SYNTHETIC BLOOD INTERNATIONAL, INC.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 31, 2001
Commission File Number 2-31909
SYNTHETIC BLOOD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3067701
(State of Incorporation) (IRS Employer ID Number)
3189 Airway Avenue, Building C, Costa Mesa, California 92626
(Office of Principal Executive Office)
714-427-6363
(Registrant's telephone number, including area code)
Indicate by the check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports).
YES (X) NO ( )
and (2) has been subject to such filing requirements for the past 90 days.
YES (X) NO ( )
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 2001.
87,350,309 shares of common stock par value $0.01
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
July 31, | April 30, | |||
2001 | 2001 | |||
(Unaudited) | ||||
Current Assets: | ||||
Cash and cash equivalents | $ 4,009,613 | $ 4,250,898 | ||
Note receivable from director | 30,000 | 30,000 | ||
Prepaid expenses | 80,780 | 83,373 | ||
Total Current Assets | 4,120,393 | 4,364,271 | ||
Property and Equipment, net | 366,187 | 243,904 | ||
Patents, net | 245,445 | 234,121 | ||
$ 4,732,025 | $ 4,842,296 |
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities: | ||||
Notes Payable | $ 181,319 | $ 177,534 | ||
Accounts payable | 129,499 | 87,256 | ||
Accrued liabilities | 81,842 | 79,454 | ||
Total Current Liabilities | 392,660 | 344,068 | ||
Stockholders' Equity: | ||||
Common Stock, par value $.01 per share; authorized 100,000,000 shares; issued and outstanding 87,350,309 and 84,474,547 | 873,503 | 844,745 | ||
Deposits on common stock | - | 94,231 | ||
Additional paid-in capital | 16,968,812 | 16,544,832 | ||
Deficit accumulated during development stage | (13,502,950) | (12,985,580) | ||
Total Stockholders' Equity | 4,339,365 | 4,498,228 | ||
$ 4,732,025 | $ 4,842,296 |
See accompanying notes to financial statements
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Accumulated |
During the | Three Months Ended | Three Months Ended | |
Development | July 31, | July 31, |
Stage | 2001 | 2000 |
(Unaudited) |
Expenses: | |||
Research and development | $ 4,529,057 | $ 316,881 | $ 116,504 |
General and administrative | 9,275,375 | 245,991 | 227,306 |
Interest | 169,461 | 2,917 | 808 |
Total Expenses | 13,973,893 | 565,789 | 344,618 |
Other Income | (470,943) | (48,419) | (90,935) |
NET LOSS | $ (13,502,950) | $ (517,370) | $ (253,683) |
NET LOSS PER SHARE, BASIC AND DILUTED | $ (0.006) | $ (0.003) | |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED | 85,139,699 | 81,917,908 |
See accompanying notes to financial statements
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Accumulated | |||
During |
Development | Three Months Ended July 31, | Three Months Ended July 31, |
Stage | 2001 | 2000 |
(Unaudited) | (Unaudited) | (Unaudited) |
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
Net loss | $ (13,502,700) | $ (517,370) | $ (253,683) | ||
Adjustments to reconcile net loss to cash used in operating activities: | |||||
Depreciation and amortization | 512,226 | 25,048 | 6,812 | ||
Loss on disposal of property and equipment | 15,284 | - | - | ||
Disposal and write-down of other assets | 126,800 | - | - | ||
Compensatory stock options/warrants issued | 367,213 | - | - | ||
Issuance of stock below market value | 695,248 | - | - | ||
Contribution of capital through services rendered by stockholders | 216.851 | - | - | ||
Issuance of stock for services rendered | 1,190,209 | - | - | ||
Changes in operating assets and liabilities: | |||||
Prepaid expenses and other assets | (81,030) | 2,593 | 24,832 | ||
Accounts payable and accrued expense | 387,934 | 44,631 | 15,091 | ||
Net cash used in operating activities | (10,071,965) | (445,098) | (206,948) | ||
CASH FLOW FROM INVESTING ACTIVITIES: | |||||
Purchase of property and equipment | (680,782) | (137,675) | (99,242) | ||
Proceeds from the sale of equipment | 15,457 | - | - | ||
Purchase of other assets | (578,279) | (20,980) | (20,389) | ||
Net cash used in investing activities | (1,243,604) | (158,655) | (119,631) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
Proceeds from sale of common stock and exercise of common stock options and warrants | 13,593,988 | 358,507 | 52,336 | ||
Repayments of amounts due stockholders | (121,517) | - | - | ||
Proceeds from stockholder notes payable | 977,692 | - | - | ||
Contribution of capital by stockholder | 40,700 | - | - | ||
Proceeds from common stock not yet issued | 94,231 | - | - | ||
Proceeds from stock subscription | - | - | 400,000 | ||
Proceeds from notes, debentures and lease obligations | 1,160,248 | 74,000 | - | ||
Payments on notes and lease obligations | (420,160) | (70,039) | (22,234) | ||
Net cash provided by financing activities | 15,325,182 | 362,468 | 430,102 | ||
Net change in cash and cash equivalents | 4,009,613 | (241,285) | 103,523 | ||
Cash and cash equivalents, beginning of period | - | 4,250,898 | 5,466,391 | ||
Cash and cash equivalents, ending of period | $ 4,009,613 | $ 4,009,613 | $ 5,569,914 | ||
Cash paid for: | |||||
Interest | $ 129,947 | $ 2,917 | $ 808 | ||
Taxes | $ 14,380 | $ 5.640 | $ 1,250 |
See accompanying notes to financial statements
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) which in the opinion of management, are necessary to present fairly the financial position of the Company at July 31, 2001, and the results of its operations for the three month periods ended July 31, 2001 and 2000 and its cash flows for the three month periods ended July 31, 2001 and 2000. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission although the Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading.
