahl Mia Bastar No. of
Shares
Owned(1) No. of
Shares
Offered No. of
Shares
After
Offering(1) Percent
Owned
After
Offering(1) 337,385 337,385 -0- -0- 2,708,981 1,349,528 1,359,453 0.8 1,208,505 708,505 500,000 0.3 140,000 140,000 -0- -0- 7,400,837 4,466,213 2,934,624 1.8 1,128,334 1,128,334 -0- -0- 1,455,263 771,930 683,333 0.4 580,000 580,000 -0- -0- 300,000 300,000 -0- -0- 3,554,100 2,170,767 1,383,333 0.9 1,518,218 1,518,218 -0- -0- 3,227,776 2,165,070 1,062,706 0.7 2,363,576 2,363,576 -0- -0- 433,334 433,334 -0- -0- 697,786 318,486 379,300 0.2 1,599,527 1,349,527 250,000 0.2 1,349,528 1,349,528 -0- -0- 337,385 337,385 -0- -0- 5,204,235 3,870,902 1,333,333 0.8 1,812,001 1,625,001 187,000 0.1 985,483 285,153 700,330 0.4 2,125,103 75,103 2,050,000 1.3 11,714,149 8,192,081 3,522,068 6.9 11,055,123 7,311,743 3,743,380 2.2 2,112,113 1,612,113 500,000 0.3 1,778,401 1,778,401 -0- -0- 2,300,000 2,300,000 -0- -0- 1,553,014 1,390,014 163,000 0.1 4,048,579 4,048,579 -0- -0- 542,587 542,587 -0- -0- 463,201 150,201 313,000 0.2 680,000 680,000 -0- -0- 5,572,605 3,272,605 2,300,000 1.4 9,926,676 8,654,676 1,272,000 0.7 725,264 674,764 50,500 nil 3,076,438 3,036,438 40,000 nil 905,708 300,408 605,300 0.4 48,500 48,500 -0- -0- 22,223 22,223 -0- -0- 250,000 250,000 -0- -0- 300,000 300,000 -0- -0- 333,334 333,334 -0- -0-
Selling Security Holder Werner Baumann Rebecca Bellin-Sonnenburg Leonardo Bersani Bioplas Ltd.(14) Nels Bjerregard Kim Boettger Jutta Bruckmann Katrin Buchmann Thomas Buholzer Bruno Butti Maria Anna Cerri Negovanka Culosi Arthur Dätwiler Domenico Decoralis Paolo Desole DTA Management AG(15) Juan A. Duran Christoph Ehrbar Carina Eriksson Oliver Guggenheim Christian Harringer Ruedi Holdener Lars Holm Darien Holding & Finance SA(16) Moritz Hubeli Markus Hueni Neil Ivory Japasports GmbH(17) Allan Jorgensen Torben Jensen Kim Julian Urs Kaelin Simon Keel Jakob Keller Kamran Khokhar Benjamin Kneuss Sebastian Kneuss Kurt Kreusser Oliver Küpfer Theresa Lambert Suzanne Landolt-Parker No. of
Shares
Owned(1) No. of
Shares
Offered No. of
Shares
After
Offering(1) Percent
Owned
After
Offering(1) 100,000 100,000 -0- -0- 112,500 112,500 -0- -0- 960,003 960,003 -0- -0- 5,038,282 5,038,282 -0- -0- 650,000 650,000 -0- -0- 200,000 200,000 -0- -0- 80,000 80,000 -0- -0- 58,587 58,587 -0- -0- 27,700 27,700 -0- -0- 200,000 200,000 -0- -0- 323,887 323,887 -0- -0- 600,000 600,000 -0- -0- 19,000 19,000 -0- -0- 93,873 93,873 -0- -0- 200,000 200,000 -0- -0- 27,792 27,792 -0- -0- 420,064 375,000 45,064 nil 250,000 250,000 -0- -0- 125,000 125,000 -0- -0- 50,000 50,000 -0- -0- 200,000 200,000 -0- -0- 70,000 70,000 -0- -0- 50,000 50,000 -0- -0- 666,667 666,667 -0- -0- 239,660 239,660 -0- -0- 625,000 625,000 -0- -0- 125,000 125,000 -0- -0- 250,000 250,000 -0- -0- 125,000 125,000 -0- -0- 526,316 526,316 -0- -0- 1,052,632 1,052,632 -0- -0- 150,000 150,000 -0- -0- 250,000 250,000 -0- -0- 30,000 30,000 -0- -0- 25,000 25,000 -0- -0- 2,500 2,500 -0- -0- 2,500 2,500 -0- -0- 312,500 312,500 -0- -0- 14,500 14,500 -0- -0- 22,223 22,223 -0- -0- 1,831,000 400,000 1,431,000 0.9
Selling Security Holder Thomas Lange Markus Leuzinger Wendelin Lipp Jasmin Malouki Manuel Maranta Matadores(18) Juerg Matthes Joel Meuter Michael Meuter Pascal Meuter Roger Meuter Silvia Meuter Martin Mezger Zoltan Molnar Reto Müller John Naef Nirenco Corp.(19) Jorg Obwegeser Ignio Paoletti Paro Management AG(20) Istvan Petras Steve Rastall Ravioli Ltd.(21) Posch Roger Falk Ronne Erwin Schaeli, Sr. Richard Spielmann Andrea Stutz Taffelbay(22) Henry Theiler Nierves Traber Antonio Vincenzo Hans-Peter Walliker Beat Wickart Jürg Zenger Holders of Warrants Agrifin S.A.(23) Walter Bittdorfer Bluebird Invest Ltd.(3)(4)(5) Victor Dario Horizon Finance Capital Group Ltd.(7) Gottfried Kindler Klaus Leutgeb Marc Ott MTS Finance Ltd.(5)(14) Josef Pein No. of
