TENAX THERAPEUTICS, INC. - Quarter Report: 2002 July (Form 10-Q)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934. |
For the quarterly period ended July, 31, 2002
Commission File Number 2-31909
SYNTHETIC BLOOD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| New Jersey |
22-3067701 | |
| (State of Incorporation) |
(IRS Employer ID Number) |
3189 Airway Avenue, Building C, Costa Mesa, California 92626
(Office of Principal Executive Office)
714-427-6363
(Registrant’s telephone number, including area code)
Indicate by the check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports).
YES x NO [ ]
and (2) has been subject to such filing requirements
for the past 90 days.
YES x NO [ ]
Indicate the number of shares outstanding of each of
the issuer’s classes of common stock, as of July 31, 2002.
88,577,245 shares of common stock par value $0.01
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
| July 31, 2002
|
April 30, 2002 |
|||||||
| (Unaudited) |
||||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
|
2,020,701 |
|
$ |
2,442,015 |
| ||
| Prepaid expenses |
|
60,598 |
|
|
89,537 |
| ||
| |
|
|
|
|
| |||
| Total Current Assets |
|
2,081,299 |
|
|
2,531,552 |
| ||
| Property and Equipment, net |
|
491,485 |
|
|
485,614 |
| ||
| Patents, net |
|
255,815 |
|
|
258,654 |
| ||
| |
|
|
|
|
| |||
| $ |
2,828,599 |
|
$ |
3,275,820 |
| |||
| |
|
|
|
|
| |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Notes Payable |
$ |
50,430 |
|
$ |
105,569 |
| ||
| Accounts payable |
|
59,034 |
|
|
41,174 |
| ||
| Accrued liabilities |
|
22,587 |
|
|
32,335 |
| ||
| |
|
|
|
|
| |||
| Total Current Liabilities |
|
132,051 |
|
|
179,078 |
| ||
| |
|
|
|
|
| |||
| Stockholders’ Equity: |
||||||||
| Preferred Stock, undesignated, authorized 10,000,000 shares, none issued or outstanding |
|
— |
|
|
— |
| ||
| Common Stock, par value $.01 per share; authorized 200,000,000 shares; issued and outstanding 88,577,245
shares |
|
885,772 |
|
|
885,772 |
| ||
| Additional paid-in capital |
|
18,684,363 |
|
|
18,684,363 |
| ||
| Deficit accumulated during the development stage |
|
(16,873,587 |
) |
|
(16,473,393 |
) | ||
| |
|
|
|
|
| |||
| Total Stockholders’ Equity |
|
2,696,548 |
|
|
3,096,742 |
| ||
| |
|
|
|
|
| |||
| $ |
2,828,599 |
|
$ |
3,275,820 |
| |||
| |
|
|
|
|
| |||
See accompanying condensed notes to
financial statements
2
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
| Deficit Accumulated During the Development Stage |
Three Months Ended July 31, |
|||||||||||
| 2002 |
2001 |
|||||||||||
| (Unaudited) |
(Unaudited) |
|||||||||||
| Expenses: |
||||||||||||
| Research and development |
$ |
5,659,957 |
|
|
176,289 |
|
$ |
316,881 |
| |||
| General and administrative |
|
11,602,991 |
|
|
240,594 |
|
|
245,991 |
| |||
| Interest |
|
181,678 |
|
|
1,538 |
|
|
2,917 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Total Expenses |
|
17,444,626 |
|
|
418,421 |
|
|
565,789 |
| |||
| Other Income |
|
(571,039 |
) |
|
(18,227 |
) |
|
(48,419 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| NET LOSS |
$ |
(16,873,587 |
) |
$ |
(400,194 |
) |
$ |
(517,370 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| NET LOSS PER SHARE, BASIC AND DILUTED |
$ |
(0.005 |
) |
$ |
(0.006 |
) | ||||||
| |
|
|
|
|
| |||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED |
|
88,577,245 |
|
|
85,139,699 |
| ||||||
| |
|
|
|
|
| |||||||
See accompanying condensed notes to financial statements
3
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
| Deficit Accumulated During Development Stage |
Three Months Ended July 31, |
|||||||||||
| 2002 |
2001 |
|||||||||||
| (Unaudited) |
(Unaudited) |
|||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
| Net loss |
|
(16,873,587 |
) |
|
(400,194 |
) |
$ |
(517,370 |
) | |||
| Adjustments to reconcile net loss to cash used in operating activities: |
||||||||||||
| Depreciation and amortization |
|
631,646 |
|
|
34,206 |
|
|
25,048 |
| |||
| Loss on disposal and write-down of property and equipment and other assets |
|
142,084 |
|
|
— |
|
|
— |
| |||
| Compensatory stock options/warrants issued |
|
1,916,263 |
|
|
— |
|
|
— |
| |||
| Issuance of stock below market value |
|
695,248 |
|
|
— |
|
|
— |
| |||
| Contribution of capital through services rendered by stockholders |
|
216,851 |
|
|
— |
|
|
— |
| |||
| Issuance of stock for services rendered |
|
1,190,209 |
|
|
— |
|
|
— |
| |||
| Changes in operating assets and liabilities: |
||||||||||||
| Decrease in notes receivable |
|
30,000 |
|
|||||||||
| Prepaid expenses and other assets |
|
(60,598 |
) |
|
28,939 |
|
|
2,593 |
| |||
| Accounts payable and accrued expense |
|
258,212 |
|
|
8,112 |
|
|
44,631 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash used in operating activities |
|
(11,853,672 |
) |
|
(328,937 |
) |
|
(445,098 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| CASH FLOW FROM INVESTING ACTIVITIES: |
