TENAX THERAPEUTICS, INC. - Quarter Report: 2002 January (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 January, 31, 2002
Commission File Number
2-31909
SYNTHETIC BLOOD INTERNATIONAL, INC.
(Exact
name of registrant as specified in its charter)
| New Jersey (State of Incorporation) |
22-3067701 (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 January 31, 2002.
87,767,245 shares of common stock par value $0.01
SYNTHETIC BLOOD INTERNATIONAL, INC.
(A Development Stage Company)
BALANCE SHEETS
| January 31, 2002 |
April 30, 2001 |
|||||||
| (Unaudited) |
||||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ |
2,908,046 |
|
$ |
4,250,898 |
| ||
| Note receivable from director |
|
30,000 |
|
|
30,000 |
| ||
| Prepaid expenses |
|
194,433 |
|
|
83,373 |
| ||
| |
|
|
|
|
| |||
| Total Current Assets |
|
3,132,479 |
|
|
4,364,271 |
| ||
| Property and Equipment, net |
|
421,742 |
|
|
243,904 |
| ||
| Patents, net |
|
238,356 |
|
|
234,121 |
| ||
| |
|
|
|
|
| |||
| $ |
3,792,577 |
|
$ |
4,842,296 |
| |||
| |
|
|
|
|
| |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Notes Payable |
$ |
177,979 |
|
$ |
177,358 |
| ||
| Accounts payable |
|
140,655 |
|
|
87,256 |
| ||
| Accrued liabilities |
|
79,454 |
|
|
79,454 |
| ||
| |
|
|
|
|
| |||
| Total Current Liabilities |
|
398,088 |
|
|
344,068 |
| ||
| Stockholders’ Equity: |
||||||||
| Common Stock, par value $.01 per share; authorized 100,000,000 shares; issued and outstanding 87,767,245 and 84,474,547
|
|
877,672 |
|
|
844,745 |
| ||
| Deposits on common stock |
|
— |
|
|
94,231 |
| ||
| Additional paid-in capital |
|
17,023,013 |
|
|
16,544,832 |
| ||
| Deficit accumulated during development stage |
|
(14,506,196 |
) |
|
(12,985,580 |
) | ||
| |
|
|
|
|
| |||
| Total Stockholders’ Equity |
|
3,394,489 |
|
|
4,498,228 |
| ||
| |
|
|
|
|
| |||
| $ |
3,792,577 |
|
$ |
4,842,296 |
| |||
| |
|
|
|
|
| |||
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 January 31, |
Nine Months Ended January 31, |
||||||||||||||||||
| 2002 |
2001 |
2002 |
2001 |
|||||||||||||||||
| (Unaudited) |
(Unaudited) |
(Unaudited) |
||||||||||||||||||
| Expenses: |
||||||||||||||||||||
| Research and development |
$ |
5,166,330 |
|
$ |
328,719 |
|
$ |
234,760 |
|
$ |
996,044 |
|
$ |
519,799 |
| |||||
| General and administrative |
|
9,694,774 |
|
|
172,398 |
|
|
257,194 |
|
|
623,499 |
|
|
915,486 |
| |||||
| Interest |
|
177,851 |
|
|
4,060 |
|
|
— |
|
|
11,307 |
|
|
1,070 |
| |||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Total Expense |
|
15,038,955 |
|
|
505,177 |
|
|
491,954 |
|
|
1,630,850 |
|
|
1,436,355 |
| |||||
| Other Income |
|
(532,759 |
) |
|
(23,710 |
) |
|
(85,004 |
) |
|
(110,235 |
) |
|
(267,271 |
) | |||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| NET LOSS |
$ |
(14,506,196 |
) |
$ |
(481,467 |
) |
$ |
(406,950 |
) |
$ |
(1,520,615 |
) |
$ |
(1,169,084 |
) | |||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| NET LOSS PER SHARE, BASIC AND DILUTED |
$ |
(0.005 |
) |
$ |
(0.004 |
) |
$ |
(0.018 |
) |
$ |
(0.014 |
) | ||||||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED |
|
87,767,245 |
|
|
87,642,240 |
|
|
86,833,992 |
|
|
85,422,355 |
| ||||||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||||||
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 |
Nine Months Ended January 31, |
|||||||||||
| 2002 |
2001 |
|||||||||||
| (Unaudited) |
(Unaudited) |
|||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
| Net loss |
$ |
(14,506,196 |
) |
$ |
(1,520,615 |
) |
$ |
(1,169,084 |
) | |||
| Adjustments to reconcile net loss to cash used in operating activities: |
||||||||||||
| Depreciation and amortization |
|
567,928 |
|
|
80,750 |
|
|
56,079 |
| |||
| Loss on disposal of property and equipment |
|
15,284 |
|
|
— |
|
|
— |
| |||
| Disposal and write-down of other assets |
|
126,800 |
|
|
— |
|
|
— |
| |||
| Compensatory stock options/warrants issued |
|
367,213 |
|
|
— |
|
|
— |
| |||
| Issuance of stock below market value |
|
695,248 |
|
|
— |
|
|
124,698 |
| |||
| 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: |
||||||||||||
| Prepaid expenses and other assets |
|
(194,433 |
) |
|
(111,060 |
) |
|
(29,350 |
) | |||
| Accounts payable and accrued expense |
|
396,701 |
|
|
53,399 |
|
|
(78,501 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash used in operating activities |
|
(11,124,395 |
) |
|
(1,497,526 |
) |
|
(1,096,158 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| CASH FLOW FROM INVESTING ACTIVITIES: |
||||||||||||
| Purchase of property and equipment |
|
(772,250 |
) |
|
(229,145 |
) |
|
(182,341 |
) | |||
