Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended January 31, 2010

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-34600

 

 

OXYGEN BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   26-2593535
(State of Incorporation)   (I.R.S. Employer Identification Number)

2530 Meridian Parkway, Suite 3084, Durham, North Carolina 27713

(Address of Principal Executive Office)

919-806-4414

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   x     NO   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    YES   ¨     NO   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES   ¨     NO   x

The number of shares outstanding of each of the issuer’s classes of common stock as of March 15, 2010: 21,310,748 shares of common stock, par value $0.0001.

 

 

 


Table of Contents

INDEX

 

         Page
PART I.  

FINANCIAL INFORMATION

  
 

Item 1.

  

Financial Statements

  
    

Consolidated Condensed Balance Sheets as of January 31, 2010 (unaudited) and April 30, 2009

   3
    

Consolidated Condensed Statements of Operations for the Three Months and Nine Months Ended January 31, 2010 and 2009, and for the Period From May 26, 1967 (inception) to January 31, 2010 (unaudited)

   4
    

Consolidated Condensed Statements of Cash Flows for the Nine Months Ended January 31, 2010 and 2009, and for the Period From May 26, 1967 (inception) to January 31, 2010 (unaudited)

   5
    

Notes to Consolidated Condensed Financial Statements

   7
 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   14
 

Item 4T.

  

Controls and Procedures

   17
PART II.  

OTHER INFORMATION

  
 

Item 1.

  

Legal Proceedings

   19
 

Item 1A.

  

Risk Factors

   19
 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

   19
 

Item 3.

  

Defaults Upon Senior Securities

   19
 

Item 4.

  

Reserved

   19
 

Item 5.

  

Other Information

   19
 

Item 6.

  

Exhibits

   20
 

Signatures

   21

 

* Item 3 of Part I is not included in this filing as it is not required for Smaller Reporting Companies as defined in Rule 12b-2 of the Exchange Act


Table of Contents

Part I-Financial Information

 

ITEM 1 FINANCIAL STATEMENTS

OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED BALANCE SHEETS

 

     January 31, 2010     April 30, 2009  
     (Unaudited)        
ASSETS     

CURRENT ASSETS

    

Cash and cash equivalents

   $ 2,876,401      $ 2,555,872   

Accounts receivable

     79,666        32,286   

Other receivables

     79,001        —     

Inventory

     409,945        —     

Prepaid expenses

     194,518        156,926   
                

Total current assets

     3,639,531        2,745,084   

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $722,983 and $666,388

     328,310        210,355   

DEBT ISSUANCE COSTS, net of accumulated amortization of $0 and $5,476,779, respectively

     —          33,783   

PATENTS AND LICENSE RIGHTS, net of accumulated amortization of $135,577 and $100,898, respectively

     823,666        650,222   

OTHER ASSETS

     236,844        163,393   
                
   $ 5,028,351      $ 3,802,837   
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

CURRENT LIABILITIES

    

Accounts payable

   $ 693,507      $ 195,569   

Accrued liabilities

     427,214        241,518   

Note payable

     75,590        36,666   
                

Total current liabilities

     1,196,311        473,753   

LONG TERM PORTION of convertible notes, net of debt discount of $6,675 and $124,152, respectively

     2,596        227,715   
                

Total liabilities

     1,198,907        701,468   
                

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ EQUITY

    

Preferred stock, undesignated, authorized 10,000,000 shares; none issued or outstanding Common stock, par value $.0001 per share; authorized 400,000,000 shares; issued and outstanding 21,309,492 and 15,735,013, respectively

     2,131        1,574   

Additional paid-in capital

     82,527,117        74,059,997   

Deficit accumulated during the development stage

     (78,699,804     (70,960,202
                

Total stockholders’ equity

     3,829,444        3,101,369   
                
   $ 5,028,351      $ 3,802,837   
                

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

 

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OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

 

     Period from May 26,
1967

(Inception) to
January 31, 2010
    Three months ended
January 31,
    Nine months ended
January 31,
 
       2010     2009     2010     2009  
     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  

Operating Expenses

          