Certain amounts as previously reported have been reclassified to conform with the 2001 presentation.
The financial statements included herein should be read in conjunction with the financial statements of the Company, included in the Company's Annual Report on Form 10-K for the year ended April 30, 2001 filed with the Securities and Exchange Commission on July 26, 2001.
STOCKHOLDERS' EQUITY
During the three months ended July 31, 2001, the Company issued 245,000 shares of common stock for $0.385 per share. The net proceeds received in connection with these shares, $94,227, were received during fiscal year 2000. These proceeds were presented as deposits on common stock in the accompanying balance sheet as of April 30, 2001.
During the three months ended July 31, 2001, the Company issued 1,000,000 shares of common stock for $0.133 per share.
During the three months ended July 31, 2001 the Company issued 1,630,762 shares of common stock resulting from the exercise of previously issued stock warrants. The shares were issued at a weighted-average price of $0.135 per share. The proceeds received in connection with the exercise of the warrants were $358,507.
SYNTHETIC BLOOD INTERNATIONAL, INC
(A Development Stage Company)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those projected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section and those discussed in the Company's Annual Report on Form 10K for the year ended April 30, 2001 and the filings made with the Securities and Exchange Commission.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company can not guarantee future results, levels of performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The Company is under no obligation to update any of the forward-looking statements after the filing of the Form 10-Q to conform such statements or actual results or to changes in expectations.
Potential risks and uncertainties include, but are not limited to: an inability to achieve results from the pre-clinical studies which are determined to merit requesting FDA approval to begin clinical trials for one or more of the Company's products; an inability to receive FDA approval to begin clinical trials for one or more of its products; an inability to enter into or maintain the future strategic collaborative relationships the Company believes are essential to further develop and commercialize the Company's products; uncertainties associated with the lengthy and complicated testing and regulatory approval process, in particular the risk that the Company's products, assuming pre-clinical tests are successful, may be found ineffective during clinical trials, if any, or the Company is unable to obtain the necessary regulatory approvals to commercialize these products; uncertainties associated with obtaining and enforcing patents for the Company's products and technology; the risks of infringing patents held by other parties; uncertainties associated with changing or new technology; difficulties in scaling up manufacturing operations to commercial scale and in obtaining raw materials in a quantity and at prices necessary to produce profitable products; an inability to have the Company's products manufactured by future strategic partners or contract manufacturing companies; and failure to obtain market acceptance, significant market share, or third party reimbursement at profitable price levels.
Significant risks and uncertainties are associated with the Company's ability to obtain the required financing to develop its products. The Company's projected capital requirements are based on the expectation that strategic partners will assume further development and regulatory costs for each product during Phase II clinical trials and thereafter. If that does not happen, the amount of financing the Company will be required to raise could increase substantially. If the Company is unable to raise adequate financing, it may be required to delay, scale-back, or eliminate one or more product development programs, or sell the rights to certain technologies or products.
RESULTS OF OPERATIONS
Three months ended July 31, 2001 and 2000:
The Research and Development expenses for the three-month period ended July 31, 2001 were $316,881 compared to $116,504 for the same period in the prior year. This increase is attributed to an increase in wages, salaries and contract that reflects the substantial increase in research and development activities over the comparable period in 2000.
General and Administrative expenses for the three-month period ended July 31, 2001 were $245,991, compared to $227,306 for the same period in the prior year. Payroll expenses increased $8,000 during the three-months ended July 31, 2001 along with increases in outside consulting expenses of $18,000 and insurance expenses of $8,000. These increases were offset by decreases in general office expenses of $8,000 and travel expenses of $5,000 from the same three-month period in 2000.