Shares
Owned(1) No. of
Shares
Offered No. of
Shares
After
Offering(1) Percent
Owned
After
Offering(1) 466,667 200,000 266,667 0.2 100,963 74,296 26,667 nil 714,118 294,118 420,000 0.3 100,000 100,000 -0- -0- 6,900 6,900 -0- -0- 210,000 150,000 60,000 nil 133,334 133,334 -0- -0- 2,500 2,500 -0- -0- 2,500 2,500 -0- -0- 5,000 5,000 -0- -0- 5,000 5,000 -0- -0- 105,263 105,263 -0- -0- 36,364 36,364 -0- -0- 56,667 56,667 -0- -0- 30,000 30,000 -0- -0- 30,000 30,000 -0- -0- 1,250,000 1,250,000 -0- -0- 265,000 265,000 -0- -0- 6,780 6,780 -0- -0- 90,910 90,910 -0- -0- 500,000 500,000 -0- -0- 29,000 29,000 -0- -0- 250,000 250,000 -0- -0- 105,000 105,000 -0- -0- 133,334 133,334 -0- -0- 84,616 84,616 -0- -0- 50,000 50,000 -0- -0- 228,126 228,126 -0- -0- 1,578,948 1,578,948 -0- -0- 12,210 12,210 -0- -0- 50,000 50,000 -0- -0- 93,873 93,873 -0- -0- 1,000,000 1,000,000 -0- -0- 750,000 750,000 -0- -0- 187,500 187,500 -0- -0- 1,000,000 1,000,000 -0- -0- 500,000 500,000 -0- -0- 13,779,247 1,312,247 12,467,000 2,360,000 1,500,000 860,000 0.5 15,419,290 8,353,086 1,566,204 0.9 10,000 10,000 -0- -0- 240,000 240,000 -0- -0- 250,000 250,000 -0- -0- 9,949,315 1,566,439 8,382,876 250,000 250,000 -0- -0-
Selling Security Holder Roland Schaub(10) Martin Schein Heinz Schuetz Holders of Warrants and Common Shares John Johnstone Joan Mahan Lane Martin David Rock Holders of Offered Common Shares Only Roy E. Burt Jack & Verna Haney No. of
Shares
Owned(1) No. of
Shares
Offered No. of
Shares
After
Offering(1) Percent
Owned
After
Offering(1) 1,133,058 1,133,058 -0- -0- 170,000 170,000 -0- -0- 45,088 45,088 -0- -0- 5,511,295 2,063,295 3,448,000 2.1 876,381 113,952 762,429 0.5 265,054 148,774 116,280 0.1 346,022 158,259 187,763 0.1 342,500 20,000 322,500 0.2 63,900 20,000 43,900 nil
| ● | 4,755,583 shares of |
| ● | 230,713 shares of common |
| ● | 5,559,822 shares of common stock reserved for |
ordinary brokerage transactionsCertificate of Incorporation and transactions in which the broker-dealer solicits Investors;
block trades in which the broker-dealer will attemptBylaws below. The summary is not complete. The Certificate of Incorporation and Bylaws are incorporated by reference as exhibits to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
to cover short sales made after the date that the registration statement of which this prospectus isforms a part is declared effective bypart. You should read the Commission;
broker-dealers may agree with the selling security holders to sell a specified numberCertificate of such shares at a stipulated price per share;
a combination of any such methods of sale;Incorporation and
any other method permitted pursuant to applicable law.
The selling security holders may also sell shares under Rule 144 adopted under the Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent Bylaws for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling security holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved, but in any event the maximum commission or discount that may be paid or received by any broker-dealer for sale or placement of the common stock for the selling security holders cannot exceed eight percent.
The selling security holders may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus.
Upon Oxygen Biotherapeutics being notified in writing by a selling security holder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act of 1933, disclosing (i) the name of each such selling security holder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon Oxygen Biotherapeutics being notified in writing by a selling security holder that a donee or pledgee intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law.