Selling, general, and administrative

   $ 31,378,961      $ 1,753,715      $ 523,463      $ 5,478,927      $ 5,462,626   

Research and development

     16,125,687        1,011,061        440,077        2,169,435        972,534   

Loss on impairment of long-lived assets

     32,113        —          —          —          7,112   
                                        

Total operating expenses

     47,536,761        2,764,776        963,540        7,648,362        6,442,272   

Net Income (loss) from Operations

     (47,536,761     (2,764,776     (963,540     (7,648,362     (6,442,272

INTEREST EXPENSE

     32,138,259        2,612        7,421,916        153,311        10,237,473   

LOSS ON EXTINGUISHMENT OF DEBT

     250,097        —          —          —          —     

OTHER INCOME

     (1,225,313     (13,676     (28,937     (62,071     (162,933
                                        

NET LOSS

   $ (78,699,804   $ (2,753,712   $ (8,356,519   $ (7,739,602   $ (16,516,812
                                        

NET LOSS PER SHARE, basic and diluted

     $ (0.134   $ (0.571   $ (0.411   $ (1.580

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, basic and diluted

       20,614,082        14,645,883        18,845,881        10,456,136   

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

 

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OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 

     Period from
May 26, 1967
(Inception) to
January 31,
2010
    Nine months ended January 31,  
     2010     2009  
   (Unaudited)     (Unaudited)     (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES

      

Net Loss

   $ (78,699,804   $ (7,739,602   $ (16,516,812

Adjustments to reconcile net loss to net cash used in operating activities

      

Depreciation and amortization

     1,533,747        91,273        90,625   

Amortization of deferred compensation

     336,750        —          —     

Interest on debt instruments

     31,746,577        151,723        10,237,473   

Loss (gain) on debt settlement and extinguishment

     163,097        —          —     

Loss on impairment of long-lived assets

     32,113        —          7,112   

Loss on disposal and write down of property and equipment and other assets

     219,305        —          (26,622

Issuance and vesting of compensatory stock options and warrants

     7,936,780        1,037,476        1,577,679   

Issuance of common stock below market value

     695,248        —          —     

Issuance of common stock as compensation

     524,791        138,798        73,780   

Issuance of common stock for services rendered

     1,265,279          2,171,032   

Issuance of note payable for services rendered

     120,000        —          —     

Contributions of capital through services rendered by stockholders

     216,851        —          —     

Changes in operating assets and liabilities

      

Prepaid expenses and other assets

     (733,850     (647,368     (125,298

Accounts payable and accrued liabilities

     1,317,307        673,663        (209,293
                        

Net cash used in operating activities

     (33,325,809     (6,294,037     (2,720,324
                        

CASH FLOWS FROM INVESTING ACTIVITIES

      

Purchase of property and equipment

     (1,442,089     (174,549     (89,387

Capitalization of patent costs and license rights

     (1,193,351     (208,122     (170,795
                        

Net cash used in investing activities

     (2,635,440     (382,671     (260,182
                        

CASH FLOWS FROM FINANCING ACTIVITIES

      

Proceeds from sale of common stock and exercise of stock options and warrants, net of related expenses

     30,727,476        9,792,725        2,225,625   

Repurchase of outstanding warrants

     (2,836,520     (2,836,520     —     

Repayments of amounts due stockholders

     (121,517     —          —     

Proceeds from stockholder notes payable

     977,692        —          —     

Proceeds from former officer loans

     39,500        —          —     

Repayments of former officer loans

     (39,500     —          —     

Proceeds from issuance of notes payable, net of issuance costs

     2,291,128        96,563        19,999   

Proceeds from convertible notes, net of issuance costs

     8,807,285        —          —     

Payments on notes - short-term

     (716,585     (55,531  

Payments on notes - long term

     (291,309     —          —     
                        

Net cash provided by financing activities

     38,837,650        6,997,237        2,245,624   
                        

Net change in cash and cash equivalents

     2,876,401        320,529        (734,623

Cash and cash equivalents, beginning of period

     —          2,555,872        4,880,633   
                        

Cash and cash equivalents, end of period

   $ 2,876,401      $ 2,876,401      $ 4,146,010   
                        

Cash paid for:

      

Interest

     246,211        1,588        —     

Income taxes

     27,528        —          —     

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

 

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OXYGEN BIOTHERAPEUTICS, INC.

