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FORM 1O-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C., 20549
FORM 1O-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended April 30, 2001
Commission File No. 2-31909
SYNTHETIC BLOOD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3067701
(State of Incorporation) (IRS Employer I.D. Number)
3189 Airway Avenue, Building C, Costa Mesa, California 92626
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number and area code: (714) 427-6363
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES (X) NO ( )
Indicate by check mark if disclosure of delinquent filings pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be continued, to the best of registrant's knowledge in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
YES (X) NO ( )
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date, June 25, 2001: 84,705,976 shares of $.01 par value common
stock. The aggregate market value of the shares held by non-
affiliates of the registrant (assuming officers, directors and 10%
shareholders are affiliates) was approximately $23,643,758 based on
the closing bid price of the Registrants Common Stock on June 25,
2001 of $0.30 per share.
List hereunder the following documents if incorporated by reference
and the Part of the Form 10-K into which the document is
incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed
pursuant to Rule 424 (b) or (c) under the Securities Act of 1933.
None of the above-listed documents are incorporated by reference.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere. These statements relate to future
events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may",
"will", "should", "expects", "plans", "anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative
of such terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks outlined under
"Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels of activities,
performance or achievements expressed or implied by such forward-
looking statements.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of such statements. We are under
no duty to update any of the forward-looking statements after the
date of this Form 10-K or to conform such statements to actual
results.
PART I
ITEM 1 - BUSINESS
Synthetic Blood International, Inc. ("SBI" or the "Company") is a
development-stage company which is developing OXYCYTE, a
proprietary synthetic blood substitute and FLUOROVENT, a liquid for
assisting oxygen exchange in damaged or diseased lungs based upon
perfluorocarbon ("PFC") technology. In addition the Company has
developed an implantable continuous reading glucose biosensor for
diabetics. The Company is now in the preclinical stage and is
completing activities necessary for the preparation of applications
with the United States Food and Drug Administration ("FDA") to
begin clinical testing. After the submission to the FDA, the
Company's products will require extensive clinical testing before
FDA approval may be granted. No assurance may be given that FDA
approval will be granted.
The Company's technology is based on research done by Dr. Leland C.
Clark, Jr., a widely recognized, pioneering inventor and scientist.
Dr. Clark, who is credited with developing the first blood
oxygenator for open heart surgery as well as biomedical
applications for perfluorocarbons and biosensors, was the Company's
Vice President of R&D until 1998. Dr. Clark currently serves as a
consultant to SBI.
The Company began conducting business in its current form in
September 1990, shortly thereafter changed its name to Synthetic
Blood International, Inc., and revised its business purpose to
developing a line of blood substitutes.
MARKET
The Company's lead products - Oxycyte(TM), Fluorovent(TM), and an
implantable glucose biosensor - will compete in what the Company
believes are four multibillion-dollar markets: blood substitutes,
oxygen therapeutics, acute respiratory distress, and diabetes.
Blood Substitutes
The search for blood replacement fluids began centuries ago. In
modern times, this search has been given a new impetus by the
threat of disease transmission, most notably HIV and hepatitis C.
The risks are low but unacceptable because of the high death rate
from these diseases. In underdeveloped countries, the risk of
serious disease transmission is much greater.
An increasingly short supply of blood is also driving this
research. In the US, the number of blood donors continues to fall
while the number of elderly, the group that needs blood the most,
is growing. By 2030, experts project an annual shortfall of 4
million units in the US. In other countries where cultural and
logistical issues constrain blood collection even more, the
shortfall is believed to be much greater.
The third major force behind this search is the military's desire
for a blood substitute that can be stockpiled and used immediately
when needed in battlefield conditions without special storage and
matching of human donor blood. Current techniques for blood
transfusions do not meet these requirements.
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Approximately 100 million units of human donor blood are collected
annually worldwide. About 15 million units are collected in the US
each year. The global market for blood substitutes has been
estimated at $2-5 billion.
Oxygen Therapeutics
The availability of parenteral oxygen-carrying products for animal
and clinical research has lead to the identification of potential
new uses for products traditionally defined as blood substitutes.
These uses, for example in ischemic conditions, specifically depend
on the ability to deliver oxygen, not on a patient's need for blood
or blood components. These new uses include stroke, myocardial
infarction, angioplasty, and malignant disease. In ischemic
conditions, cell damage is caused by a lack of oxygen. In cancer,
enhanced oxygen delivery is thought to make solid tumors, and
possibly diffuse cancer cells, more susceptible to radiation and
chemotherapy. Combined, these conditions affect 3-4 million people
in the U.S. The company estimates these new uses for oxygen-
carrying blood substitutes to constitute a multibillion-dollar
market.
Acute Respiratory Distress
Thousands of premature infants are born each year with
underdeveloped lungs and a condition of impaired pulmonary function
known as acute respiratory distress syndrome (ARDS). This syndrome
has multiple causes and also occurs in children and adults.
Although many of these patients are treated with mechanical
ventilation, this treatment can add further injury to the lungs and
the mortality rate is still high. This has prompted research for a
safer, more effective treatment. While more research is needed,
current studies with partial liquid ventilation in animals and
patients, both infants and adults, suggest that liquid ventilation
may be a safe and effective treatment of ARDS.
The incident of ARDS in the US is about 250,000 cases annually.
While ARDS is the primary disease target for liquid ventilation at
this time, SBI believes that it may also be beneficial in chronic
obstructive pulmonary disease (COPD), a condition that occurs in 10
million people in the US. The company believes that the ultimate
market for liquid ventilation is in the multibillion-dollar range.
Diabetes
Diabetes and its associated complications are among the most
prevalent, costly diseases in the world. Its incidence is
increasing at a significant rate. Diabetes affects men and women
equally but occurs most frequently in the elderly. Direct costs are
estimated at about $50 billion, almost 6% of the total personal
healthcare expenditures in the US.
A ten year study, the Diabetes Control and Complications Trial
(DCCT) sponsored by the National Institutes of Diabetes and
Digestive and Kidney Diseases, showed that "tight diabetes
control," keeping blood sugar levels close to normal by recent
blood sugar testing, several daily insulin shots, and lifestyle
changes, was associated with a major reduction in diabetic
complications. These findings led the American Diabetes Association
to recommend tight control as an important way to delay the onset
and dramatically slow the progression of complications from
diabetes.
People with diabetes measure their blood glucose levels by sticking
a finger with a needle to obtain a blood drop that is placed on a
test strip and analyzed by a portable instrument. Repeating this
procedure several times a day becomes painful, leading many
patients, especially the elderly, to perform the procedure
infrequently. Furthermore, the accuracy of some blood glucose
analyzers is poor. A less invasive system for accurately measuring
blood glucose on demand would increase glucose monitoring
compliance and provide a better basis for tight diabetes control.
More than 16 million people, approximately half undiagnosed, are
estimated to suffer from diabetes in the US. Between 600,000 and
700,000 new cases are diagnosed each year. About 800,000 diabetics
are insulin-dependent. Mortality from diabetes and its associated
complications is high; it is the seventh leading cause of death in
the US. Globally, the incidence of diabetes is estimated at 120
million people. While insulin-dependant diabetics are thought to
have the greatest need for tight diabetic control, evidence is
increasing that better control of blood glucose in type 2 diabetics
also leads to a reduction in diabetic complications. The company
estimates the global market for a less invasive glucose monitoring
system to be a multibillion-dollar market.
TECHNOLOGY
The Company's principal technologies - biomedical uses for
perfluorocarbons and substrate analysis with biosensors were
conceptualized and advanced by Dr. Leland C. Clark, Jr. While his
pioneering discoveries in these two areas
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spawned decades of research worldwide, Dr. Clark has been one of
the most prolific contributors and has remained at the forefront of
scientific advances in these areas, leading to the Company's
patented perfluorocarbon and biosensor technology platforms.
Perfluorocarbons in Biomedicine
Following an experiment showing that a mouse could live and breathe
submerged in oxygen-saturated silicone oil, Dr. Clark showed in
1965 that animals could be kept alive submerged for several hours
in oxygen-saturated perfluorocarbon liquids. These experiments
suggested that perfluorocarbons might be useful in medicine,
principally in liquid breathing and in blood substitutes, and in
1975, Dr. Clark was issued the first patent for an oxygen-carrying,
perfluorocarbon-based blood substitute. Although the technology
described in this patent was used by the Green Cross Corporation in
Japan to develop and obtain FDA approval for Fluosol DA, Dr. Clark
recognized that further research would be necessary before safe,
effective perfluorocarbons could be identified. Since that time, a
principal focus of his research has been the identification of
optimal properties for biomedical perfluorocarbons, and the
screening of numerous compounds.
Biosensor Substrate Analysis
In the mid-1950's, Dr. Clark developed the first oxygen electrode.
Ten years later, he applied for a patent describing enzyme-based
biosensors that could accurately measure glucose, lactate, and
other substrates. By 1974, Yellow Springs Instrument Company had
developed and marketed the Clark glucose analyzer based on this
technology. In the early 1980's, Dr. Clark published studies with
implanted glucose biosensors, and in the late 1980's and early
1990's, was issued several seminal patents on implanted glucose
biosensors. Since then, research and development efforts at SBI
have focused on optimizing performance and design characteristics
of the implanted glucose biosensor.
PRODUCTS
Fluorovent
Fluorovent(TM), a unique oxygen-carrying perfluorocarbon, has been
selected for the treatment of ARDS after screening numerous
available perfluorocarbons for optimal properties. When given as a
liquid directly into the lungs, it acts as a surfactant and a
highly effective medium for gas exchange, thus increasing pulmonary
function and the diffusion of oxygen and carbon dioxide in
respiratory distress.
Based on laboratory and animal studies thus far, the company
believes that Fluorovent has significant competitive advantages as
a liquid ventilation treatment. Its boiling point and vapor
pressure result in longer pulmonary retention without the need for
continuous replacement of evaporated fluid, offering the potential
for less costly, less time-intensive procedures. It does not
contain bromine or chlorine and thus presents no environmental
hazard. In animals, it does not produce a hyperinflated,
noncollapsible lung condition seen with other perfluorocarbon
liquids being tested. There can be no assurance any such advantages
will be demonstrated in further animal studies, or in clinical
trials, or that it will ever be marketed, sold or generate revenue
for the Company.
Oxycyte
SBI is developing Oxycyte, an oxygen-carrying intravenous emulsion
made from the same base perfluorocarbon in Fluorovent. Blood gases
such as oxygen and carbon dioxide are highly soluble in
perfluorocarbons, making Oxycyte an effective means of transporting
oxygen to tissues and carbon dioxide to the lungs. In comparison to
hemoglobin, the component of blood that binds with and transports
oxygen, Oxycyte can carry at least five times more oxygen.
Additionally, perfluorocarbons are much more effective than
hemoglobin at unloading oxygen at the tissue level. Oxycyte is
directed at the blood substitute and oxygen therapeutics markets.
There can be no assurance any such advantages will be demonstrated
if Oxycyte enters clinical trials, or that it will ever be
marketed, sold or generate revenue for the Company.
Implanted Glucose Biosensor
SBI has developed an implanted glucose biosensor to monitor blood
glucose without the need for finger sticks. Termed a biosensor
because it utilizes an enzyme specific for glucose, SBI believes it
will provide glucose measurement significantly more accurate than
possible from current portable measuring devices. Once implanted in
subcutaneous tissue during a simple outpatient procedure, the
biosensor, which is about the size of a cardiac pacemaker, provides
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continuous, accurate monitoring of glucose levels. A radio
frequency signal from the implanted biosensor is transmitted to an
external receiving device the size of a pager that displays glucose
levels as a digital readout, has high and low glucose alarms, and
stores data for downloading at the physician's office. The external
device can also be programmed to monitor glucose according to a
preset schedule, eliminating the monitoring compliance problem and
providing the data necessary for tight glucose control. Ultimately,
it is intended the biosensor will be linked to an insulin pump,
creating a closed-loop mechanical pancreas. It is anticipated the
implant life of the biosensor will exceed one year. There can be no
assurance any such advantages will be demonstrated if the biosensor
enters clinical trials, or that it will ever be marketed, sold or
generate revenue for the Company.