||||||||||||
| Purchase of property and equipment |
|
(932,500 |
) |
|
(28,347 |
) |
|
(137,675 |
) | |||
| Purchase of other assets |
|
(566,190 |
) |
|
(8,891 |
) |
|
(20,980 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash used in investing activities |
|
(1,498,690 |
) |
|
(37,238 |
) |
|
(158,655 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
| Proceeds from sale of common stock and exercise of common stock options and warrants |
|
13,907,689 |
|
|
— |
|
|
358,507 |
| |||
| Repayments of amounts due stockholders |
|
(121,517 |
) |
|
— |
|
|
— |
| |||
| Proceeds from stockholder notes payable |
|
977,692 |
|
|
— |
|
|
— |
| |||
| Proceeds from notes, debentures and lease obligations |
|
1,276,065 |
|
|
— |
|
|
74,000 |
| |||
| Payments on notes and lease obligations |
|
(666,866 |
) |
|
(55,139 |
) |
|
(70,039 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash provided by (used in) financing activities |
|
15,373,063 |
|
|
(55,139 |
) |
|
362,468 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net change in cash and cash equivalents |
|
— |
|
|
(421,314 |
) |
|
(241,285 |
) | |||
| Cash and cash equivalents, beginning of period |
|
2,020,701 |
|
|
2,442,015 |
|
|
4,250,898 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Cash and cash equivalents, end of period |
$ |
2,020,701 |
|
$ |
2,020,701 |
|
$ |
4,009,613 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Cash paid for: |
||||||||||||
| Interest |
$ |
142,164 |
|
$ |
1,538 |
|
$ |
2,917 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Taxes |
$ |
9,540 |
|
$ |
— |
|
$ |
5,640 |
| |||
| |
|
|
|
|
|
|
|
| ||||
See accompanying condensed notes to financial statements
4
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. |
BASIS OF PRESENTATION |
The accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) which in the opinion of management, are necessary to present fairly the
financial position of the Company at July 31, 2002, and the results of its operations for the three month periods ended July 31, 2002 and 2001 and its cash flows for the three month periods ended July 31, 2002 and 2001. Certain information and
footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures in the financial statements
are adequate to make the information presented not misleading.
Certain amounts as previously reported have been
reclassified to conform to the 2002 presentation.
The financial statements included herein should be read in
conjunction with the financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2002 filed with the Securities and Exchange Commission on July 26, 2002.
5
SYNTHETIC BLOOD INTERNATIONAL, INC
(A Development Stage Company)
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Except for the historical information contained herein,
the following discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those projected in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed in this section and those discussed in the Company’s Annual Report on Form 10K for the year ended April 30, 2002 and the filings made with the Securities and
Exchange Commission.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the
Company can not guarantee future results, levels of performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of the Form 10-Q to conform such statements or actual results or to changes in expectations.
Potential risks and uncertainties include, but are not limited to: an inability to achieve results from the pre-clinical studies which are determined to merit requesting FDA approval to begin clinical
trials for one or more of the Company’s products; an inability to receive FDA approval to begin clinical trials for one or more of its products; an inability to enter into or maintain the future strategic collaborative relationships the Company
believes are essential to further develop and commercialize the Company’s products; uncertainties associated with the lengthy and complicated testing and regulatory approval process, in particular the risk that the Company’s products,
assuming pre-clinical tests are successful, may be found ineffective during clinical trials, if any, or the Company is unable to obtain the necessary regulatory approvals to commercialize these products; uncertainties associated with obtaining and
enforcing patents for the Company’s products and technology; the risks of infringing patents held by other parties; uncertainties associated with changing or new technology; difficulties in scaling up manufacturing operations to commercial
scale and in obtaining raw materials in a quantity and at prices necessary to produce profitable products; an inability to have the Company’s products manufactured by future strategic partners or contract manufacturing companies; and failure to
obtain market acceptance, significant market share, or third party reimbursement at profitable price levels.