(FORMERLY SYNTHETIC BLOOD INTERNATIONAL, INC.)

(A Development Stage Company)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED

Non-cash financing activities during the nine months ended January 31, 2010:

 

  (1) The Company issued 90,472 shares of common stock for the conversion of notes payable with a gross carrying value of $335,199, at a conversion price of $3.705 per share. These notes included a discount totaling $117,488, and thus had a net carrying value of $217,711. The unamortized discount of $117,488 was recognized as interest expense upon conversion.

 

  (2) As further discussed in Note 3, the Company issued 2,363,767 shares of common stock and paid $2,836,520 in cash to repurchase 4,727,564 outstanding warrants.

 

  (3) As further discussed in Note 1, the Company initiated a 1-for-15 reverse stock split of the Company’s common stock. The effect of this split resulted in a transfer of $27,681 from common stock to additional paid in capital to account for the reduction of shares outstanding at par value.

Non-cash financing activities during the nine months ended January 31, 2009:

 

  (1) The Company issued 1,822,880 shares of common stock for the conversion of notes payable with a gross carrying value of $7,093,526, at a conversion price of $3.705 per share. These notes included discounts totaling $6,334,234, and thus had a net carrying value of $759,292. The unamortized discount of $ 6,334,234 was recognized as interest expense upon conversion.

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

 

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OXYGEN BIOTHERAPEUTICS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

Oxygen Biotherapeutics (the Company) was originally formed as a New Jersey corporation in 1967 under the name Rudmer, David & Associates, Inc., and subsequently changed its name to Synthetic Blood International, Inc. On June 17, 2008, the stockholders of Synthetic Blood International approved the Agreement and Plan of Merger dated April 28, 2008, between Synthetic Blood International and Oxygen Biotherapeutics, Inc., a Delaware corporation.

The accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of January 31, 2010, and the results of its operations for the three and nine months ended January 31, 2010 and 2009, and for the period from May 26, 1967 (inception) to January 31, 2010, and its cash flows for the nine months ended January 31, 2010 and 2009, and for the period from May 26, 1967 (inception) to January 31, 2010. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading. However, the financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2009 filed with the Commission on August 12, 2009.

A Certificate of Amendment of the Certificate of Incorporation of Oxygen Biotherapeutics, Inc., as filed with the Secretary of State of the State of Delaware, effectuated the previously announced 1-for-15 reverse stock split of the Company’s common stock. Under the terms of the reverse split, stockholders holding shares of Oxygen Biotherapeutics common stock at the close of business November 6, 2009 received one new Oxygen Biotherapeutics share for every 15 shares held. Fractional shares were rounded up to whole shares. The total number of shares of common stock outstanding was reduced from approximately 296.3 million shares to approximately 19.7 million shares. The number of common shares related to the company’s convertible notes, warrants, and stock options has been proportionately adjusted to reflect the reverse split. Our reverse stock split was accounted for retroactively and reflected in our common stock, warrant, and stock option activity as of and during the periods ended April 30, 2009 and the periods ended January 31, 2010 and 2009.

The accompanying consolidated condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company is in the development stage and, at January 31, 2010, has an accumulated deficit of $78,699,804. Through January 31, 2010, the Company has sustained operating losses on a monthly basis, and expects to incur operating losses through the remainder of fiscal year 2010. The Company requires substantial funds to complete clinical trials and pursue regulatory approvals.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying January 31, 2010 balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to generate cash from future operations. This factor raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

2. RECENT ACCOUNTING PRONOUNCMENTS

The Company adopted new U.S. GAAP guidance related to “Business Combinations” effective for fiscal years beginning after December 15, 2008. The new guidance is based on a fair value model and requires an acquirer to measure all assets acquired and liabilities assumed at their respective fair values at the date of acquisition. This includes measuring noncontrolling (minority) interests at fair value. The guidance establishes principles and requirements for recognizing and measuring goodwill arising from a business combination, and any gain from a bargain purchase. The guidance establishes new disclosure standards and significantly alters the accounting for contingent consideration, pre-acquisition contingencies, in-process research and development and restructuring costs. It requires expensing of acquisition-related costs as incurred. Transactions consummated after the effective date of the guidance apply the guidance prospectively. Existing guidance applies to business combinations consummated prior to December 15, 2008. The Company’s adoption of the new guidance did not have a material impact on its results of operations, financial position, or cash flows.