OTHER PRODUCTS
Biosensors
SBI has identified potential new applications for its biosensor
technology in the following areas:
*Clinical analysis of other biochemical substrates
*In-process analysis in bulk biotechnology and chemical synthetic
processes
*Veterinary medicine
There is, however, no assurance that any products for these markets
will ever be marketed or generate revenue for the Company.
MARKETING/BUSINESS STRATEGY
Three important elements to the Company's strategy are:
Minimize Fixed Expenses
The Company's strategy is to minimize fixed expenses by staffing
only as necessary to meet the Company's goals, minimize fixed
expenses, and utilize contract services where possible to assist
the Company in its goal to move quickly and maximize the return and
progress from invested funds.
Partnering
SBI intends to partner as early as possible with global and/or
national pharmaceutical and medical device companies to attain
additional funding, commercial-scale manufacturing capabilities,
and maximum global market penetration for the Company's products.
While major partnerships many times are not consummated until
clinical trials are under way, SBI has begun to systematically
identify and meet with interested and appropriate candidate
companies. The Company has not entered into any partnership
arrangements and there can be no assurance it will enter into such
arrangements in the future.
Market Entry
A final important element of the Company's strategy deals with the
timing of market entry. The Company's current product markets -
liquid ventilation, blood substitutes, oxygen therapeutics, and
implantable biosensors - are new and will require considerable
effort and money to develop. If SBI is not the first company to
market these products, the Company believes it should benefit from
the investment made by the competition, and its future strategy
will be to enter established markets and capture market share with
superior products that have significant competitive advantages.
Additionally, SBI intends to be selective in picking the most
appropriate corporate marketing partner for each product.
COMPETITION
Fluorovent
SBI is aware of only one other company developing a liquid
ventilation product. Alliance Pharmaceutical Corporation's product,
LiquiVent, is in Phase III clinical trials in adults with acute
respiratory distress.
5
Oxycyte
Nine other companies in addition to SBI are believed to be
developing oxygen-carrying blood substitutes. Six - Apex
Bioscience, Baxter International, Biopure, Enzon, Hemosol, and
Northfield Laboratories - are developing hemoglobin-based products
and three - Alliance Pharmaceutical, Sonus and Sanquine - is
developing a perfluorocarbon based product. Alliance, Hemosol,
Biopure, and Northfield are in Phase II or III clinical trials.
Baxter recently terminated clinical trials with HemAssist, their
bovine hemoglobin product.
Implanted Glucose Sensor
Historically, the critical issues that have confronted the
development and commercialization of effective, less-invasive
glucose monitoring systems include stable sensor life, accuracy
through a wide glucose range, inappropriate biological ratios of
oxygen and glucose to optimally drive enzyme biosensors, and
biocompatibility. Many research groups have attempted to resolve
these problems with varying success. SBI does not consider glucose
sensor systems proposed by academic groups as viable competition
because it believes they lack commercial input, and promising
systems are usually acquired by industry.
SBI is aware of 8 other companies that are developing less-invasive
glucose monitoring systems - MiniMed, Cygnus Therapeutic,
Biocontrol Technology, Sensor Solutions, Integ, Bioject Medical,
Sensors for Medicine and Technology, and Technical Chemicals and
Products. Only one - Sensors for Medicine - is pursuing a sensor
that is fully implantable. However, it is in the design stage and
no performance test data are available. Systems under development
by the other companies are skin surface or percutaneous systems
that are at least minimally invasive and/or require replacement
every few hours to days. For example, MiniMed's system requires
subcutaneous insertion of a catheter-like device every three days,
while the Cygnus GlucoWatch requires replacement of its autosensor
pad every 12 hours. Six systems are in clinical trials, Biocontrol
Technology has made 510(k) submissions, and Cygnus and MiniMed
recently received approval to market their systems.
The Company believes the ability to begin and then to complete
clinical trials on a timely basis with the desired results, and the
ability to obtain timely regulatory approvals to market its product
candidates are likely to be significant competitive factors.
MANUFACTURING AND SOURCES OF SUPPLY
The Company believes it has suitable sources of supply for key
ingredients and components, e.g. perfluorocarbons and biosensor
materials, for all three products under development. It also
believes it has or will be able to reach suitable agreements with
appropriate contract manufacturers to implement its strategy for
not manufacturing these products internally at commercial scale.
The Company is using its best efforts to secure these relationships
on a long tern basis. However, there cannot be complete assurance
that these relationships can be secured or maintained to the
benefit of the Company.
PATENTS/INTELLECTUAL PROPERTY
Perfluorocarbon products:
SBI has four issued U.S. (5,674,913; 5,824,703; 5,840,767;
56,167,887) and two Australian (690,277; 720,712) perfluorocarbon
patents that protect the use of perfluorocarbons of interest to the
Company as gas transport agents in blood substitutes and liquid
ventilation. Additionally, through an exclusive supply agreement
with the Company's perfluorocarbon supplier, SBI benefits from
eight perfluorocarbon manufacturing process patents that further
protect the perfluorocarbons with which the Company is working.
Biosensor:
The Company has two issued U.S. biosensor patents (5,914,026;
5,964,993) and one Australian biosensor patent (720,712) that
protect what the Company believes are important design features of
the Company's implanted glucose biosensor and other biosensor
applications, both medical and industrial. Another biosensor
patent application has been submitted and all claims have been
allowed. SBI has also exclusively licensed three fundamental
biosensor patents issued to Dr. Clark that have been assigned to
Children's Hospital in Cincinnati.
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For all U.S. patents and applications, the Company also submits
applications and pursues patents in Europe, Canada, Japan and
Australia. There can be no assurance that any issued patents would
survive a challenge and be valid and enforceable. Also, there can
be no assurance any pending applications will result in issued U.S.
or foreign patents. SBI therefore has a number of foreign
perfluorocarbon and biosensor patent applications submitted and
pending.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and
other countries is a significant factor in the manufacture and
marketing of pharmaceuticals and in the Company's ongoing research
and development activities. All of the Company's products will
require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are
subject to rigorous preclinical testing and clinical trials and
other pre-marketing approval requirements by the FDA and regulatory
authorities in other countries. In the United States, various
federal, and in some cases state statutes and regulations also
govern the Company's impact upon the manufacturing, safety,
labeling, storage, record-keeping and marketing of such products.
The lengthy process of seeking required approvals and the
continuing need for compliance with applicable statutes and
regulations, require the expenditure of substantial resources.
Regulatory approval, when and if obtained, may be limited in scope,
which may significantly limit the indicated uses for which a
product may be marketed. Further, approved drugs, as well as their
manufacturers, are subject to ongoing review, and discovery of
previously unknown problems with such products may result in
restrictions on their manufacture, sale or use or in their
withdrawal from the market.
To obtain FDA approval, the FDA requires clinical trials to
demonstrate the safety, efficacy, and potency of the product
candidates. Clinical trials are the means by which experimental
drugs or treatments are tested in humans. New therapies typically
advance from laboratory, research, testing through animal,
preclinical testing and finally through several phases of clinical,
human testing. Upon successful completion of clinical trials,
approval to market the therapy for a particular patient population
may be requested from the FDA in the United States and/or its
counterparts in other countries.
Clinical trials are normally done in three phases. In Phase I,
trials are conducted with a small number of patients or healthy
volunteers to determine the safety profile, the pattern of drug
distribution and metabolism. In Phase II, trials are conducted
with a larger group of patients afflicted with a target disease in
order to determine preliminary efficacy and optimal dosages. Phase
III trials are large, pivotal safety and efficacy trials.
Obtaining FDA approval is a costly and time-consuming process.
Generally, in order to gain FDA pre-market approval, preclinical
studies must be conducted in the laboratory and in animal model
systems to gain preliminary information on an agent's efficacy and
to identify any major safety concerns. The results of these
studies are submitted as a part of an application for an
Investigational New Drug, IND, which the FDA must review and allow
before human clinical trials can start. The IND includes a
detailed description of the clinical investigations.
A company must sponsor and file an IND for each proposed product
and must conduct clinical studies to demonstrate the safety,
efficacy and potency that are necessary to obtain FDA approval.
The FDA receives reports on the progress of each phase of clinical
testing, and it may require the modification, suspension, or
termination of clinical trials if an unwarranted risk is presented
to patients.
After completion of clinical trials of a new product, FDA marketing
approval must be obtained. If the product is classified as a new
drug, a New Drug Application (NDA), is required. The NDA must
include results of product development activities, preclinical
studies and clinical trials in addition to detailed manufacturing
information.
Applications submitted to the FDA are subject to an unpredictable
and potentially prolonged approval process. The FDA may ultimately
decide that the application does not satisfy its criteria for
approval or require additional preclinical or clinical studies.
Before marketing clearance is secured, the manufacturing facility
will be inspected for current Good Manufacturing Practices (GMP)
compliance by FDA inspectors. The manufacturing facility must
satisfy current GMP requirements prior to marketing clearance. In
addition, after marketing clearance is secured, the manufacturing
facility will be inspected periodically for GMP compliance by FDA
inspectors, and, if the facility is located in California, by
inspectors from the Food and Drug Branch of the California
Department of Health Services
The Company is also subject to various federal, state and local
laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of
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hazardous or potentially hazardous substances used in connection
with our research. The extent of government regulation which might
result from any future legislation or administrative action cannot
be accurately predicted.
EMPLOYEES
On April 30, 2001, the Company employed 9 individuals, six of whom
were scientific personnel, two are executives, and one office
manager/bookkeeper. None of its employees are currently represented
by a union or any other form of collective bargaining unit.
ITEM 2 - PROPERTIES
The Company owns no real property and currently leases its
principal administrative and laboratory facilities at 3189 Airway
Avenue, Building C, Costa Mesa, California 92626. In addition the
company leases office and laboratory space at Kettering Research
Center in Kettering, Ohio. The current monthly rent is
approximately $10,700 per month.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended April 30, 2001 the Company solicited
the written consent of its shareholders. The Company mailed a
Consent Solicitation Statement for Shareholder Action by Written
Consent on or about August 23, 2000 soliciting the written consent
of the shareholders on three proposals. There were issued and
outstanding on August 21, 2000, the record date, approximately
85,735,042 shares of common stock.
Proposal 1 solicited the vote of the shareholders to approve
an amendment to the Company's Certificate of Incorporation
("Certificate") to authorize 10 million share of undesignated
preferred stock. Proposal 1 received the following consents
For 58,188,027
Against 1,601,261
Abstain 207,996
Proposal 2 solicited the vote of the shareholders to amend the
Company's Certificate to reduce the shareholder vote required
for amendments to the Certificate from two-thirds of the
outstanding shares to a majority of the outstanding shares.
Proposal 2 received the following consents:
For 57,667,139
Against 2,073,027
Abstain 257,118
Proposal 3 solicited the vote of the shareholders to approve
the 1999 Stock Plan which authorizes the issuance of 4 million
shares of common stock. Proposal 3 received the following
consents:
For 68,910,275
Against 1,391,280
Abstain 286,871
Proposals 1,2 and 3 were adopted and ratified based on the above
consents.