| Proceeds from the sale of equipment |
|
15,457 |
|
|
— |
|
|
— |
| |||
| Purchase of other assets |
|
(590,979 |
) |
|
(33,680 |
) |
|
(29,039 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash used in investing activities |
|
(1,347,772 |
) |
|
(262,825 |
) |
|
(211,380 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
| Proceeds from sale of common stock and exercise of common stock options and warrants |
|
13,746,590 |
|
|
416,878 |
|
|
506,758 |
| |||
| Repayments of amounts due stockholders |
|
(121,517 |
) |
|
— |
|
|
— |
| |||
| Proceeds from stockholder notes payable |
|
977,692 |
|
|
— |
|
|
— |
| |||
| Contribution of capital by stockholder |
|
40,700 |
|
|
— |
|
|
— |
| |||
| Proceeds from notes, debentures and lease obligations |
|
1,281,534 |
|
|
195,286 |
|
|
103,636 |
| |||
| Payments on notes and lease obligations |
|
(544,786 |
) |
|
(194,665 |
) |
|
(75,334 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash provided by financing activities |
|
15,380,213 |
|
|
417,499 |
|
|
535,060 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net change in cash and cash equivalents |
|
2,908,046 |
|
|
(1,342,852 |
) |
|
(772,478 |
) | |||
| Cash and cash equivalents, beginning of period |
|
— |
|
|
4,250,898 |
|
|
5,466,391 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Cash and cash equivalents, end of period |
$ |
2,908,046 |
|
$ |
2,908,046 |
|
$ |
4,693,913 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Cash paid for: |
||||||||||||
| Interest |
$ |
138,336 |
|
$ |
11,306 |
|
$ |
1,070 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Taxes |
$ |
15,660 |
|
$ |
7,190 |
|
$ |
16,192 |
| |||
| |
|
|
|
|
|
|
|
| ||||
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 January
31, 2002, and the results of its operations for the three month and nine month periods ended January 31, 2002 and 2001 and its cash flows for the nine month periods ended January 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, 2001 filed with the Securities and Exchange Commission on July 26, 2001.
2. NOTES PAYABLE
During the nine months ended January 31, 2002,
the Company used the proceeds from two loans from a financial institution to purchase additional laboratory equipment and to finance the Company’s Officers’ and Directors’ insurance premium. One note for $115,000 is payable over 12
months in equal installments of $10,055, including interest at 8%. The second note for $74,000 is payable over 12 months in equal installments of $6,450, including interest at 8.37%.
3. STOCKHOLDERS’ EQUITY
During the nine months ended January
31, 2002, the Company issued 245,000 shares of common stock for $0.385 per share. The net proceeds received in connection with these shares of $94,231 were received during the year ended April 30, 2001. These proceeds were presented as Deposits on
Common Stock in the accompanying balance sheet as of April 30, 2001.
During the three months ended January 31, 2002, the
Company issued warrants for the purchase of 2,000,000 shares of the Company’s common stock to an investor at an exercise price of $0.20 per share. The warrants were issued to a significant shareholder for investor services provided to the
Company. The warrants vest upon any new increase in the number of authorized common shares to be issued by the Company. The warrants have a term of one year from the date of vesting. Upon vesting of the warrants, the Company would be subject to
compensation expense of approximately $180,000, which is based on the fair value of the warrants at the date of grant.
During
the three months ended October 31, 2001, the Company issued warrants for the purchase of 5,500,000 shares of the Company’s common stock to an investor at exercise prices of $0.20 and $0.60 per share. The warrants were issued to a significant
shareholder for investor services provided to the Company. The warrants vest upon any new increase in the number of authorized common shares to be issued by the Company. The warrants have a term of one year from the date of vesting. Upon vesting of
the warrants, the Company would be subject to compensation expense of approximately $370,000, which is based on the fair value of the warrants at the date of grant.
5
During January 2002, the Company issued 40,000 options with an exercise price of $0.20 per share to its Directors in consideration of
Director services rendered during the nine months ended January 31, 2002. In addition, two of the Company’s Directors resigned in January 2002. No compensation expense was recorded for these options in accordance with Accounting Principles
Board # 25.