The Company adopted new U.S. GAAP guidance related to “Noncontrolling Interests in Consolidated Financial Statements” for fiscal years beginning after December 15, 2008. The new guidance, which amends Accounting Research Bulletin No. 51 and provides accounting and reporting standards for noncontrolling (minority) interests in a subsidiary and deconsolidation of a subsidiary, requires noncontrolling interests to be presented separately within equity in the consolidated statement of financial position. Consolidated net income attributable to the parent and noncontrolling interests are to be separately presented on the face of the statement of operations. A change in ownership that does not affect control of a subsidiary is to be accounted for as an equity transaction. A change in ownership that affects control results in recognition of a gain or loss and remeasurement at fair value of any remaining noncontrolling interest. Because the new guidance requires that a noncontrolling interest continue to be attributed its share of losses, a noncontrolling interest could have a negative carrying balance. In the year of adoption, presentation and disclosure requirements will apply retrospectively to all periods presented. The Company’s adoption of the new guidance did not materially affect its consolidated financial statements or results of operations.

 

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The Company adopted new U.S. GAAP guidance related to “ The Hierarchy of Generally Accepted Accounting Principles .” The new guidance identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The guidance will become effective for fiscal periods ended after September 15, 2009. The Company’s adoption of the new guidance did not have a material impact on its results of operations, financial position, or cash flows.

The Company adopted new U.S. GAAP guidance related to “ Determining whether an instrument (or Embedded Feature) is indexed to an Entity’s Own Stock ” on May 1, 2009. The new guidance provides a framework for determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in paragraph 11(a) of FAS 133. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008 and early application is not permitted. Adopting the guidance did not have a material impact on its results of operations, financial position, or cash flows.

The Company adopted new U.S. GAAP guidance related to “ Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ” on May 1, 2009. The guidance addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore, need to be included in the earnings allocation in calculating earnings per share under the two-class method described in FASB Statement of Financial Accounting Standards No. 128, “Earnings Per Share.” The guidance requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. Adopting the new guidance did not have a material impact on its results of operations, financial position, or cash flows.

The Company adopted new U.S. GAAP guidance related to “ Subsequent Events” on May 1, 2009 and as updated as of February 24, 2010. The guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance sets forth the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements. The adoption of this new guidance did not have a material impact on our interim unaudited condensed consolidated financial statements.

In August 2009, the FASB amended U.S. GAAP guidance related to “ Accounting for Redeemable Equity Instruments .” The guidance addresses the accounting related to distinguishing liabilities from equity, and the classification and measurement of redeemable securities. The adoption of this amended guidance did not have a material impact on our interim unaudited condensed consolidated financial statements.

In October 2008, the FASB proposed new U.S. GAAP guidance related to “ Milestones Method of Revenue Recognition .” The guidance addresses the accounting when entities enter into revenue arrangements with multiple payment streams for a single deliverable or a single unit of accounting. The FASB staff could not reach agreement on transition of the new guidance. The Company does not anticipate the adoption of the guidance to have a material impact on its results of operations, financial position, or cash flows.

3. STOCK OPTIONS AND WARRANTS

Stock Options:

The fair value of the Company’s stock options is determined using a Black-Scholes-Merton option pricing model, consistent with the guidance of U.S. GAAP related to “ Share-Based Payment ” and Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”). The fair value of stock options granted is recognized as compensation expense over the requisite service period. Compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Effective May 1, 2006, the Company adopted the guidance, using a modified prospective application. Prior to May 1, 2006, the Company measured employee and board member compensation cost under the intrinsic method provided by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) whereby compensation expense is recognized for the excess, if any, of the fair value of the Company’s common stock over the option price on the date the option is granted.