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PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the OTC Electronic
Bulletin Board. The over-the-counter quotations set forth below
reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
For the past two fiscal years, the minimum bid and highest ask
prices as determined by Company records were as follows:
2001 2000
Quarter Low High Low High
1st $.46 $1.01 $0.13 $0.21
2nd $.28 $.68 $0.13 $0.19
3rd $.20 $.53 $0.11 $0.18
4th $.21 $.45 $0.12 $2.25
During fiscal 2001, the Company issued 244,819 shares of
unregistered, restricted common stock to an unrelated party for
services rendered. The Company recognized an expense of $121,368
representing the fair value of the stock at the date of issuance.
During fiscal 2001, the Company issued 6,649,452 shares of
unregistered common stock in satisfaction of deposits received
prior to April 30, 2000 at prices ranging from $.07 to $.3846 per
share.
During fiscal 2001, the Company issued 1,172,978 shares of
unregistered common stock to third party investors in connection
with the exercise of warrants for $106,757 with a range of exercise
prices from $.07 to $0.14.
During fiscal 2001, the Company cancelled its stock subscription
receivable of $600,000 and the related 4.5 million shares of common
stock.
The sale and issuance of each of the transactions referenced above
were deemed to be exempt transactions under Section 4(2) of the
Securities Act of 1933, as transactions by an issuer not involving
any public offering. In each of the referenced transactions
appropriate legends were placed on the certificates issued to the
purchasers.
As of April 30, 2001 the approximate number of holders of the
Common stock of the Company was 11,000. To the best knowledge of
management, the Company has never paid dividends since the date of
its incorporation. The Company does not expect to declare or pay
dividends in the foreseeable future.
ITEM 6 - SELECTED FINANCIAL DATA
April 30, April 30, April 30, April 30, April 30,
2001 2000 1999 1998 1997
Other Income $ 331,019 $ 16,141 $ 23,994 $ 3,069 $ 914
Total expenses $ 2,003,261 $ 927,480 $ 857,829 $ 1,284,101 $ 1,911,290
Net loss ($ 1,672,242) ($ 911,339) ($ 833,835) ($ 1,281,032) ($ 1,910,376)
Weighted average
number of shares
outstanding, basic
and diluted 86,401,830 65,365,438 51,388,471 46,000,749 36,053,557
Net loss per share,
basic and diluted $ (0.02) $ (0.01) $ (0.02) $ (0.03) $ (0.05)
Cash $ 4,250,898 $ 5,466,391 $ 193,013 $ 740,215 $ 53,857
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Working captial $ 4,020,203 $ 5,592,016 $(348,339) $ (228,400) $(529,393)
Total assets $ 4,842,296 $ 6,199,651 $ 530,906 $ 985,914 $ 318,163
Total liabilities $ 344,068 $ 345,440 $ 602,226 $ 531,340 $ 600,675
Long-term debt - - $ 47,327 $ 103,021 -
Stockholders' equity $ 4,498,228 $ 5,854,211 $(118,647) $ 351,553 $(282,512)
ITEM 7 - MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 2001 COMPARED TO FISCAL 2000
The Company is a development-stage company that is developing
products in the medical field and therefore has no revenue from
operations. For the fiscal year ended April 30, 2001 Other Income
increased to $331,019 from $16,141 in the fiscal year ended April
30, 2000. This increase was due to increased interest income on
cash balances available for investment.
The General and Administrative expenses of $1,219,852 for fiscal
year 2001 increased $532,277 or 77% over fiscal year 2000. The
increase was the result of higher general office expenses in 2001
of $97,000, along with increases in consulting services of
$119,000, market research expenses of $63,000 and investor expenses
of $83,000 over the prior fiscal year. In addition, travel related
expenses increased during 2001 by $25,000 over fiscal year 2000.
The Research and Development expenses increased 249% from $224,023
for the fiscal year ended April 30, 2000, to $782,339 for the
fiscal year ended April 30, 2001. During fiscal year 2001,
laboratory wages and salaries increased $387,000, laboratory rent
increased $87,000 and laboratory supplies increased $83,000 from
fiscal year 2000. The Company was able to substantially increase
its research and development activities because of cash that was
made available from capital investment.
The interest expense decreased from $15,882 for the fiscal year
ended April 30, 2000, to $1,070 for the fiscal year ended April 30,
2001. This decrease was due to a reduction of outstanding notes
payable during fiscal year 2001.
FISCAL 2000 COMPARED TO FISCAL 1999
The Company is a development-stage company that is developing
products in the medical field and therefore has no revenue from
operations. For the fiscal year ended April 30, 2000, other income
decreased to $16,141 from $23,994 for the fiscal year ended April
30, 2000. This decrease was mainly due to a forfeiture of a stock
subscription fee of $10,000 received in during fiscal year 1999.
The General and Administrative expenses of $687,575 remained
substantially the same for fiscal year 2000 as for fiscal year
1999. During the year ended April 30, 2000 legal fees and moving
expenses increased $22,000 and $18,000, respectively. These
increases were offset by a decrease in fiscal 2000 wages and
contract labor of $60,000 over the amounts recorded in fiscal year
1999. Also, in the year ended April 30, 2000 the Company realized
a loss of $13,000 due to the write-off of old and obsolete
furniture and equipment.
The Research and Development expenses increased 32% from $170,058
for the fiscal year ended April 30, 1999, to $224,023 for the
fiscal year ended April 30, 2000. This increase was due
substantially to the addition of a laboratory in California with
corresponding increases in lab supplies of $18,000, lab rent of
$15,000 and wages and contract labor of $55,000.
10
The interest expense decreased 28% from $20,395 for the fiscal year
ended April 30, 1999, to $15,882 for the fiscal year ended April
30, 2000. This decrease was due to a reduction of outstanding notes
payable during fiscal year 2000.
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's operating results for
each of the eight fiscal quarters in the period ended April 30,
2001. The information for each of these quarters is unaudited and
has been prepared on the same basis as the audited financial
statements included in this Form 10K. In the opinion of
management, all necessary adjustments, which consist only of normal
and recurring accruals, have been included to fairly present the
unaudited quarterly results. This data should be read together
with the financial statements and the notes thereto included in
this Form 10K.
Three Months Ended
July 30, October 31, January 31, April 30,
1999 1999 2000 2000
Statement of Operations Data
Research and development expenses $ 43,698 $ 26,545 $ 69,764 $ 84,016
General and administrative expenses 172,508 174,252 109,330 231,485
Interest expense 4,892 2,779 2,816 5,395
Total Expenses 221,098 203,576 181,910 320,896
Other (Income) Expense (741) (25,360) (238) 10,198
NET LOSS ($220,357) ($178,216) ($181,672) ($331,094)
NET LOSS PER SHARE, BASIC
AND DILUTED ($0.004) ($0.003) ($0.003) ($0.003)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING, BASIC
AND DILUTED 55,860,937 60,167,165 65,194,496 74,163,812
Three Months Ended
July 30, October 31, January 31, April 30,
2000 2000 2001 2001
Statement of Operations Data
Research and development expenses $ 109,841 $ 175,197 $ 234,760 $ 262,541
General and administrative expenses 233,969 424,324 257,194 304,365
Interest expense 808 262 - -
Total Expenses 344,618 599,783 491,954 566,906
Other (Income) Expense (90,935) (91,333) (85,004) (63,747)
NET LOSS ($253,683) ($508,450) ($406,950) ($503,159)
NET LOSS PER SHARE, BASIC
AND DILUTED ($0.003) ($0.006) ($0.004) ($0.003)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING, BASIC
AND DILUTED 81,917,908 86,706,915 87,642,240 88,900,661
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since September 1990, when
current management became involved, through the issuance of debt
and equity securities and loans from stockholders. As of April 30,
2001 the Company had $4,364,271 in total current assets and working
capital of $4,020,203 compared to $5,937,456 in total current
assets and working capital of $5,592,016 as of April 30, 2000.
During the year ended April 30, 2001, the Company had a net
decrease in cash and cash equivalents of $1,215,493, of which
$1,537,617 was used in operations and $317,458 was used for
investing activities, primarily for the purchase of equipment and
patent expenditures. These cash outflows were offset by cash
provided from financing activities of $639,582, primarily through
the sale of common stock. In addition the Company borrowed
$135,000 for the purchase of laboratory equipment under a
Promissory note bearing interest at 8% per annum, payable in
monthly principal and interest installments of $11,745 through
April 19, 2002. The Company does not have any lines of credit or
other arrangements with lenders. The Company believes its existing
cash should fund current operations for approximately 2 years.
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
11
and testing will require significant additional financing. There
can be no assurance these proposed funding arrangements will be
successful, or that if they are not the Company will be able to
secure additional capital.
RISK FACTORS
You should carefully consider the risks described below together
with all of the other information included in this report on Form
10-K. An investment in the Company's common stock is very risky.
If any of the following risks actually occur, our business,
financial condition or results of operations could be harmed. In
such an event, the trading price of the Company's common stock
could decline, and you may lose part or all of your investment.
The Company expects to incur losses for the foreseeable future and
may never achieve profitability.
The Company has incurred net losses since the business was revised
in 1990 to develop a line of blood substitutes. Net losses were
($833,835) in 1999, ($911,339) in 2000 and ($1,672,242) in 2001.
As of April 30, 2001, the accumulated deficit was ($12,985,580).
The Company expects to incur substantial and increasing losses for
the foreseeable future as a result of increases in research and
development costs, including costs associated with conducting
preclinical testing and clinical trials. It is expected that the
amount of operating losses will fluctuate significantly from
quarter to quarter as a result of increases or decreases in
research and development efforts, the initiation, success or
failure of clinical trials, or other factors.
Chances for achieving profitability will depend on numerous
factors, including success in:
*developing and testing new product candidates;
*receiving regulatory approvals;
*manufacturing products;
*marketing products; and
*competing with products from other companies.
Many of these factors will depend on circumstances beyond the
Company's control. The Company expects to rely heavily on third
parties with respect to many aspects of its business, including
research and development, clinical testing, manufacturing and
marketing. It cannot be assured the Company will ever become
profitable.
The Company needs substantial additional financing to complete
development and introduce products.
The costs to complete preclinical tests and to begin and complete
the Company's proposed clinical trials are very high. It is
expected existing capital resources will satisfy capital
requirements through approximately December 2003. However,
substantial additional financing will be needed to begin and
continue clinical trials on its products. Currently there are no
commitments for any additional financing. Any additional equity
financing may be dilutive to stockholders, and debt financing, if
available, may include restrictive covenants and there can be no
assurance additional financing will be received. Future capital
requirements will depend on many factors, including:
*results of preclinical tests;
*results of any clinical trials;
*continued scientific progress in the research and development
program;
*the time and cost involved in obtaining regulatory approvals;
12
*future collaborative relationships;
*competing technological and market developments;
*patient costs; and
*the cost of manufacturing.
If adequate funds are not available, the Company may be required to
curtail operations or to cease operations. The amount of
additional financing required cannot be estimated, however it will
be substantial.
If the Company is unable to develop and successfully commercialize
its product candidates, it may never generate significant revenues
or become profitable.
Product candidates are all in early stages of development, and none
are in clinical trials. The Company must successfully complete
preclinical tests on product candidates before applying for or
beginning clinical trials on any of the product candidates. The
Company has not commercialized any products or recognized any
revenue from product sales. It will require significant additional
investment in research and development, preclinical testing and
clinical trials, regulatory approval, and sales and marketing
activities. Product candidates, if successfully developed, may not
generate sufficient or sustainable revenues to enable the Company
to be profitable.
The Company must overcome significant obstacles to successfully
develop or market product candidates.
The development of product candidates is subject to the significant
risks of failure which are inherent in the development of new
pharmaceutical products and products based on new technologies.