Significant risks and
uncertainties are associated with the Company’s ability to obtain the required financing to develop its products. The Company’s projected capital requirements are based on the expectation that strategic partners will assume further
development and regulatory costs for each product during Phase II clinical trials and thereafter. If that does not happen, the amount of financing the Company will be required to raise could increase substantially. If the
6
Company is unable to raise adequate financing, it may be required to delay, scale-back, or eliminate product development programs, sell the
rights to certain technologies or products.
RESULTS OF OPERATIONS
Three months ended July 31, 2002 and 2001
The Research and Development
expenses for the three-month period ended July 31, 2002 were $176,289, compared to $316,881 for the same period in the prior year.
This
decrease is attributed to a reduction in wages and contract consulting of $151,000 during the current period due to an increased level of animal studies in the prior period. The Company’s ongoing research and development activities may result
in certain periods reflecting increased activity resulting from the timing of research related to the Company’s three developmental products.
General and Administrative expenses for the three-month period ended July 31, 2002 were $240,594, compared to $245,991 for the same period in the prior year. There were no significant changes in office and administrative expenses
between the three-month period ended July 31, 2002 and 2001.
The net loss for the three months ended July 31, 2002 was $400,194,
compared to a net loss of $517,370 for the same period in the prior year. Although total expenses decreased $147,368 during the three-month period ended July 31, 2002 over the comparable period in 2001, the Company’s net loss decreased only $
117,176. The was due to a reduction in interest income of $30,192 due to falling interest rates and smaller invested balances over the same period in 2001
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since September 1990, when it
began operating as Synthetic Blood International, Inc., through the issuance of debt and equity securities and loans from stockholders. As of July 31, 2002, the Company had $2,081,299 in total current assets and working capital of $1,949,248. The
Company has invested excess working capital in short-term money market investment instruments. The Company believes its cash and cash equivalents at July 31, 2002 will be sufficient to meet its liquidity needs for the next 9 months.
The Company is in the pre-clinical trial stage in the development of its products. These products must undergo further development and testing prior
to submission to the FDA for approval to initiate clinical trials. This additional development and testing and, if approved, the FDA required clinical testing, will require significant additional financing. Management is actively pursuing private
and institutional financing as well as strategic alliances and/or joint venture agreements to assist the Company in acquiring the necessary additional financing.
If the Company raises additional funds through the issuance of equity securities, the percentage ownership of existing stockholders will be reduced, stockholders may experience additional dilution or such equity securities
may provide for rights, preferences and privileges senior to those of the common stock.
7
There can be no assurance that FDA approval will be granted, if and when it is applied for one or more
of the Company’s products, or that necessary funding will be obtained.
The Company does not have any firm commitments for
additional capital as of July 31, 2002.
FINANCIAL CONDITION
July 31, 2002 compared to April 30, 2002
Cash used in operating activities during
the three-month period ended July 31, 2002 was $328,937, compared to $445,098 for the comparable period of the prior year, a decrease of $116,161. Operating activities consisted primarily of product research and development and the general operation
of the Company’s corporate office. Cash used in operating activities is likely to continue at this level.
Cash used in investing
activities during the three-month period ended July 31, 2002 was $37,238, compared to $158,655 for the comparable period of the prior year. Investing activities consisted primarily of the purchase of laboratory equipment and expenditures related to
the patent rights. The Company does not anticipate any significant future capital expenditures.
Cash used in financing activities during
the three-month period ended July 31, 2002 was $55,139, compared to cash provided by financing activities of $362,468 for the comparable period of the prior year. Cash provided by financing activities consists primarily of the sale of common stock
and the financing of equipment purchases through notes payable. During the three-month period ended July 31, 2002 cash used in financing activities was for the repayment of notes payable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The
Company has no derivative financial instruments and no exposure to foreign currency exchange rates or interest rate risk.
Part II-Other Information
Item |
1. Legal Proceedings. |
None
Item |
2. Changes in Securities. |
None
Item |
3. Defaults Upon Senior Securities. |
None
Item |
4. Submission of Matter to a Vote of Security Holders. |
None
8
Item 5. Other Information.
None
Item
6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
99.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
99.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(b) Reports on Form 8K:
None
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SYNTHETIC BLOOD INTERNATIONAL, INC. (Registrant) | ||||||||||
| 9/12/02 |
/s/ DAVID H. JOHNSON | |||||||||
| (Date) |
David H. Johnson, Chief Financial Officer | |||||||||
9