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.
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
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
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.
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.
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
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
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
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4
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.
PART II
ITEM 5
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
ITEM 6 - SELECTED FINANCIAL DATA
ITEM 7
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.
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.
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
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;
*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
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.
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
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
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
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
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
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
ITEM 10
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.
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
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.
SUMMARY COMPENSATION TABLE
(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
(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
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
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
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.
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
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
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
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
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
SYNTHETIC BLOOD INTERNATIONAL, INC. (A Development Stage Enterprise)
BALANCE SHEETS- CONTINUED April 30, 2001 and 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these financial statements
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
The accompanying notes are an integral part of these financial statements
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
The accompanying notes are an integral part of these financial statements
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
The accompanying notes are an integral part of these financial statements
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
The accompanying notes are an integral part of these financial statements
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
The accompanying notes are an integral part of these financial statements
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.
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.
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.
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
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.
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.
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
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
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.