These risks include:
*delays in preclinical testing, product development, clinical
testing or manufacturing;
*unplanned expenditures for product development, clinical
testing or manufacturing;
*failure of the product candidates to have the desired effect
or an acceptable safety profile;
*failure to receive regulatory approvals;
*emergence of superior or equivalent products;
*inability to manufacture on our own, or through others,
product candidates on a commercial scale;
*inability to market products due to third-party proprietary
rights;
*inability to find collaborative partners to pursue product
development; and
*failure by future collaborative partners to successfully
develop products.
Research and development efforts may not result in any commercially
viable products if those risks materialize.
Commercialization of products depends on collaborations with
others. If the Company is unable to find collaborators in the
future, it may not be able to develop products.
The Company's strategy for the research, development and
commercialization of products requires it to enter into contractual
arrangements with corporate collaborators, licensors, licensees and
others. The Company does not have the funds to develop products
and intends to depend on collaborators to develop products.
Currently there are no contractual arrangements with any corporate
collaborators, licensors, licensees or others to develop products.
Even if collaborative partners are found, it may not be possible to
completely control the amount and timing of resources future
collaborative partners will devote to products. The Company
intends to seek collaborative arrangements for Oxycyte, Fluorovent
and implantable glucose biosensor to help cover the cost of
development, however, there is no assurance this will be
13
successful. If collaborative relationships or other sources of
financing cannot be found, the Company may not be able to continue
development programs and may be forced to sell assets, including
technology, to raise capital.
Dependence on collaborative arrangements with third parties
subjects the Company to a number of risks. These future
collaborative arrangements may not be on terms favorable to the
Company. Agreements with collaborative partners typically allow
partners significant discretion in electing whether to pursue any
of the planned activities. The Company cannot control the amount
and timing of resources collaborative partners may devote to the
product candidates, and partners may choose to pursue alternative
products. Partners may not perform their obligations as expected.
Business combinations or significant changes in a collaborative
partner's business strategy may adversely affect a partner's
willingness or ability to complete its obligations under the
arrangement. Moreover, the Company could become involved in
disputes with partners, which could lead to delays or termination
of development programs with them and time-consuming and expensive
litigation or arbitration. Even if the Company fulfills its
obligations under a collaborative agreement, a partner can
terminate the agreement under certain circumstances. If any
collaborative partner were to terminate or breach an agreement with
it, or otherwise fail to complete its obligations in a timely
manner, chances of successfully commercializing products would be
materially and adversely affected.
If clinical trials for the Company's products are unsuccessful or
delayed, the stock price may decline.
The Company must demonstrate first through preclinical testing and
then through clinical trials that its product candidates are safe
and effective for use in humans before it obtains regulatory
approvals for the commercial sale of any products. The Company has
not yet completed preclinical testing on any of its products.
Conducting clinical trials is a lengthy, time-consuming and
expensive process.
If there is progress to beginning clinical trials, completion of
clinical trials may take several years or more. The start of and
rate of completion of clinical trials may be delayed by many
factors, including:
*unsuccessful preclinical testing results;
*lack of efficacy during the clinical trials;
*unforeseen safety issues;
*slower than expected rate of patient recruitment;
*government or regulatory delays;
*inability to adequately follow patients after treatment; or
*inability to manufacture sufficient quantities of materials
for use in clinical trials.
The results from preclinical testing and early clinical trials are
often not predictive of results obtained in later clinical trials.
A number of new drugs have shown promising results in clinical
trials, but subsequently failed to establish sufficient safety and
efficacy data to obtain necessary regulatory approvals. Data
obtained from preclinical and clinical activities are susceptible
to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or rejections
may be encountered as a result of many factors, including perceived
defects in the design of clinical trials and changes in regulatory
policy during the period of product development.
The Company's product candidates are in preclinical development,
and the Company has not submitted investigational new drug
applications to commence clinical trials involving these products.
Preclinical development efforts may not be successfully completed
and the Company may not file any investigational new drug
applications. If there is progress to clinical trials, any delays
in, or termination of, clinical trials will materially and
adversely affect development and commercialization timelines, which
would cause the stock price to decline. Any of these events would
also seriously impede the ability to obtain additional financing.
If future third party clinical trial managers do not perform,
clinical trials for product candidates may be delayed or
unsuccessful.
14
The Company has no experience in conducting and managing clinical
trials. The Company intends to rely on third parties, including
future collaborative partners, clinical research organizations and
outside consultants, to assist in managing and monitoring future
clinical trials. Reliance on these third parties may result in
delays in completing, or failing to complete, these trials if they
fail to perform under the terms of agreements with them.
If the Company's products are not accepted by the market, it is not
likely to generate significant revenues or become profitable.
Even if the Company obtains regulatory approval to market a
product, products may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree
of market acceptance of any pharmaceutical product that is
developed will depend on a number of factors, including:
*demonstration of clinical efficacy and safety;
*cost-effectiveness;
*potential advantages over alternative therapies;
*reimbursement policies of government and third-party payors;
and
*effectiveness of our marketing and distribution capabilities.
Physicians will not recommend therapies using products until
clinical data or other factors demonstrate their safety and
efficacy as compared to other drugs or treatments. Even if the
clinical safety and efficacy of therapies using products is
established, physicians may elect not to recommend the therapies
for any number of other reasons, including whether the mode of
administration of products is effective for certain indications.
Physicians, patients, third-party payors and the medical community
may not accept and utilize any product candidates that the Company
or its future collaborative partners, if any, develop. If products
do not achieve significant market acceptance, the Company is not
likely to generate significant revenues or become profitable.
If the Company is unable to attract and retain key employees and
consultants, it will be unable to develop and commercialize
products.
The Company is highly dependent on the principal members of its
scientific and management staff. In order to pursue product
development, marketing and commercialization plans, the Company
will need to hire personnel with experience in clinical testing,
government regulation, manufacturing, marketing and finance. The
Company may not be able to attract and retain personnel on
acceptable terms given the intense competition for such personnel
among high technology enterprises, including biotechnology,
pharmaceutical and healthcare companies, universities and non-
profit research institutions. Most of the Company's scientific and
management staff does not have employment contracts. If the
Company loses any of these persons, or is unable to attract and
retain qualified personnel, business, financial condition and
results of operations may be materially and adversely affected.
If the Company fails to enter into successful marketing
arrangements with third parties, it would not be able to
commercialize products and it would not become profitable.
The Company currently has no sales and marketing infrastructure and
has no experience in marketing, sales and distribution. Future
profitability will depend in part on plans to enter into successful
marketing arrangements with third parties. To the extent that the
Company enters into marketing and sales arrangements with other
companies, revenues will depend on the efforts of others. These
efforts may not be successful. If the Company is unable to enter
into third-party arrangements, it may not be able to commercialize
its products.
If the Company does not compete successfully in the development and
commercialization of products and keep pace with rapid
technological change, it will be unable to capture and sustain a
meaningful market position.
The biotechnology and pharmaceutical industries are highly
competitive and subject to significant and rapid technological
change. The Company is aware of several pharmaceutical and
biotechnology companies that are actively
15
engaged in research and development in areas related to the
Company's products. Most of these companies have commenced
clinical trials. Many of these companies are addressing the same
diseases and disease indications.
Many of these companies and institutions, either alone or together
with their collaborative partners, have substantially greater
financial resources and larger research and development staffs. In
addition, many of these competitors, either alone or together with
their collaborative partners, have significantly greater experience
in:
*developing products;
*undertaking preclinical testing and human clinical trials;
*obtaining FDA and other regulatory approvals of products; and
*manufacturing and marketing products.
Developments by others may render the Company's product candidates
or technologies obsolete or noncompetitive. The Company faces and
will continue to face intense competition from other companies for
collaborative arrangements with pharmaceutical and biotechnology
companies for establishing relationships with academic and research
institutions and for licenses of proprietary technology. These
competitors, either alone or with their collaborative partners, may
succeed in developing technologies or products that are more
effective than those the Company has.
If the Company's intellectual property does not adequately protect
product candidates, others could compete more directly against the
Company, which would hurt profitability.
Success depends in part on the Company's ability to:
*obtain patents or rights to patents;
*protect trade secrets;
*operate without infringing upon the proprietary rights of
others; and
*prevent others from infringing on its proprietary rights.
The Company will be able to protect proprietary rights from
unauthorized use by third parties only to the extent that
proprietary rights are covered by valid and enforceable patents or
are effectively maintained as trade secrets. The patent position
of biopharmaceutical companies involves complex legal and factual
questions and, therefore, enforceability cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or
circumvented. Thus, any patents that are owned or licensed from
third parties may not provide any protection against competitors.
Pending patent applications, those that the Company may file in the
future, or those that may be licensed from third parties, may not
result in patents being issued. Also, patent rights may not
provide adequate proprietary protection or competitive advantages
against competitors with similar technologies. The laws of certain
foreign countries do not protect intellectual property rights to
the same extent as do the laws of the United States.
In addition to patents, the Company relies on trade secrets and
proprietary know-how. Protection is sought, in part, through
confidentiality and proprietary information agreements. These
agreements may not provide meaningful protection or adequate
remedies for technology in the event of unauthorized use or
disclosure of confidential and proprietary information. Failure to
protect proprietary rights could seriously impair the Company's
competitive position.
If third parties claim the Company is infringing their intellectual
property rights, it could suffer significant litigation or
licensing expenses or be prevented from marketing its products.
The areas in which the Company has focused research and development
have a number of competitors. This has resulted in a number of
issued patents and still-pending patent applications. Patent
applications in the United States are, in most cases, maintained in
secrecy until patent issue. The publication of discoveries in the
scientific or patent literature frequently occurs substantially
later than the date on which the underlying discoveries were made.
Commercial success
16
depends significantly on the Company's ability to operate without
infringing the patents and other proprietary rights of third
parties. The Company's technologies may infringe the patents or
violate other proprietary rights of third parties. In the event of
such infringement or violation, the Company may be prevented from
pursuing product development or commercialization.
The biotechnology and pharmaceutical industries have been
characterized by extensive litigation regarding patents and other
intellectual property rights. The defense and prosecution of
intellectual property suits, U.S. Patent and Trademark Office
interference proceedings and related legal and administrative
proceedings in the United States and internationally involve
complex legal and factual questions. As a result, such proceedings
are costly and time-consuming to pursue and their outcome is
uncertain. Litigation may be necessary to:
*enforce patents that we own or license;
*protect trade secrets or know-how that we own or license; or
*determine the enforceability, scope and validity of the
proprietary rights of others.
If the Company became involved in any litigation, interference or
other administrative proceedings, it will incur substantial expense
and the efforts of technical and management personnel will be
significantly diverted. An adverse determination may subject the
Company to loss of proprietary position or to significant
liabilities, or require licenses that may not be available from
third parties. The Company may be restricted or prevented from
manufacturing and selling products, if any, in the event of an
adverse determination in a judicial or administrative proceeding or
if we fail to obtain necessary licenses. Costs associated with
these arrangements may be substantial and may include ongoing
royalties. Furthermore, the necessary licenses may not be obtained
on satisfactory terms, if at all.
If the government and third party payors fail to provide adequate
coverage and reimbursement rates for product candidates, the market
acceptance of products may be adversely affected.
In both domestic and foreign markets, sales of product candidates
will depend in part upon the availability of reimbursement from
third-party payors. Such third-party payors include government
health administration authorities, managed care providers, private
health insurers and other organizations. These third-party payors
are increasingly challenging the price and examining the cost
effectiveness of medical products and services. In addition,
significant uncertainty exists as to the reimbursement status of
newly approved healthcare products. The Company may need to
conduct post-marketing studies in order to demonstrate the cost-
effectiveness of products. Such studies may require the commitment
of a significant amount of management time and financial and other
resources. Product candidates may not be considered cost-effective.