The net loss for the three months ended July 31, 2001 was $517,370, compared to a net loss of $253,683 for the same period in the prior year. Although, as noted above, expenses increased $221,171 during the three-month period ended July 31, 2001 over the comparable period in 2000, the Company's net loss increased $263,687 due to an decrease in other income of $42,516 attributed to reduced interest income earned on the Company's cash balances because of falling interest rates and smaller invested balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since September 1990, when the current management became involved, through the issuance of debt and equity securities and loans from stockholders. As of July 31, 2001, the Company had $4,120,393 in total current assets and working capital of $3,727,733. The Company has invested excess working capital in short-term money market investment instruments. The Company believes its cash and cash equivalents at July 31, 2001 will be sufficient to meet its liquidity needs for the next 18 months.
The Company is in the pre-clinical trial stage in the development of its products. These products must undergo further development and testing prior to submission to the FDA for approval to initiate clinical trials. This additional development and testing and, if approved, the FDA required clinical testing will require significant additional financing. Management is actively pursuing private and institutional financing as well as strategic alliances and/or joint venture agreements to assist the Company in acquiring the necessary additional financing, although there are no commitments as of July 31, 2001. If the Company raises additional funds through the issuance of equity securities, the percentage ownership of existing stockholders will be reduced, stockholders may experience additional dilution or such equity securities may provide for rights, preferences and privileges senior to those of the common stock.
There can be no assurance that FDA approval will be granted, if and when it is applied for one or more of the Company's products, or that necessary funding will be obtained. The Company does not have any firm commitments for additional capital as of July 31, 2001.
Financial Condition
July 31, 2001 compared to April 30, 2001:
Cash used in operating activities during the three-month period ended July 31, 2001 was $445,098 compared to $206,948 for the comparable period of the prior year, an increase of $238,150. Operating activities consisted primarily of product research and development and the general operation of corporate office.
Cash used in investing activities during the three-month period ended July 31, 2001 was $158,655 compared to $119,631 for the comparable period of the prior year. Investing activities consisted primarily of the purchase of equipment and expenditures related to the patent rights.
Cash provided by financing activities during the three-month period ended July 31, 2001 was $362,468 compared to $430,102 for the comparable period of the prior year. Financing activities consisted primarily of the sale of common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has no derivative financial instruments and no exposure to foreign currency exchange rates or interest rate risk.
Part II-Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
1. During June 2001, the Company issued 245,000 shares of common stock at $.385 per share to one individual, whom the Company reasonably believes was an accredited investor.
2. During May 2001, warrants were exercised for the purchase of 110,000 shares of common stock at a weighted average exercise price $0.115 per share by two individuals. During June 2001, warrants were exercised for the purchase of 121,429 shares of common stock at a weighted average exercise price $0.14 per share by three individuals. In addition, during July 2001, warrants were exercised for the purchase of 1,399,333 shares of common stock at a weighted average exercise price $0.14 per share by fifteen individuals.
3. In May 2001, the Company issued options pursuant to the 1999 Stock Option Plan to four outside directors. Each director was issued an option to purchase 10,000 shares of common stock at an exercise price of $0.255 per share. The options expire in ten years.
4. During June 2001, the Company issued options to two individuals for the purchase of a total of 12,500 shares of common stock at $0.01 per share. The options are for a term of five years.
The registrant relied upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended ("1933 Act") for the transactions described above to issue the common stock.. No commissions or fees were paid on the transaction and the Company had a prior existing relationship with the purchasers who had access to information regarding the Company. Restrictive legends were placed on the common stock certificates.
5. During July 2001, the Company issued 1,000,000 shares pursuant to Regulation S for a price of $0.133 per share or a total of $133,000.
6. Subsequent to the date of this report, in August 2001, pursuant to Regulation S, the Company issued options to one individual for the purchase of 5,500,000 shares of common stock. 3,500,000 options are exercisable at $0.133 per share and 2,000,000 options are exercisable at $0.60 per share. The options are only exercisable following a recapitalization of the Company for a period of one year.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matter to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
1. Stock Option Agreement, June 6 2001 with Robert Skalnik Attached
2. Stock Option Agreement, June 6, 2001 with James Reavis Attached
3. Stock Option Agreement, August 23, 2001 with Andreas Camenzind Attached
4. Stock Option Agreement, August 23, 2001 with Andreas Camenzind Attached
(b) Reports on Form 8-K:
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SYNTHETIC BLOOD INTERNATIONAL, INC.
(Registrant)
September 11, 2001 /s/ David H. Johnson
(Date) David H. Johnson, Chief Financial Officer