UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended October 31, 2004
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 2-31909
SYNTHETIC BLOOD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| New Jersey | 33-0112644 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
3189 Airway Avenue, Building C, Costa Mesa, California 92626
(Address of Principal Executive Office)
714-427-6363
(Registrant’s telephone number, including area code)
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 (the “Exchange Act”) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of December 15, 2004. 125,513,042 shares of common stock, par value $0.01.
SYNTHETIC BLOOD INTERNATIONAL, INC.
INDEX
2
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
| October 31, 2004 |
April 30, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 110,141 | $ | 302,310 | ||||
| Prepaid expenses |
20,700 | 118,980 | ||||||
| Total Current Assets |
130,841 | 421,290 | ||||||
| Property and Equipment, net |
440,051 | 407,194 | ||||||
| Patents, net |
214,357 | 219,495 | ||||||
| $ | 785,249 | $ | 1,047,979 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 283,838 | $ | 237,249 | ||||
| Accrued liabilities |
136,549 | 56,449 | ||||||
| Total Current Liabilities |
420,387 | 293,698 | ||||||
| Stockholders’ Equity: |
||||||||
| Preferred Stock, undesignated, authorized 10,000,000 shares, none issued or outstanding |
— | — | ||||||
| Common Stock, par value $.01 per share; authorized 200,000,000 shares; issued and outstanding 116,075,542 and 113,808,876 shares |
1,160,755 | 1,138,089 | ||||||
| Additional paid-in capital |
21,393,293 | 20,708,959 | ||||||
| Deferred compensation |
(165,875 | ) | (142,834 | ) | ||||
| Deficit accumulated during the development stage |
(22,023,311 | ) | (20,949,933 | ) | ||||
| Total Stockholders’ Equity |
364,862 | 754,281 | ||||||
| $ | 785,249 | $ | 1,047,979 | |||||
See accompanying condensed notes to financial statements.
3
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
| Deficit 2004 |
Three Months Ended October 31, |
Six Months Ended October 31, |
||||||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||||||
| (Unaudited) |
(Unaudited) |
(Unaudited) |
||||||||||||||||||
| Expenses: |
||||||||||||||||||||
| Research and development |
$ | 8,722,011 | $ | 309,614 | $ | 265,630 | $ | 529,081 | $ | 498,710 | ||||||||||
| General and administrative |
13,740,631 | 291,286 | 202,003 | 546,899 | 428,301 | |||||||||||||||
| Interest |
182,643 | — | — | — | — | |||||||||||||||
| Total Expense |
22,645,285 | 600,900 | 467,633 | 1,075,980 | 927,011 | |||||||||||||||
| Other Income |
(621,974 | ) | (944 | ) | (7,207 | ) | (2,602 | ) | (14,675 | ) | ||||||||||
| NET LOSS |
$ | (22,023,311 | ) | $ | (599,956 | ) | $ | (460,426 | ) | $ | (1,073,378 | ) | $ | (912,336 | ) | |||||
| NET LOSS PER SHARE, BASIC AND DILUTED |
$ | (0.005 | ) | $ | (0.005 | ) | $ | (0.009 | ) | $ | (0.010 | ) | ||||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED |
115,262,499 | 89,504,961 | 114,535,687 | 89,145,613 | ||||||||||||||||
See accompanying condensed notes to financial statements.