Adequate third-party reimbursement may not be available to maintain
price levels sufficient to realize an appropriate return on
investment in product development. Domestic and foreign
governments continue to propose and pass legislation designed to
reduce the cost of healthcare. Accordingly, legislation and
regulations affecting the pricing of pharmaceuticals may change
before proposed products are approved for marketing. Adoption of
such legislation could further limit reimbursement for
pharmaceuticals.
If a successful product liability claim or series of claims is
brought against the Company for uninsured liabilities or in excess
of insured liabilities, it could be forced to pay substantial
damage awards.
The use of any of product candidates in clinical trials, and the
sale of any approved products, may expose the Company to liability
claims and financial losses resulting from the use or sale of our
products. Although it is intended that insurance coverage will be
obtained before the Company begins clinical trials, currently there
is no liability insurance. The Company intends to obtain insurance
coverage to include the sale of commercial products if marketing
approval is obtained for product candidates in development.
Insurance coverage may not be able to be maintained at a reasonable
cost or in sufficient amounts or scope to protect against losses.
If the Company fails to manage growth, business could be harmed.
The business plan contemplates a period of substantial growth if
clinical trials begin on one or more products and the Company
develops other products that will place a strain on administrative
and operational infrastructure. Management infrastructure has been
very limited. The ability to manage effectively its operations and
growth requires the Company to expand and improve operational,
financial and management controls, reporting systems and procedures
and to attract
17
and retain sufficient numbers of talented employees. The Company
may not successfully implement improvements to management
information and control systems in an efficient or timely manner
and may discover deficiencies in existing systems and controls.
If use of hazardous materials results in contamination or injury,
the Company could suffer significant financial loss.
Research and manufacturing activities involve the controlled use of
hazardous materials. The Company cannot eliminate the risk of
accidental contamination or injury from these materials. In the
event of an accident or environmental discharge, the Company may be
held liable for any resulting damages, which may exceed available
financial resources.
The Company's stock price could continue to be highly volatile and
investors may not be able to resell shares at or above the price
paid for them.
The market price of the Company's common stock, like that of many
other life sciences companies, has been highly volatile and is
likely to continue to be highly volatile. The following factors,
among others, could have a significant impact on the market price
of the common stock:
*the results of preclinical tests and future clinical trials
or those of future collaborators or competitors;
*evidence of the safety or efficacy of products or the
products of competitors;
*the announcement by the Company or its competitors of
technological innovations or new products;
*developments concerning patents or other proprietary rights
or those of future competitors, including litigation or
patent office proceedings;
*loss of key personnel;
*governmental regulatory actions;
*changes or announcements in reimbursement policies;
*agreements with future collaborators;
*period-to-period fluctuations in operating results;
*market conditions for life science stocks in general; and
*changes in estimates of performance by securities analysts.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data as required by this
item are set forth in a separate section of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURES
None
18
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE
REGISTRANT
The directors, officers and key employees of the Company are as
follows:
Name Age Position
Roger A. Ekbom 74 Chairman of the Board
Robert W. Nicora 61 President and Chief
Executive Officer Director
Robert J. Larsen 72 Corporate Secretary Director
Gerald D. Schlatter 67 Director
David Johnson 54 Chief Financial Officer
Howard Jones 64 Director
Richard Kiral,Ph.D 60 Vice President, Research
and Development
Douglas Kornbrust, Ph.D. 50 Consultant Director,
PreClinical Toxicology &
Pharmacology
Elmo Blubaugh, Jr., Ph.D 48 Manager, Biosensor Research
and Development
James Reavis 66 Consultant Director of
Marketing
DIRECTORS AND EXECUTIVE OFFICERS
Roger A. Ekbom has been Chairman of the Board of Directors since
1990. Mr. Ekbom was Chief Executive Officer from 1991 to March 1998
and has extensive experience with medical device companies
including managing companies from startup through full development
and subsequent sales. He is the founder and former President of
Cardio Vista Systems, Inc., and founder and Chairman of Tronomed,
Inc. From 1976 until 1993, Mr. Ekbom was the Vice President of and
a major stockholder in Respiratory Support Products, Inc. and
Tronomed International, Inc. Mr. Ekbom was formerly the general
manager of a division of Becton Dickinson, an international medical
device company, and of Marion Scientific, a subsidiary of Marion
Laboratories. Mr. Ekbom graduated from the University of Minnesota.
Robert W. Nicora became the President, Chief Executive Officer and
Director on March 1, 1998. Mr. Nicora has BS in chemistry, five
years of graduate study in biochemistry and medical sciences, and
over 30 years of experience in various laboratory, management and
regulatory positions with pharmaceutical and medical device
companies. While at McGaw Laboratories, he was responsible for the
development and FDA approval of hetastarch, a synthetic blood
expander, now marketed by DuPont Pharma. He led the team that
evaluated a joint partnership with Green Cross to develop their
perfluorocarbon blood substitute, Fluosol. From 1994 through March
1998, he was director of scientific and regulatory services with
Quintiles, the world's largest global contact pharmaceutical
company. He has provided preclinical and clinical drug and device
consulting services to a number of startup biomedical companies,
including SBI.
Robert J. Larsen, Corporate Secretary and Director since 1990, is a
former President and Chief Executive Officer of Bay Hospital
Medical Center, Chula Vista, California. Mr. Larsen has 25 years of
experience in the development and management of hospitals and other
related enterprises in California and Oregon. Mr. Larsen is a
former trustee of the California Hospital Association and the past
president of the San Diego Healthcare Financial Management
Association. Mr. Larsen received his graduate degree in Hospital
Administration from the University of California, Santa Barbara,
and his BA from the University of Washington.
Gerald D. Schlatter, Director and former President from 1990 to
1998 and has over 25 years experience in sales and marketing of
medical supplies and devices. He has served as sales manager with
both American Hospital Supply and
Xerox in their medical products divisions. He is the founder and
former president of Delamesa Medical Equipment Leasing Co. in
Irvine California, specializing in equipping and financing new
start up medical, dental, and optical health care clinics. Mr.
Schlatter obtained his BS degree in business finance and labor law
from California State University of Fresno.
19
David H. Johnson, CPA, is Chief Financial Officer. Mr. Johnson has
over 25 years of financial and administrative management experience
in a diverse range of industries including high technology. His
most recent position was chief financial officer of Center Court
Concierge, an information service start up company. Previous
positions included vice president, finance and administration,
Vista Paint Corporation, and a regional partner at McGladrey and
Pullen, a major public accounting firm. Mr. Johnson has a BA in
accounting and is a certified public accountant.
Howard Jones, Ph.D., is a member of the board of directors. Dr.
Jones' most recent position was president of the biopharmaceutical
business unit of Curative Health Services where he was responsible
for R&D, licensing, and manufacturing of wound healing technology
that incorporates growth factors from patient blood. He has more
than 30 years of experience in directing research and development
of drugs at Revlon, Bristol-Myers Squibb, Amylin Pharmaceuticals,
and Cypros Pharmaceuticals, a company he co-founded. He started his
career at Merck where he discovered Clinoril, a drug for the
treatment of rheumatoid arthritis that has annual sales of
$400,000,000. He has had more than 84 patents issued for his
biopharmaceutical developments.
KEY EMPLOYEES
Richard Kiral, Ph.D., Vice President of Research and Development
holds a Ph.D. in analytical chemistry and has over of 20 years of
experience in the pharmaceutical and medical device industries. He
has held vice president positions in R&D at Anthony Products,
Ioptex Research, Allergan, and McGaw Laboratories, where he was
responsible for development of a nutritional fat emulsion.
Douglas Kornbrust, Ph.D., Consultant Director, Preclinical
Toxicology and Pharmacology holds a Ph.D. in toxicology and
currently is vice president and scientific director at Sierra
Biomedical, a leading contract primate testing facility for the
pharmaceutical and biotechnology industries. He previously held
senior technical and management positions at ISIS Pharmaceuticals,
Rhone-Poulenc-Rorer, Merck, and Alliance Pharmaceuticals, where he
was responsible for the development and implementation of
preclinical toxicology programs for their perfluorocarbon liquid
ventilation and blood substitute products.
Elmo A. Blubaugh, Jr., Ph.D., Manager of Biosensor Research and
Development is an electrochemist specializing in the chemical
modification of electrode surfaces with thin polymer films. Dr.
Blubaugh previously was laboratory research manager at the
University of Cincinnati. He taught both graduate and undergraduate
courses at the university and holds a patent in the field of
polymer-film electrodes. He received his graduate degree in
analytical chemistry from the University of Cincinnati.
James H. Reavis, Consultant director of marketing received a BS in
chemistry and has a career of over 35 years in sales and marketing
of pharmaceutical products and biomedical devices. He has owned and
operated full-service advertising agencies and, for the last ten
years, has consulted with high technology healthcare clients. His
client roster includes Abbott, Baxter Edwards, Allergan, Genentech,
Invacare, Kyocera, Advanced Cardiovascular Systems, IVAC, and IMED.
Mr. Reavis provides qualitative and quantitative market research
services to help guide product development, product positioning,
and partnering strategies.
ITEM 11 - EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation earned for services rendered in all capacities to the
Company for the fiscal years ended April 30, 2001, 2000 and 1999,
by the other most highly compensated executive officers of the
Company ("Named Executive Officers"). Mr. Nicora became President
and Chief Executive Officer on the resignation of Mr. Schlatter on
March 1, 1998. This information includes the dollar amount of base
salaries, bonus awards, stock options and all other compensation,
if any, whether paid or deferred.
20
SUMMARY COMPENSATION TABLE
Long-tern
Compensation
Annual Compensation Awards All
Other Securities Other
Awards Underlying Compensation
Name and Position Year Salary Bonus Compensation Options/SARS (1)
Robert Nicora(1) 2001 137,000 - - - 21,250
President 2000 126,000 - - - 12,600
1999 125,000 - - - 12,600
Richard Kiral 2001 132,000 - - - 12,100
Vice President of 2000 118,243 - - - -
Product Development 1999 97,830 - - - -
(1) Mr. Nicora and Mr. Kiral received a $6,600 car allowance plus
medical premiums paid for by the Company.
OPTION GRANTS
In April 1995, the Company's Board of Directors approved a stock
option plan providing for the granting of options to officers,
directors, consultants and key employees to purchase up to
2,500,000 shares of the Company's common stock at prices not less
than the fair market value of the stock at the date of grant. No
shares were exercised or issued under this plan. The Company has
since determined that they never requested or received shareholder
approval as required to formally approve the plan. The Company
adopted a new 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 the Company's
common stock at prices not less than the fair market value of the
stock at the date of grant for incentive options. The total number
of options issued at April 30, 2001 were 4,201,472 with a weighted
average exercise price of $0.21. This total includes 1,020,000
options granted prior to the 1999 Plan. The Company must record an
expense equal to the intrinsic value (if any) of the options
multiplied by the percent vested at the date the plan is ratified
by the shareholders. The option expiration dates are determined at
the date of grant, but may not exceed ten years.
The following table summarizes certain information as of April 30,
2001 concerning the stock option grants to the Company's Chief
Executive Officer and the other Named Executive Officers made for
the fiscal year ended April 30, 2001. No stock appreciation rights,
restricted stock awards or long-term performance awards have been
granted as of the date hereof and no options have been exercised.