The Company uses the historical stock price volatility to value stock options within the Black-Scholes-Merton option pricing model. The expected term of stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise patterns for the Company, which management believes are indicative of future exercise behavior. For the risk free interest rate, the Company uses the observed interest rates appropriate for the term that the options are expected to be outstanding.

 

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The Company’s net loss for the nine months ended January 31, 2010 and 2009 includes approximately $743,956 and $1,577,679 respectively, of non-cash stock-based compensation costs for the calculated fair value of vested stock options. As of January 31, 2010, there was approximately $258,530 of total unrecognized compensation cost related to non-vested stock option compensation. The fair value of each option grant during the nine months ended January 31, 2010 was calculated at the grant date model using the following assumptions: average risk-free interest rate of 1.73%; average volatility of 101.23%; zero dividend yield for all years; expected life of 3 to10 years; and an estimated forfeiture rate of 8.8%.

During the nine months ended January 31, 2010, the Company received $57,625 and issued 29,001 shares of common stock for the exercise of outstanding options. The exercised options had a weighted average exercise price $1.99 with a cumulative intrinsic value of $115,393.

The following table summarizes the Company’s stock option information during the nine months ended January 31, 2010:

 

     The nine months ended January 31, 2010
     Options     Weighted Average
Exercise Price

Outstanding as of April 30, 2009

   858,112      $ 3.750

Granted

   241,668        5.640

Exercised

   (29,001     1.987

Forfeited

   (741     3.750
            

Outstanding as of January 31, 2010

   1,070,038      $ 4.132
            

Warrants:

In May 2009, the Company, as part of a consulting agreement with an unrelated third party to provide services in connection with the Company’s Share Purchase Agreement, agreed to extend the term of 151,111 outstanding warrants that were set to expire on May 31, 2009. The term for these warrants was extended through January 31, 2011. The Company recorded $256,181 in compensation expense for the difference in the computed fair values of the modified warrants and the original warrants at the modification date.

In July 2009, the holders of 6,085,280 outstanding warrants accepted an exchange agreement (the “Agreement”). The terms of the Agreement allowed the Company to settle the warrants by paying the holder cash ($0.60/warrant share) and issuing Common Stock (  1 / 2 share/warrant share). In accordance with the Agreement, the Company also had, at its sole discretion, the option to exchange all, a portion of, or none of the holders’ warrants. The original warrants had strike prices ranging from $3.675 - $3.705; a 5-year term; and were issued between April 2006 and October 2008. All of these warrants were valued using the Black-Sholes-Merton Option Pricing Model and were recorded in stockholders’ equity in accordance with U.S. GAAP.

On July 20, 2009, the Company exchanged 4,727,564 warrants in accordance with the terms of the Agreement. The remaining 1,357,716 warrants were reissued to the holders with the original terms. The 4,727,564 warrants were returned to the Company and cancelled in exchange for $2,836,520 in cash and 2,363,767 shares of restricted common stock.

On November 2, 2009, the Company, as part of a consulting agreement with an unrelated third party to provide services in connection with the placement of a Director of the Board, issued 7,408 warrants to Blaise Group International. The warrants were issued with an exercise price of $6.75 and a seven year term. The warrants were valued using the Black-Sholes-Merton Option Pricing Model and the Company recorded $37,339 in compensation expense for the computed fair value of the warrants.

The following table summarizes the Company’s stock warrant information during the nine months ended January 31, 2010:

 

     The nine months ended January 31, 2010
     Warrants     Weighted Average
Exercise Price

Outstanding as of April 30, 2009

   8,067,514      $ 3.750

Granted

   7,408        6.750

Exercised

   —          —  

Forfeited

   (5,334     2.250

Exchanged

   (4,727,564     3.697
            

Outstanding as of January 31, 2010

   3,342,024      $ 3.865
            

As of January 31, 2010, potentially issuable shares of common stock included 1,070,038 options, 3,342,024 warrants, and 4,502 conversion shares of outstanding long-term notes payable. Diluted earnings per share for the quarter ended January 31, 2010 was calculated assuming exercise of the above options and warrants using the treasury stock method and conversion of all of the outstanding convertible debt as of the beginning of the quarter using the “if converted method.” Upon conversion of the debt to common stock it is assumed that the Company would recognize $6,675 in additional interest expense for the write off of the related debt discounts, less $353 in discount amortization expense that would be eliminated in the conversion. Each class of potentially issuable shares had an anti-dilutive effect on net loss per share and, as such, the net loss per share amounts are presented without the effect of the potential conversion.