6
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 10-K for the year ended April 30, 2001 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 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.
7
RESULTS OF OPERATIONS
Three months ended January 31, 2002 and 2001
The Research and Development expenses for the three-month period
ended January 31, 2002 were $328,719, compared to $234,760 for the same period in the prior year. This increase is attributed to an increase in wages, salaries and contract consulting of $75,000 during the current period, reflective of increased
efforts in product research activities related to the Company’s three developmental products. Additionally, laboratory equipment purchases during the three months ended January 31, 2002 led to an increase in laboratory equipment depreciation of
$6,000, over the comparable period in 2001.
General and Administrative expenses for the three-month period ended January 31,
2002 were $172,398, compared to $257,194 for the same period in the prior year. This decrease was the result of one-time expenditures in 2001 for the following outside professional services; legal services, $5,000; consulting services, $9,000;
marketing research, $7,000; investor relations expenses, $36,000; and moving expenses, $7,000. In addition, the Company reduced office operating expenses $8,000 in 2002 and corporate state tax payments decreased $13,000 over the prior year.
The net loss for the three months ended January 31, 2002 was $481,467, compared to a net loss of $406,950 for the same period
in the prior year. Although total expenses increased $13,223 during the three-month period ended January 31, 2002 over the comparable period in 2001, the Company’s net loss increased $74,517 due to a decrease in other income of $61,294,
attributed to reduced interest income earned on the Company’s cash balances because of falling interest rates and smaller invested balances.
Nine months ended January 31, 2002 and 2001
The Research and Development expenses for the nine-month period
ended January 31, 2002 were $996,044, compared to $519,799 for the same period in the prior year. A significant increase in research activity during the nine-month period January 31, 2002 caused wages and contract salaries to increase $421,000,
laboratory supplies to increase $16,000 and laboratory rent to increase $11,000. The addition of new laboratory equipment during the nine months ended January 31, 2002 caused equipment depreciation to increase $22,000, over the comparable period in
2001.
General and Administrative expenses for the nine-month period ended January 31, 2002 were $623,499, compared to $915,486
for the same period in the prior year. This decrease was the result of one-time expenditures in 2001 for various outside professional services. These services consisted of consulting services of $63,000, marketing research and promotion expenses of
$81,000, legal and accounting expenses of $13,000 and investor relations expenses of $95,000.
The net loss for the nine-month
period ended January 31, 2002 was $1,520,615, compared to $1,169,084 for the same period in the prior year. Although total expenses increased $194,495 during the nine-month period ended January 31, 2002 over the comparable period in 2001, the
Company’s total loss for the nine-months ended January 31, 2001 increased $351,531 due to a decrease in other income of $157,036. This decrease is attributed to reduced interest income earned on the Company’s cash balances due to falling
interest rates and smaller invested balances.
8
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since September 1990, when the current management became involved, through the issuance of debt and equity securities and loans from stockholders.
As of January 31, 2002, the Company had $3,132,479 in total current assets and working capital of $2,734,391. The Company has invested excess working capital in short-term money market investment instruments. The Company believes its cash and cash
equivalents at January 31, 2002 will be sufficient to meet its liquidity needs for the next 14 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.
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 January
31, 2002.
FINANCIAL CONDITION
January 31,
2002 compared to April 30, 2001
Cash used in operating activities during the nine-month period ended January 31, 2002 was
$1,497,526, compared to $1,096,158 for the comparable period of the prior year, an increase of $401,368. Operating activities consisted primarily of product research and development and the general operation of corporate office. Cash used in
operating activities is likely to continue at this level.
Cash used in investing activities during the nine-month period ended
January 31, 2002 was $262,825, compared to $211,380 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 capital expenditures for the fourth quarter ended April 30, 2002.
Cash provided by financing
activities during the nine-month period ended January 31, 2002 was $417,499, compared to $535,060 for the comparable period of the prior year. Financing activities consisted primarily of the sale of common stock.
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.
9
Part II—Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
During December 2001, the Company issued warrants for the purchase of 2,000,000 shares of the Company’s common stock at an exercise price of $0.20 per share. The warrants will vest if and when shareholders approve a recapitalization of
the Company.
During January 2000, the Company issued to each of its four Directors options to purchase 10,000 shares of common
stock at $0.20 per share.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matter to a Vote of Security
Holders.
None
Item
5. Other Information
The Company filed an S-1 Registration Statement that became effective on
September 12, 2001, registering 12,806,630 shares of the Company’s common stock for selling shareholders. The Company will not receive any proceeds from any sales pursuant to the Registration Statement. The Company intends to keep this
Registration Statement effective for a period of two years.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
10
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SYNTHETIC BLOOD INTERNATIONAL, INC. | ||
| (Registrant) | ||
| 3/15/02 |
/s/ DAVID H. JOHNSON | |
| (Date) |
David H. Johnson, Chief Financial Officer |
11