Option Grants in Last Fiscal Year
Number % of Total Potential Realizable
of Options Value at Assumed Annual
Securities Granted to Exercise Rates of Stock Price
Underlying Employees or Base Appreciate of Option
Options in Fiscal Price Per Expiration Terms (1)
Granted Year Share Date 5% 10%
Robert W. Nicora 300,000 35.0% $0.62 May 2010 $ 116,974 $ 296,436
150,000 18.5% $0.205 April 2011 19,339 49,008
Total 450,000 55.5% $ 136,313 $ 345,444
Richard Kiral 250,000 30.9% $0.205 April 2011 $ 32,231 $ 81,679
21
(1) Each option listed in the table above was fully vested as of
the date of grant and exercisable over a three-year period. The
potential realizable value is calculated based on the ten-year tern
of the option at the time of grant. It is calculated based on
assumed annualized rates of stock price appreciation from the
exercise price at the date of grant of 5% and 10% (compounded
annually) over the full term of the grant with appreciation
determined as of the expiration date. The 5% and 10% assumed rates
of appreciation are mandated by the Securities and Exchange
Commission and do not represent the Company's estimate or
projection of future common stock prices. Actual gains on, if any,
on stock options exercised are dependent on the future performance
of the common stock and overall stock market conditions. The
amounts reflected in the table may not be achieved.
Aggregate Options Exercised in Last Fiscal Year and Year End Option
Values
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money Options
Options At at Fiscal year End
Shares Fiscal Year End Exercisable/
Acquired On Value Exerciseable/ Unexercisable
Exercise Realized Unexercisable (1)
Robert Nicora None None 200,000 / $50,000 /
750,000 $187,500
Richard Kiral None None 91,666 / $22,917 /
400,000 $100,000
(1) Based on the closing sale price on the OTC Bulletin Board on
the last day of the 2001 fiscal year, less the option exercise
price payable per share.
DEFINED BENEFIT AND ACTUARIAL PLANS
The Company has not supplied Defined Benefits, or similar Pension,
Benefit or Actuarial Plan Benefits to its Executive Officers.
COMPENSATION OF DIRECTORS
During the fiscal year ended April 30, 2001, three of the four
outside directors received compensation of $6,000 in cash
compensation and one outside director received $12,000 in cash
compensation. In addition, each of the four outside directors
received options to purchase 10,000 shares of common stock at $0.80
per share, 80% of the market value at the date these options were
issued.
EMPLOYMENT CONTRACTS
On March 1, 1998 the Board of Directors approved a three-year
employment contract with Robert W. Nicora, as President and Chief
Executive Officer. Mr. Nicora's base annual salary is $145,000 per
year and includes an automobile allowance, medical and dental
coverage, participation in the Executive Bonus Plan, $200,000 life
insurance payable by the corporation and payable to a beneficiary
named by the insured, and participation in the Company's stock
option plan with the grant of an option for 300,000 shares at
signing and 150,000 shares to be granted annually. At the end of
the contract, Mr. Nicora's contract will renew automatically
annually unless terminated by either party. Mr. Nicora's
employment agreement provides that he may, at his election, receive
a severance payment equal to 299% of his average annual salary and
bonuses received during the prior two-year period in the event of a
change in control as defined. As of May 18, 1998 Mr. Nicora assumed
the title of Chief Executive Officer.
On February 1, 2000 the Board of Directors approved a two-year
employment contract with Richard Kiral, as Vice President of
Product Development. Mr. Kiral's base annual salary is $140,000 per
year and includes an automobile allowance, medical and dental
coverage, participation in the Executive Bonus Plan, $200,000 life
insurance payable by the corporation and payable to a beneficiary
named by the insured, and participation in the Company's stock
option plan
22
with the grant of an option for 100,000 shares annually. Mr.
Kiral's employment agreement provides that he is to a minimum
severance payment equal to 9 months of his annual salary period in
the event of a change in control as defined.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
The Company does not presently have a Compensation Committee of the
Board of Directors, or other Board Committees performing equivalent
functions, and did not at any time during the last four years. The
Executive Committee of the Board of Directors presently performs
these functions. Roger Ekbom and Gerald Schlatter, directors and
former officers, and Robert Larsen, a director and current officer
of the Company, participated in deliberations of the Board of
Directors concerning executive officer compensation during the last
fiscal year. None of the Company's executive officers serves as a
member of the board of directors or compensation committee of any
entity that has one or more of its executive officers serving as a
member of the Company's Board of Directors or Compensation
Committee.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following tables sets forth as of April 30, 2001 the stock
ownership of all persons who, to the registrants knowledge, own of
record and beneficially five (5%) per cent or more of its
outstanding Common Stock, and for the officers and directors as a
group.
MANAGEMENT OWNERS
Amount &
Name of Nature of Percent
Title of Beneficial Beneficial of Class
Class Owner Ownership
Common Stock Roger A. Ekbom (1) 2,101,778 2.36%
Common Stock Robert W. Nicora (2) 592,858 .67%
Common Stock Gerald D. Schlatter (3) 1,272,929 1.43%
Common Stock Robert J. Larsen (4) 1,652,553 1.86%
Common Stock Howard Jones (5) 115,000 .03%
Common Stock David Johnson (6) 66,666 .01%
Common Stock Richard Kiral (7) 91,666 .01%
All Directors 5,893,450 6.63%
and Officers as a group -
7 persons)
(1) Includes options to purchase 515,000 shares of common stock
currently exercisable or exercisable within 60 days of July 31,
2001.
(2) Includes options to purchase 200,000 shares of common stock
currently exercisable or exercisable within 60 days of July 31,
2001.
(3) Includes options to purchase 490,000 shares of common stock
currently exercisable or exercisable within 60 days of July 31,
2001.
(4) Includes options to purchase 530,000 shares of common stock
currently exercisable or exercisable within 60 days of July 31,
2001 and also includes shares beneficially owned by virtue of Mr.
Larsen's control of Peso, Inc. and Jada, Inc.
(5) Includes options to purchase 115,000 shares of common stock
currently exercisable or exercisable within 60 days of July 31,
2001.
(6) Includes options to purchase 66,666 shares of common stock
currently exercisable or exercisable within 60 days of July 31,
2001.
(7) Includes options to purchase 91,666 shares of common stock
currently exercisable or exercisable within 60 days of July 31,
2001.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended April 30, 2001 the Company recorded
expenses of $12,400 for services rendered by Peso, Inc., a company
controlled by Robert Larsen, a Director and Officer of the Company.
23
During the fiscal year ended April 31, 2001 the Company issued
options to purchase common stock to the following Officers of the
Company under the 1999 Plan:
Robert Nicora, President and CEO 300,000 options at $0.62
per share expiring May 15, 2010
150,000 options at $0.205 per share
expiring April 20, 2011
Richard Kiral, Vice President 250,000 options at $0.205
per share expiring April 20, 2011
During fiscal 2001, the Company issued each of the four outside
directors received options to purchase 10,000 shares of common
stock at $0.80 per share, 80% of fair market value at the date the
options were issued
During fiscal 2001 the Company loaned $30,000 to Roger Ekbom, a
Director of the Company under the terms of a Promissory Note. The
Note is interest free and is due September 1, 2001.
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
S-K
Response to Item 8.
A. Documents Filed as a Part of This Report:
(1) FINANCIAL STATEMENTS
(a) Reports of Independent Certified Public Accountants.
(b) Balance Sheets as of April 30, 2001 and 2000.
(c) Statements of operations for each of the three years
in the period ended April 30, 2001.
(d) Statements of Stockholders' Equity for each of the three
years in the period ended April 30, 2001.
(e) Statements of Cash Flows for the three years
in the period ended April 30, 2001.
(f) Notes to the Financial Statements.
INDEX TO EXHIBITS
Exhibits
Exhibits Required by Item 601 of to Exhibits to
Regulation S-K Prior This
Reports Year
3(a)(i) Registrants Amended Articles of X
Incorporation
3(a) Registrants Amended Articles of X
Incorporation
3(b) Specimen Form of Common Stock X
Certificate
4(a) Stock Option Agreement between Robert X
Skalnik, January 12, 2001
4(b) Stock Option Agreement between Robert X
Skalnik, December 29, 2000
4(c) Stock Option Agreement between Robert X
Skalnik, December 29, 2000
4(d) Stock Option Agreement between Robert X
Skalnik, December 29, 2000
4(e) Stock Option Agreement between James X
Reavis, December 29, 2000
4(f) Stock Option Agreement between James X
Reavis, January 12, 2001
4(g) Stock Option Agreement between James X
Reavis, December 29, 2000
4(h) Stock Option Agreement between James X
Reavis, December 29, 2000
4(i) Stock Option Agreement between Joan X
Mahan, May 26, 2000
4(j) Stock Option Agreement between Lane X
Martin, July 13, 2000
10(a) Agreement between the Registrant and X
Leland C. Clark, Jr., Ph.D. dated
October 1, 1991 with amendments, Re:
Assignment of Intellectual Property
and Trade Secrets
10(b) Agreement between the Registrant and X
Keith R. Watson, Ph.D., Re:
Assignment of Invention
24
10(c) Promissory Note from Roger Ekbom X
10(d) 1999 Employee Stock Plan X
10(e) Children's Hospital Research X
Foundation License Agreement
Pursuant to the requirements of Section 13 of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereto duly authorized.
SYNTHETIC BLOOD INTERNATIONAL, INC.
Robert W. Nicora, President & Chief Executive Officer
By: /S/ ROBERT W. NICORA
David H. Johnson, Chief Financial Officer
By: /S/ DAVID H. JOHNSON
Dated: 6/29/01
Pursuant to the requirements of Instruction D to Form 10-K under
the Securities and Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated. The following
represent at least a majority of the Board of Directors of the
Registrant.
Date Name & Title
6/29/01 Roger A. Ekbom
Chairman of the
Board of Directors
By: /S/ ROGER A. EKBOM
6/29/01 Robert W. Nicora
President & Director
By: /S/ ROBERT W. NICORA
6/29/01 Robert J. Larsen
Corporate Secretary
By: /S/ ROBERT LARSEN
6/29/01 Gerald D. Schlatter
Director
By: /S/ GERALD SCHLATTER
6/29/01 Howard Jones
Director
By: /S/ HOWARD JONES
25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Synthetic Blood International, Inc.
We have audited the accompanying balance sheets of Synthetic Blood
International, Inc. (a Company in the development stage) as of
April 30, 2001 and 2000, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the three
years in the period ended April 30, 2001 and for the period from
inception (May 26, 1967) to April 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Synthetic Blood International, Inc. as of April 30, 2001 and 2000,
and the results of its operations and its cash flows for each of
the three years in the period ended April 30, 2001 and for the
period from inception (May 26, 1967) to April 30, 2001, in
conformity with accounting principles generally accepted in the
United States of America.