4
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
| Period From May 26, 1967 (inception) to October 31, 2004 |
Six Months Ended October 31, |
|||||||||||
| 2004 |
2003 |
|||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
| Net loss |
$ | (22,023,311 | ) | $ | (1,073,378 | ) | $ | (912,336 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
| Depreciation and amortization |
929,624 | 53,423 | 65,827 | |||||||||
| Amortization of deferred compensation |
71,958 | 71,958 | — | |||||||||
| Loss on disposal and write-down of property and equipment and other assets |
150,409 | — | — | |||||||||
| Compensatory stock options/warrants issued |
2,015,179 | — | — | |||||||||
| Issuance of stock below market value |
695,248 | — | — | |||||||||
| Contribution of capital through services rendered by stockholders |
216,851 | — | — | |||||||||
| Issuance of stock for services rendered |
1,222,779 | — | — | |||||||||
| Changes in operating assets and liabilities: |
||||||||||||
| Prepaid expenses and other assets |
(20,701 | ) | 98,279 | 3,728 | ||||||||
| Accounts payable and accrued liabilities |
596,981 | 126,691 | 37,220 | |||||||||
| Net cash used in operating activities |
(16,144,983 | ) | (723,027 | ) | (805,561 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
| Purchase of property and equipment |
(1,056,665 | ) | (64,225 | ) | (16,094 | ) | ||||||
| Purchase of other assets |
(625,433 | ) | (16,917 | ) | (10,218 | ) | ||||||
| Net cash used in investing activities |
(1,682,098 | ) | (81,142 | ) | (26,312 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
| Proceeds from sale of common stock and exercise of common stock options and warrants, net of related expenses |
16,522,282 | 612,000 | — | |||||||||
| Proceeds from common stock subscribed |
— | — | 1,126,226 | |||||||||
| Repayments of amounts due stockholders |
(121,517 | ) | — | — | ||||||||
| Proceeds from stockholder notes payable |
977,692 | — | — | |||||||||
| Proceeds from notes, debentures and lease obligations |
1,276,065 | — | — | |||||||||
| Payments on notes and capital lease obligations |
(717,300 | ) | — | — | ||||||||
| Net cash provided by (used in) financing activities |
17,937,222 | 612,000 | 1,126,226 | |||||||||
| Net change in cash and cash equivalents |
110,141 | (192,169 | ) | 294,353 | ||||||||
| Cash and cash equivalents, beginning of period |
— | 302,310 | 178,442 | |||||||||
| Cash and cash equivalents, end of period |
$ | 110,141 | $ | 110,141 | $ | 472,795 | ||||||
| Cash paid for: Interest |
$ | 143,129 | $ | — | $ | — | ||||||
| Taxes |
$ | 16,000 | $ | 1,550 | $ | 1,340 | ||||||
Non-cash investing and financing activities during the six months ended October 31, 2004:
The Company issued 500,000 incentive stock options to a Director of the Company. Deferred compensation of $95,000 has been recorded for the difference between the market value of the shares at the date of grant of $.34 per share over the strike price of $.15 per share and will be amortized to compensation expense over the 2 year vesting period.
See accompanying condensed notes to financial statements
5
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
CONDENSED NOTES TO FINANCIAL STATEMENTS
| 1. | BASIS OF PRESENTATION |
The accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of October 31, 2004, and the results of its operations for the three months and six months ended October 31, 2004 and 2003, and for the period from May 26, 1967 (inception) to October 31, 2004, and its cash flows for the six months ended October 31, 2004 and 2003, and for the period from May 26, 1967 (inception) to July 31, 2004. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading. However, the financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2004 filed with the Commission on August 13, 2004.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company is in the development stage and, at October 31, 2004, has an accumulated deficit of $22,023,311, continues to sustain operating losses on a monthly basis, and expects to incur operating losses for the foreseeable future. Since the Company is in the pre-clinical and clinical trial stages of its products, these products must undergo considerable development and testing prior to submission to the FDA for approval to market the products. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing sufficient to fund the required additional development and testing and to meet its obligations on a timely basis. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.
| 2. | STOCK-BASED COMPENSATION |
The Company accounts for stock-based employee compensation as prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and has adopted Statement of Financial Accounting Standards 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”), that amends Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). APB 25 provides that compensation expense relative to the Company’s employee stock options is measured based on the intrinsic value of stock options granted. SFAS 123 and 148 require pro forma disclosures of net income (loss) and net income (loss) per share as if the fair value based method of accounting for stock-based awards had been applied for employee grants. They also require disclosure of option status on a more prominent and
6
frequent basis. The Company accounts for stock options and warrants issued to non-employees based on the fair value method, but has not elected this treatment for grants to employees and board members. Under the fair value based method, compensation cost is recorded based on the value of the award at the grant date and is recognized over the service period.
The fair value of each option grant was estimated at the grant date using the Black-Scholes option-pricing model. The Black–Scholes option-pricing valuation model was developed for use in estimating the fair value of traded options and warrants that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s 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 stock options and warrants.
The Company’s calculations are based on a single option valuation approach and forfeitures are recognized as they occur.
The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested employee awards:
| Six Months Ended October 31, 2004 |
Six Months Ended October 31, 2003 |
|||||||
| Net loss, as reported |
$ | (1,073,378 | ) | $ | (912,336 | ) | ||
| Add: stock-based employee compensation expenses |
71,957 | — | ||||||
| Deduct: fair value based employee compensation expenses |
(153,710 | ) | (31,904 | ) | ||||
| Pro forma net loss |
$ | (1,155,131 | ) | $ | (944,240 | ) | ||
| Earning per share: |
||||||||
| As reported |
$ | (0.009 | ) | $ | (0.010 | ) | ||