1 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, 1999 COMMISSION FILE NUMBER 2-31909 SYNTHETIC BLOOD INTERNATIONAL, INC. ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW JERSEY 22-3067701 - ------------------------ ------------------------ (STATE OF INCORPORATION) (IRS EMPLOYER ID NUMBER) 2685 CULVER AVENUE KETTERING, OHIO 45429 ---------------------------------------- 937-298-6070 ---------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by the check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports). YES (X) NO ( ) and (2) has been subject to such filing requirements for the past 90 days. YES (X) NO ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 1999. 57,059,078 shares of common stock par value $0.01 1 2 SYNTHETIC BLOOD INTERNATIONAL, INC. (A Development Stage Company) BALANCE SHEETS ASSETS July 31, April 30, 1999 1999 ------------ ------------ (Unaudited) Current Assets: Cash and cash equivalents $ 90,788 $ 193,013 Prepaid Expense 30,385 60,874 ------------ ------------ Total Current Assets $ 121,173 $ 253,887 Property & Equipment, net 50,738 61,602 Other Assets: Patents and Technology 216,433 215,417 ------------ ------------ $ 388,344 $ 530,906 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Current portion of notes payable $ 62,793 $ 101,170 Accounts payable 284,208 305,686 Stockholders loans 76,900 76,900 Accrued liabilities 118,032 118,470 ------------ ------------ Total Current Liabilities $ 541,933 $ 602,226 Notes Payable, less current $ 44,097 $ 47,327 Total Liabilities $ 586,030 $ 649,554 Stockholders' Deficiency: Common Stock ,authorized 100,000,000 shares, Issued and outstanding 57,059,078 and 55,314,324 570,591 553,143 Additional Paid in Capital 9,854,080 9,730,209 Deficit Accumulated Since Development Stage (10,622,357) (10,401,999) ------------ ------------ Total Stockholders' Deficiency $ (197,686) $ (118,647) ------------ ------------ $ 388,344 $ 530,906 ============ ============ See accompanying notes to financial statements 2 3 SYNTHETIC BLOOD INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS Accumulated during the Three Months Ended development July 31, stage 1999 1998 ------------ ------------------------------ (Unaudited) Unaudited Expenses: Research and development $ 3,207,623 $ 43,698 $ 35,107 General and administrative 7,336,355 172,508 193,263 Interest 154,484 4,892 5,920 ------------ ------------ --------- Total Expense 10,698,462 221,098 234,290 Other Income (76,105) (741) (6,628) ------------ ------------ --------- NET LOSS $(10,622,357) $ (220,357) $(227,662) ============ ============ ========= NET LOSS PER SHARE, BASIC AND DILUTED $ (0.004) $ (0.005) ------------ --------- WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED 55,860,937 50,729,302 ------------ --------- See accompanying notes to financial statements 3 4 SYNTHETIC BLOOD INTERNATIONAL, INC. STATEMENT OF CASH FLOWS Accumulated During Three Months Ended Development July 31, Stage 1999 1998 --------------------------- CASH FLOWS FROM OPERATING (Unaudited) (Unaudited) ACTIVITIES: Net loss $(10,622,357) $(220,357) $(227,662) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 378,951 17,391 12,890 Write down other assets 129,210 Issuance of compensatory stock options 250,466 Issuance of stock for services 1,046,441 Issuance of stock below FMV 695,248 Contribution of capital by stockholders 216,851 Changes in operating assets and liabilities: Prepaid expenses and other assets (30,385) 30,489 (1,601) Accounts payable and accrued expense 565,233 (21,916) (12,875) ------------ --------- --------- Net cash used in operating activities (7,370,342) (194,393) (229,248) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of other assets (452,582) (6,872) (14,825) Proceeds from the sale of equipment 15,457 Purchase of property and equipment (285,868) (671) ------------ --------- --------- Net cash used in investing activities (722,993) (7,543) (14,825) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock 6,584,690 141,319 Repayments of amounts due stockholders (121,517) Proceeds from stockholder notes payable 977,692 Contribution of capital by stockholder 40,700 Proceeds from notes and debentures 951,248 Payments on notes and lease obligations (248,690) (41,608) (40,357) ------------ --------- --------- Net cash provided by (used in) financing activities 8,184,123 99,711 (40,357) Net change in cash and cash equivalents 90,788 (102,225) (284,430) Cash and cash equivalents, beginning -- 193,013 740,215 ------------ --------- --------- Cash and cash equivalents, ending 90,788 90,788 455,785 ============ ========= ========= Cash paid for Interest $ 114,970 $ 4,892 $ 5,920 Taxes 7,966 1,276 800 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES- Common stock issued for accounts payable $ 25,000 Common stock issued to retire notes $ 36,000 Common stock issued to retire accrued wages $ 94,000 See accompanying notes to financial statements 4 5 SYNTHETIC BLOOD INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) which in the opinion of management, are necessary to present fairly the financial position of the Company at July 31, 1999, and the results of its operations for the three month periods ended July 31, 1999 and 1998 and its cash flows for the three month periods ended July 31, 1999 and 1998. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission although the Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading. The financial statements included herein should be read in conjunction with the financial statements of the Company, included in the Company's Annual Report on Form 10-K for the year ended April 30, 1999 filed with the Securities and Exchange Commission on September 1, 1999. Going Concern - The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements, the Company is in the development stage and, at July 31, 1999 has accumulated losses from operations amounting to $10,622,357 and a working capital deficit of $420,760. The Company is in the pre-clinical trial stage of its products. These products must undergo further development and testing prior to submission to the FDA for approval to market the products. The Company's continuation as a going concern is dependent on its ability to generate sufficient cash flow, to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain successful operations. However, no assurance can be given at this time as to whether the Company will achieve any of these conditions or that the FDA approval will be granted, once applied for. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time. Additional funding will be necessary which will require future private placements and/or joint ventures to enable the Company to continue the required testing through Phase I, II and III human testing. 5 6 2. STOCKHOLDERS' EQUITY During the period ended July 31, 1999, the Company issued 124,545 shares of the Company's common stock to third party investors for $.11 per share, the fair market value at the date of purchase, plus options to purchase 124,545 shares of the common stock at $.11 per share. Also during the period ended July 31, 1999, the Company issued 1,332,619 shares of the Company's common stock to third party investors for $.14 per share, the fair market value at the date of purchase, plus options to purchase 1,812,190 shares of the common stock at $.14 per share. 6 7 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. RESULTS OF OPERATIONS- Three months ended July 31, 1999 and 1998: The Research and Development expenses for the three month period ended July 31, 1999 were $43,698, compared to $ 35,107 for the same period in the prior year. This increase was primarily due to an increase in contract wages of $9,400. General and Administrative expenses for the three month period ended July 31, 1999 were $172,508, compared to $193,263 for the same period in the prior year. During the current period professional fees were down $14,600 along with wages and contract labor down $23,300 and travel expenses down $8,800. These decreases were partially offset by an increases in rent expense of $13,000 related to the addition of a California research laboratory in 1999 and a one-time moving expense of $14,000 associated with the set-up of a laboratory in California. The net loss for the three months ended July 31, 1999 was $220,357, compared to $227,662 for the same period in the prior year. Although total expenses were down $14,000 for the current period, this decrease was offset by interest income of $6,000 earned on excess funds available for investment in the prior period. 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, 1999 the Company had $121,173 in total current assets and a working capital deficit of $420,760. The Company is in the pre-clinical trial stage in the development of its products. These products must undergo further development and testing prior to submission to the FDA for approval to market its products. This additional development and testing and if approved, the FDA required clinical testing will require significant additional financing. Management is actively pursuing strategic alliance and joint venture agreements to enable the Company to develop its products. 7 8 There can be no assurance that FDA approval will be granted, once applied for, or that necessary funding will be obtained. The Company does not have any firm commitments for additional capital as of July 31, 1999. YEAR 2000 COMPLIANCE The "Year 2000 Issue" arises because most computer systems and programs were designed to handle only a two-digit, not a four-digit year. When the year 2000 begins, these computers may interpret "00" as the year 1900 and could either stop processing date-related computations or could process them incorrectly. The Company is in the process of developing a program to address Year 2000 issues and such program is substantially complete as of July 31, 1999. The Company does not believe the costs required to address Year 2000 issues will be material, and that the program should be completely implemented by the end of the third quarter of 1999. Year 2000 issues faced by prospective supplies, vendors and financial service organizations with which the Company interacts could adversely impact the Company. The Company is in the process of developing a plan to determine the impact that third parties that are not Year 2000 compliant may have on the operations of the Company. However, there can be no guarantee that the systems of these companies will achieve Year 2000 compliance in a timely manner. Recent SEC guidance for Year 2000 disclosure also calls on companies to describe their most likely worst case Year 2000 scenario. The Company believes that the most likely worst case scenario is that the Company could experience clinical trial and research and development delays because of infrastructure failures or delays from suppliers. 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. 8 9 SYNTHETIC BLOOD INTERNATIONAL, INC. (A DEVELOPMENT STAGE COMPANY) PART II-OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. In May, 1999 the Company issued 124,545 shares of common stock at $.11 per share and granted options to acquire a total of 124,545 shares of common stock with an exercise price of $.11 per share to two individuals. In June, 1999 the Company issued 230,419 shares of common stock at $.14 per share and granted options to acquire a total of 368,670 shares of common stock with an exercise price of $.14 per share to six individuals. In July, 1999 the Company issued 1,102,200 shares of common stock at $.14 per share and granted options to acquire a total of 1,443,520 shares of common stock with an exercise price of $.14 per share to fifteen individuals. The common stock was issued and the options were granted pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933. 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. (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K The Company filed Form 8-K on July 9, 1999 informing the Commission of a change in corporate auditors. 9 10 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) 9/14/99 /S/ DAVID H. JOHNSON - ---------------------------------- ----------------------------------------- (Date) David H. Johnson, Chief Financial Officer 10