GRANT THORNTON LLP
Irvine, California
June 1, 2001
26
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
April 30, 2001 and 2000
ASSETS
2001 2000
CURRENT ASSETS:
Cash and cash equivalents $4,250,898 $5,466,391
Common stock subscription receivable - 400,000
Note receivable from director 30,000 -
Prepaid expenses and other current assets 83,373 71,065
Total current assets 4,364,271 5,937,456
PROPERTY AND EQUIPMENT
Laboratory equipment 263,123 47,290
Furniture and fixtures 49,022 28,435
Leasehold improvements 3,825 -
315,970 75,725
Less accumulated depreciation (72,066) (43,994)
Property and equipment, net 243,904 31,731
PATENTS, net 234,121 230,464
$4,842,296 $6,199,651
The accompanying notes are an integral pare of these
financial statements
27
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
BALANCE SHEETS- CONTINUED
April 30, 2001 and 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
2001 2000
CURRENT LIABILITIES
Notes payable $ 177,358 $ 44,534
Accounts payable 87,256 211,460
Accrued payroll 79,454 89,446
Total current liabilities 344,068 345,440
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per share; authorized
100,000,000 shares; 84,474,547 and 80,907,298 shares
issued and outstanding at April 30, 2001 and 2000,
respectively 844,745 809,073
Stock subscription receivable - (600,000)
Deposits on common stock 94,231 2,535,471
Additional paid-in capital 16,544,832 14,423,005
Deficit accumulated during the development stage (12,985,580) (11,313,338)
Total stockholders' equity 4,498,228 5,854,211
$ 4,842,296 $ 6,199,651
The accompanying notes are an integral part of these financial statements
28
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
For Each of the Three Years ended April 30, 2001 and For the Period
May 26, 1967 (Date of Incorporation) to April 30, 2001
Period from
May 26, 1967
(incorporation) to
April 30, 2001 2001 2000 1999
EXPENSES
Research and development $ 4,170,286 $ 782,339 $ 224,023 $ 170,058
General and administrative 9,071,274 1,219,852 687,575 667,376
Interest 166,544 1,070 15,882 20,395
Total expenses 13,408,104 2,003,261 927,480 857,829
OTHER INCOME (primarily interest) (422,524) (331,019) (16,141) (23,994)
NET LOSS $(12,985,580) $ (1,672,242) $ (911,339) $ (833,835)
NET LOSS PER SHARE -
Basic and diluted ($0.02) ($0.01) ($0.02)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING-Basic and diluted 86,401,830 65,365,438 51,388,471
The accompanying notes are an integral part of these financial statements
29
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For Each of the Three Years ended April 30, 2001 and For the Period
May 26, 1967 (Date of Incorporation) to April 30, 2001
Common Stock
Additional
Number of paid-in
Shares Amount capital
BALANCES, May 26, 1967 - $ - $ -
Issuance of common stock 36,292,293 362,923 5,809,831
Issuance of common stock upon
conversion of debentures 1,401,399 14,014 818,234
Issuance of common stock to employees
and compensatory options 218,800 2,188 81,312
Issuance of common stock for
services rendered 324,175 3,242 49,350
Issuance of common stock to officers
to retire shareholder loans 1,044,450 10,444 177,556
Common stock issued in conjunction with
funding agreements and services rendered 5,376,365 53,764 883,160
Common stock issued upon conversion
of notes payable 4,766,820 47,668 637,607
Issuance of warrants - - 190,406
Exercise of warrants 1,305,000 13,050 117,450
Contributions of capital for cash and
services rendered - - 65,700
Contribution of capital by shareholders - - 581,818
Net loss - - -
Balances at April 30, 1998 50,729,302 507,293 9,412,424
Issuance of common stock 4,265,022 42,650 262,500
Issuance of common stock for services-
rendered 320,000 3,200 53,725
Stock options granted - - 1,560
Net loss - - -
Balances at April 30, 1999 55,314,324 553,143 9,730,209
Deficit
accumulated Total
Total Stock Deposits during the stockholders'
subscription on common development equity
receivable stock stage (deficit)
BALANCES, May 26, 1967 $ - $ - $ - $ -
Issuance of common stock - - - 6,172,754
Issuance of common stock upon
conversion of debentures - - - 832,248
Issuance of common stock to employees
and compensatory options - - - 83,500
Issuance of common stock for
services rendered - - - 52,592
Issuance of common stock to officers
to retire shareholder loans - - - 188,000
Common stock issued in conjunction with
funding agreements and services rendered - - - 936,924
Common stock issued upon conversion
of notes payable - - - 685,275
Issuance of warrants - - - 190,406
Exercise of warrants - - - 130,500
Contributions of capital for cash and
services rendered - - - 65,700
Contribution of capital by shareholders - - - 581,818
Net loss - - (9,568,164) (9,568,164)
Balances at April 30, 1998 - - (9,568,164) 351,553
Issuance of common stock - - - 305,150
Issuance of common stock for services-
rendered - - - 56,925
Stock options granted - - - 1,560
Net loss - - (833,835) (833,835)
Balances at April 30, 1999 - - (10,401,999) (118,647)
The accompanying notes are an integral part of these financial statements
30
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)- CONTINUED
For Each of the Three Years ended April 30, 2001 and For the Period
May 26, 1967 (Date of Incorporation) to April 30, 2001
Common Stock
Additional Stock
Number of paid-in subscription
shares Amount capital receivable
Balances at April 30, 1999 55,314,324 $ 553,143 $ 9,730,209 $ -
Issuance of common stock 17,882,974 178,830 3,705,283 -
Issuance of common stock for services
rendered 200,000 2,000 20,400 -
Issuance of common stock for payable
settlement 10,000 100 13,500 -
Issuance of common stock for
promissory note 7,500,000 75,000 925,000 (600,000)
Options issued for services - - 28,613 -
Deposits received for common stock
not issued - - - -
Net loss - - - -
Balances at April 30, 2000 80,907,298 809,073 14,423,005 (600,000)
Issuance of common stock for services
rendered 244,819 2,448 118,920 -
Exercise of stock warrants 1,172,978 11,730 95,027 -
Options issued for services - - 12,401 -
Issuance of common stock for deposit
received 6,649,452 66,494 2,374,746 -
Cancellation of note for common stock
previously issued (4,500,000) (45,000) (555,000) 600,000
Compensation on options and
warrants issued - - 75,733 -
Net loss - - - -
Balances at April 30, 2001 84,474,547 $ 844,745 $ 16,544,832 $ -
Deficit
accumulated Total
Deposits during the stockholders'
on common development equity
stock stage (deficit)
Balances at April 30, 1999 $ - $ (10,401,999) $ (118,647)
Issuance of common stock - - 3,884,113
Issuance of common stock for services
rendered - - 22,400
Issuance of common stock for payable
settlement - - 13,600
Issuance of common stock for
promissory note - - 400,000
Options issued for services - - 28,613
Deposits received for common stock
not issued 2,535,471 - 2,535,471
Net loss - (911,339) (911,339)
Balances at April 30, 2000 2,535,471 (11,313,338) 5,854,211
Issuance of common stock for services
rendered - - 121,368
Exercise of stock warrants - - 106,757
Options issued for services - - 12,401
Issuance of common stock for deposit
received (2,441,240) - -
Cancellation of note for common stock
previously issued - - -
Compensation on options and
warrants issued - - 75,733
Net loss - (1,672,242) (1,672,242)
Balances at April 30, 2001 $ 94,231 $ (12,985,580) $ 4,498,228
The accompanying notes are an integral part of these financial statements
31
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
For Each of the Three Years ended April 30, 2001 and For the Period
May 26, 1967 (Date of Incorporation) to April 30, 2001
Period from
May 26, 1967
(incorporation) to
April 30, 2001 2001 2000 1999
Cash flows from operating activities:
Net loss $(12,985,580) $ (1,672,242) $ (911,339) $ (833,835)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 487,178 71,627 53,992 54,412
Loss on disposal of property and equipment 15,284 - 12,874 -
Disposal and write-down of other assets 126,800 - - -
Issuance of compensatory stock
options/warrants 367,213 88,134 28,613 1,560
Issuance of stock below fair market value 695,248 - - -
Issuance of stock for services rendered 1,190,209 121,368 22,400 56,925
Contribution of capital through services
rendered by stockholders 216,851 - - -
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (83,373) (12,308) (10,191) (41,349)
Accounts payable and accrued expenses 343,303 (134,196) (109,650) (32,212)
Net cash used in operating activities (9,626,867) (1,537,617) (913,301) (794,499)
Cash flows from investing activities:
Purchase of property and equipment (543,107) (240,246) (17,664) (13,795)
Proceeds from sale of property and equipment 15,457 - - -
Purchase of other assets (557,299) (77,212) (34,377) (91,462)
Net cash used in investing activities (1,084,949) (317,458) (52,041) (105,257)
The accompanying notes are an integral part of these financial statements
32
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS- CONTINUED
For Each of the Three Years ended April 30, 2001 and For the Period
May 26, 1967 (Date of Incorporation) to April 30, 2001
Period from
May 26, 1967
(incorporation) to
April 30, 2001 2001 2000 1999
Cash flows from financing activities:
Proceeds from stockholder debt $ 977,692 $ - $ - $ 61,900
Repayments of amounts due to stockholders (121,517) - - -
Proceeds from issuance of notes payable 275,248 135,000 - 140,248
Proceeds from issuance of convertible
debentures 811,000 - - -
Payments on short-term notes payable (58,812) (2,175) (56,637) -
Payments on long-term debt (238,971) - (84,227) (154,744)
Payments on capital lease obligation (52,338) - - -
Proceeds from exercise of stock options 106,757 106,757 - -
Proceeds from common stock not
issued at year-end 94,231 - 2,535,471 -
Contribution of capital from stockholders 40,700 - - -
Proceeds from issuance of common stock 13,128,724 400,000 3,844,113 305,150
Net cash provided by financing activities 14,962,714 639,582 6,238,720 352,554
Net increase (decrease) in cash and
cash equivalents 4,250,898 (1,215,493) 5,273,378 (547,202)
Cash and cash equivalents, beginning of period - 5,466,391 193,013 740,215
Cash and cash equivalents, end of period $ 4,250,898 $4,250,898 $ 5,466,391 $ 193,013
Cash paid for:
Interest $ 127,030 $ 1,070 $15,882 $ 20,395
Taxes $ 8,740 $ 800 $ 1,250 $ 800
The accompanying notes are an integral part of these financial statements
33
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS-CONTINUED
For Each of the Three Years ended April 30, 2001 and For the Period
May 26, 1967 (Date of Incorporation) to April 30, 2001
Supplemental information:
During fiscal 2000:
Exchange of $1,200,000 stock subscription receivable for
common stock subscription of 9,000,000 shares, of which
4,500,000 shares ($600,000) were not issued and paid as of
April 30, 2000.
The Company issued 10,000 shares of common stock in
satisfaction of a interest expense liability in which the
Company recognized an expense of $13,600.
The Company permitted the exercise of 400,000 options of
unregistered common stock at a $0.10 exercise price in
satisfaction of $40,000 in related party notes payable. The
company paid an unrelated third party for services with
200,000 shares of common stock, recognizing an expense of
$22,400.
During fiscal 2001:
The Company cancelled the balance of the stock subscription
receivable of $600,000 and the related 4,500,000 shares of
common stock due to nonpayment.
The Company issued 6,649,452 shares of its common stock for
deposits received in fiscal 2000.
The accompanying notes are an integral part of these financial statements.
34
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
April 30, 2001 and 2000
NOTE A - GENERAL
The Company was incorporated on May 26, 1967 and was inactive
through September 1990, when it began conducting operations
for the purpose of developing a synthetic blood emulsion to
act as a human blood substitute, and a method of using a
perfluorocarbon compound to facilitate oxygen exchange for
individuals with respiratory distress syndrome. Shortly after
commencing these operations, the Company changed its name to
Synthetic Blood International, Inc. The Company is also
developing an implantable, continuous reading glucose
biosensor to be used primarily by individuals with diabetes.
All of the Company's products are currently in the preclinical
trial stage. This stage requires a sufficient level of animal
testing to be performed in order to file certain applications
with the United States Food and Drug Administration (FDA),
which is necessary to obtain FDA approval to proceed with
human testing and, ultimately, approval to market the
products. No assurances can be given that such approvals,
once applied for, will be granted. The Company has not
generated any revenues since inception.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage - The Company has not commenced its planned
principal operations, and there have been no significant
revenues, therefore it is considered a "Development Stage
Enterprise".
Cash and Cash Equivalents - The Company considers highly-
liquid investments with original maturities of three months or
less to be cash equivalents.
Property and Equipment - Property and equipment are recorded
at cost. Depreciation and amortization are computed using the
straight-line method over the shorter of the estimated useful
lives of the related assets, ranging from three to ten years,
or the lease term, if applicable.