The selling security holders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling security holders and any broker-dealers or agentsprovisions that are involved in selling the shares may be deemedimportant to be “underwriters” within the meaningyou.
Oxygen Biotherapeutics has advised each selling security holder that it may not use shares registered on the registration statement of which this prospectus is a part to cover short sales of common stock made prior to the date on which the registration statement shall have been declared effective by the Securities and Exchange Commission. If a selling security holder uses this prospectus for any sale of the common stock, it will be subject to the prospectus delivery requirements of the Securities Act of 1933. The selling security holders will be responsible to comply with the applicable provisions of the Securities Act of 1933 and Securities Exchange Act of 1934, and the rules and regulations adopted thereunder, including, without limitation, Regulation M, as applicable to such selling security holders in connection with resales of their respective shares under this prospectus.
Oxygen Biotherapeutics is required to pay all fees and expenses incident to the registration of the shares, but it will not receive any proceeds from the sale of the common stock. Oxygen Biotherapeutics has agreed to indemnify the selling security holders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933.
Oxygen Biotherapeutics’ charter authorizes it to issue up to: (i) 400,000,000 shares of common stock, $0.0001 par value per share;share, and (ii) 10,000,000 shares of preferred stock in one or more series, $0.0001 par value per share.
Common stock
stock.
Preferred stock
The board of directors, without further action by the holders of the common stock, is authorized to classify any shares of our authorized but unissued preferred stock in one or more series. With respect to each series, the board of directors may determine:
The number of shares which shall constitute such series;
The rate of dividend, if any, payable on shares of such series;
Whether the shares of such series shall be cumulative, non-cumulative or partially cumulative as to dividends, and the dates from which any cumulative dividends are to accumulate;
Whether the shares of such series may be redeemed, and, if so, the price or prices at which and the terms and conditions on which shares of such series may be redeemed;
The amount payable upon shares of such series in the event of the voluntary or involuntary dissolution, liquidation or winding up of the affairs of Oxygen Biotherapeutics;
The sinking fund provisions, if any, for the redemption of shares of such series;
The voting rights, if any, of the shares of such series;
The terms and conditions, if any, on which shares of such series may be converted into shares of capital stock of Oxygen Biotherapeutics of any other class or series;
Whether the shares of such series are to be preferred over shares of capital stock of Oxygen Biotherapeutics of any other class or series as to dividends, or upon the voluntary or involuntary dissolution, liquidation, or winding up of the affairs of Oxygen Biotherapeutics, or otherwise; and
Any other characteristics, preferences, limitations, rights, privileges, immunities or terms not inconsistent with the provisions of the Charter.
The availability of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of discouraging takeover proposals, and the issuance of preferred stock could have the effect of delaying or preventing a change in control of Oxygen Biotherapeutics not approved by the board of directors.
Limitation on directors’ liabilities
Pursuant to the certificate of incorporation and under Delaware law, directors and executive officers are not liable to Oxygen Biotherapeutics or its stockholders for monetary damages for breach of fiduciary duty, except liability in connection with a breach of duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, dividend payments or stock repurchases illegal under Delaware law, or any transaction in which a director has derived an improper personal benefit.
Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which these persons may be involved because of their offices with us if they acted in good faith or in a manner reasonably believed to be in or not opposed to our best interests. However, nothing in the certificate of incorporation and bylaws protects or indemnifies a director, officer, employee, or agent against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. To the extent that a director or officer has been successful in defense of any proceeding, our bylaws provide that he shall be indemnified against reasonable expenses incurred in connection therewith.
Penny stock rules
It is likely public transactions in our stock will be covered by the Penny Stock rules, which impose significant restrictions on broker-dealers and may affect the resale of our stock. A penny stock is generally a stock that
Is not listed on a national securities exchange or Nasdaq,
Is listed in “pink sheets” or on the NASD OTC Bulletin Board,
Has a price per share of less than $5.00 and
Is issued by a company with net tangible assets less than $5 million.
The penny stock trading rules impose additional duties and responsibilities upon broker-dealers and salespersons effecting purchase and sale transactions in common stock and other equity securities, including
Determination of the purchaser’s investment suitability,
Delivery of certain information and disclosures to the purchaser, and
Receipt of a specific purchase agreement from the purchaser prior to effecting the purchase transaction.
Many broker-dealers will not effect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the penny stock trading rules. It is likely our common stock will be covered by the penny stock trading rules. Therefore, such rules may materially limit or restrict a holder’s ability to resell our common stock, and the liquidity typically associated with other publicly traded equity securities may not exist.
Transfer agent
The transfer agent for the common stock is Interwest Transfer Company, Salt Lake City, Utah.
Our common stock is traded on the Nasdaq Capital Market and is quoted under the symbol OXBT.