Patents - Patent costs are being amortized over the lesser of the
remaining life of the patent or the estimated useful life of the
related product, ranging from eight to ten years. Patent costs
totaled $234,121 and $230,464, net of accumulated amortization of
$138,370 and $94,815, at April 30, 2001 and 2000, respectively.
The Company evaluates recoverability of patents on at least an
annual basis by comparing the estimated resale value of the
patents to the remaining carrying values. An adjustment to the
carrying value of the patent rights would be made if the
estimated resale value of the patents is determined to be
insufficient to recover such value.
35
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
April 30, 2001 and 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Pricing of Common Stock and Options to Purchase Common Stock -
The Company's Board of Directors determines the issuance price
of its common stock and the exercise price of options to
purchase common stock, based on a good faith estimate of fair
value, which is derived from recent issuances of common stock
to unrelated parties and/or from common stock market
quotations, after giving effect to the restricted nature of
the stock issued. In the event that stock is issued at a
price below fair market value for services rendered, an
expense is recorded for the difference between fair market
value and the issuance price and is included in general and
administrative expenses.
Loss Per Share - Basic loss per share, which includes no
dilutive securities, is computed by dividing loss available to
common shareholders by the weighted-average number of common
shares outstanding for that particular period. In contrast,
diluted loss per share considers the potential dilution that
could occur from other financial instruments that would
increase the total number of outstanding shares of common
stock. Potentially dilutive securities, however, have not
been included in the diluted loss per share computation
because their effect is antidilutive.
Income Taxes - Deferred tax assets and liabilities are
recorded for differences between the financial statement and
tax basis of the assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax
expense is recorded for the amount of income tax payable or
refundable for the period increased or decreased by the change
in deferred tax assets and liabilities during the period.
Reclassifications - Certain amounts as previously reported
have been reclassified to conform with the 2001 presentation.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
other income and expenses during the reporting periods.
Actual results could differ from those estimates.
36
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
April 30, 2001 and 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Fair Value of Financial Instruments - The Company's balance
sheet includes the following financial instruments: cash and
cash equivalents, accounts payable, accrued expenses, amounts
due to stockholders, and notes payable. The Company considers
the carrying amount in the financial statements
to approximate fair value for these financial instruments
because of the relatively short period of time between
origination of the instruments and their expected realization.
The Company considers the carrying value of its notes payable
to approximate fair market value based on the borrowing rates
currently available to the Company for bank loans with similar
terms and maturities.
Stock-Based Compensation - The Company accounts for stock-
based employee compensation as prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees," and has
adopted the disclosure provisions of Statement of Financial
Accounting Standards 123, "Accounting for Stock-based
Compensation" ("SFAS 123"). SFAS 123 requires proforma
disclosures of net loss and net loss per share as if the fair
value based method of accounting for stock-based awards had
been applied. 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.
NOTE C - COMMITMENTS AND CONTINGENCIES
Litigation - The Company is subject to litigation in the
normal course of business, none of which management believes
will have a material adverse effect on the Company's financial
statements.
NOTE D - NOTES PAYABLE
Notes payable consist of the following at April 30:
2001 2000
Installment contract payable, secured by
unearned insurance premiums, payable in
monthly installments of $10,700 through
September 2001 $ 42,358 $ 44,534
Promissory note bearing interest at 8% per
annum, payable in monthly principal and
interest installments of $11,745 through
April 19, 2002 135,000 -
$ 177,358 $ 44,534
37
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
April 30, 2001 and 2000
NOTE E - STOCKHOLDERS' EQUITY
During fiscal 1999, the Company issued 125,000 shares in
satisfaction of a $26,250 liability for rent on a Company
research facility. An additional 25,000 shares were issued to
a consultant for services rendered. The Company recognized an
expense of $2,625 representing the fair value of the stock at
the date of issuance.
During fiscal 1999, the Company issued 170,000 shares to a
director/officer in exchange for services rendered. The
Company recognized an expense of $28,050 representing the fair
value of the stock at the date of issuance.
During fiscal 1999, the Company issued 4,265,022 shares of
unregistered common stock for $305,150; these shares were
issued at a share price ranging from $0.07 to $0.11.
During fiscal 1999, the Company issued 125,000 shares in satisfaction
of a $26,250 liability for rent on a Company research facility.
An additional 25,000 shares were issued to a consultant for
services rendered. The Company recognized an expense of $2,625
representing the fair value of the stock at the date of issuance.
During fiscal 2000, the Company issued 200,000 shares of
unregistered, restricted common stock to an unrelated party
for services rendered. The Company recognized an expense
of $22,400 representing the fair value of the stock at the
date of issuance.
During fiscal 2000, the Company issued 10,000 shares of
unregistered, restricted common stock in satisfaction of an
interest expense liability. The Company recognized an expense of
$13,600 representing the fair value of the stock at the date of
issuance.
During fiscal 2000, the Company issued 12,676,714 shares
of unregistered common stock to third party investors for
$3,045,837 at share prices ranging from $0.06 to $0.75 and 75,000
shares of unregistered common stock to related parties for
$6,000; these shares were issued at a share price of $0.08. The
Company issued 5,457,871 options with the sale of the above stock
with exercise prices ranging from $0.11 to $1.00.
During fiscal 2000, the Company issued 2,831,260 shares of
unregistered commonstock to third party investors in connection
with the exercise of options for $551,970 with a range of exercise
prices from $0.07 to $0.14. The Company also issued 400,000
shares of unregistered common stock to related parties in connection
with the exercise of options for $40,000, at an exercise price of
$0.10.
38
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
April 30, 2001 and 2000
NOTE E- STOCKHOLDERS' EQUITY - Continued
During fiscal 2000, 400,000 options were exercised into
unregistered common stock in satisfaction of $40,000 in related
party notes payable. The options had an exercise price of
$0.10.
During fiscal 2000, the Company sold 9,000,000 shares of common
stock at $0.13 per share in exchange for a promissory note of
$1,200,000 payable in 12 equal monthly installments of $100,000,
commencing in April 2000.The note has been recorded as a stock
subscription receivable and has been presented in the
stockholders' equity section of the accompanying Balance Sheet
for amounts not received prior to the filing of this report.
During fiscal 2000, the Company received $2,500,000 in deposits
for 6,500,000 shares of unregistered common stock that were
committed to be issued at April 30, 2000, of which 1,900,000
shares were issued subsequent to year-end at a share price of $.385.
The Company received an additional $35,471 in deposits for the
exercise of 394,452 shares of unregistered common stock that were
committed to be issued at April 30, 2000 and were issued subsequent
to year-end at share prices ranging from $0.07 to $0.14.
During fiscal 2001, the Company issued 244,819 shares of unregistered
common stock to unrelated parties for services rendered. The Company
recognized an expense of $121,368 representing the fair value of the
stock at the date of issuance.
During fiscal 2001, the Company issued 6,649,452 shares
of unregistered common stock in satisfaction of deposits received
prior to April 30, 2000. The shares were issued at prices ranging
from $0.07 to $0.3846.
During fiscal 2001, the Company issued 1,172,978 shares of
unregistered common stock to third party investors in connection
with the exercise of stock options for $106,757 with a range of
exercise prices from $0.07 to $0.14.
During fiscal 2001, the Company cancelled its stock
subscription receivable of $600,000 and the related 4.5 million
common shares of stock.
39
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
April 30, 2001 and 2000
NOTE F - STOCK OPTIONS AND WARRANTS
In September 1999, the Company's Board of Directors approved the
1999 Stock Plan ("the 1999 Plan") which provides for the granting
of incentive and nonstatutory stock options to employees,
directors and consultants to purchase up to 4,000,000 shares of
the Company's common stock. The 1999 Plan was approved by
shareholders on October 10, 2000. Options granted under the 1999
Plan are exercisable at various dates up to four years and have
expiration periods of generally ten years. At April 30, 2001
there were 4,131,472 stock options outstanding, of which
2,445,000 stock options had been issued under the 1999 Plan.
The following table summarizes certain information related to the
Company's stock options as of April 30:
2001 2000
Exercise Exercise
Outstanding, Options Price Options Price
beginning of year 3,165,000 $ 0.13 900,000 $ 0.13
Granted 1,105,666 0.32 2,265,000 0.13
Exercised (139,194) 0.08 - -
Outstanding
end of year 4,131,472 $ 0.18 3,165,000 $ 0.13
The following table summarizes information about stock options
outstanding at April 30, 2001.
Options Outstanding
Weighted Weighted
Range of Average Average
Exercise Number Remaining Exercise
Prices Outstanding Life Price
$0.01- $0.80 4,131,472 8.57 $ 0.18
40
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
April 30, 2001 and 2000
NOTE F - STOCK OPTIONS AND WARRANTS -
Continued At April 30, 2001,approximately 2,129,167 stock
options were exercisable. As permitted under SFAS No. 123,
Accounting for Stock-Based Compensation, the Company accounts
for its stock option plan
in accordance with the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees. During the year
ended April 30, 2001, the Company issued options to non-
employees at exercise prices below the fair market value of
the Company's common stock. The Company has recorded
compensation expense based on the intrinsic value of such
options at the date of grant. Had compensation cost for the
stock option plan been determined based on the fair value at
the grant date consistent with the method of SFAS No. 123, the
Company's net loss and net loss per share would have been the
pro forma amounts indicated below:
Years ended April 30,
2001 2000 1999
Actual net loss $ (1,672,242) $ (911,339) $ (833,835)
Pro forma net loss $ (2,120,000) $ (937,906) $ (882,635)
Actual net loss per share $(0.02) $(0.01) $(0.02)
Pro forma net loss per share $(0.02) $(0.01) $(0.02)
The fair value of each option grant was estimated at the grant
date using the Black-Scholes option-pricing model using the
following assumptions: a risk-free interest rate of 5.39% for
2001, 6.12% for 2000, and 6.00% for 1999; volatility of 162%
for 2001, 152% for 2000, and 90% for 1999; zero dividend yield
for all years; and expected lives of 1 to 10 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options and warrants which
have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options and
warrants have characteristics significantly different from
those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair
value of its employee stock options.
NOTE F - STOCK OPTIONS AND WARRANTS - Continued
During fiscal 2000, the Company issued approximately 5,450,000
warrants in connection with the
41
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
April 30, 2001 and 2000
sale of stock, with a weighted average
exercise price of $0.45. Also during fiscal 2000, the Company
issued 1,240,000 warrants to certain directors with an
exercise price of 80% of fair market value.
The following table summarizes certain information related to
the Company's stock warrants:
Exercise Price
Shares per Share
Warrants outstanding at April 30, 1999 2,619,827 $ 0.28
Granted 7,004,343 0.39
Exercised (3,631,260) 0.17
Terminated (60,000) 0.20
Warrants outstanding at April 30, 2000 5,932,910 0.41
Exercised (1,033,784) 0.09
Terminated (2,150,000) 0.90
Warrants outstanding at April 30, 2001 2,749,126 $ 0.14
NOTE G - INCOME TAXES
No provision for federal and state income
taxes has been recorded as the Company has incurred net
operating losses through April 30, 2001. At April 30, 2001,
the Company has net operating loss carryforwards available to
offset future taxable income for federal tax purposes of
approximately $12 million; such carryforwards expire in
various years through 2021. Deferred tax assets of
approximately $4.5 million at April 30, 2001 include the
effects of these net operating loss carryforwards, and
research and development credit carryforwards. The Company
has provided a valuation allowance to offset all deferred tax
assets due to the uncertainty of realization.
NOTE H - RELATED PARTIES
During fiscal 2001, 2000 and 1999, the Company recorded expenses
of approximately $12,400, $5,800 and $70,500, respectively,
for services provided by a company in which an officer of the
Company has a controlling interest.
42