 

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4. INVENTORY

Inventories are recorded at cost using the First-In-First-Out (FIFO) method. Ending inventories are comprised of raw materials and direct costs of manufacturing and valued at the lower of cost or market. Inventories consisted of the following as of January 31, 2010 and April 30, 2009:

 

     January 31,
2010
   April 30,
2009

Inventories:

     

Raw Materials

   $ 181,669    $ —  

Finished Goods

     228,276      —  
             

Total Inventories

   $ 409,945    $ —  
             

5. LICENSING RIGHTS

In May 2008, the Company entered into a license agreement with Virginia Commonwealth University (“Licensor”) whereby Oxygen Biotherapeutics obtained a worldwide, exclusive license to valid claims under three of the Licensor’s patent applications that relate to methods for non-pulmonary delivery of oxygen to tissue and the products based on those valid claims used or useful for therapeutic and diagnostic applications in humans and animals. The license includes the right to sub-license to third parties. The term of the agreement is the life of the patents covered by the patent applications unless by the Company elects to terminate the agreement prior to patent expiration.

The Company has an obligation to diligently pursue product development and pursue, at its expense, prosecution of the patent applications covered by the agreement. The Company paid an initial fee of $50,000 in cash and paid an additional $16,228 to the Licensor as reimbursement of costs paid by the Licensor on patent applications and related work. The Company also issued to the licensor a warrant for the purchase of 33,334 shares of common stock at an exercise price of $6.30 per share that expires May 22, 2013. These warrants were valued at $353,500.

The $16,228 reimbursement costs and the $353,500 value of the 33,334 warrants discussed above were capitalized as licensing rights and are being amortized over the legal life of the underlying patents. In January 2009, the Company exercised its option to include an additional invention in the license agreement. Under the terms of the license agreement, the Company paid to the licensor an additional $25,000 for the exclusive use of intravenous perfluorocarbons emulsions for the treatment of traumatic brain and spinal cord injury. As of January 31, 2010, the Company has capitalized an additional $117,964 in legal costs incurred to maintain the underlying patents. Accumulated amortization on the licensing rights at January 31, 2010 totaled $31,518.

The $50,000 initial fee is fully credited towards future royalty or sublicensing revenue payments to the Licensor. This fee has been accounted for as a deferred cost of sale and is included in other assets at January 31, 2010.

The Company agreed to pay to the Licensor a royalty on net sales of licensed products as follows:

 

Net Sales

   Applicable Royalty  

Up to $10 million

   25

Over $10 million to $49 million

   15

Over $49 million

   10

The Company also agrees to pay to the Licensor a percentage of sublicensing revenue received from sub-licensees or other third parties in regards to the licensed patents, equal to 33% of any such third party payments, which may be reduced to 25% if the Company completes pre-clinical studies on a licensed product, reduced further to 20% if the Company completes Phase I clinical studies, reduced further to 17% if the Company completes Phase II clinical studies, and reduced further to 10% if the Company completes Phase III clinical studies on a licensed product.

The Company agreed to pay a $20,000 annual maintenance fee to the Licensor, starting in May 2009 and payable in each following May as long as the agreement is in force. The maintenance fee payments will be fully credited towards future royalty or sublicensing revenue payments to the Licensor. In May 2009, the Company recorded the $20,000 fee as a deferred cost of sale and the payment is reported in other assets at January 31, 2010.

 

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The Company agreed to pay a $50,000 annual minimum royalty to the Licensor, starting in May 2009 and payable in each following May as long as the agreement is in force. The minimum royalty fee payments will be fully credited towards future royalty or sublicensing revenue payments to the Licensor. In May 2009, the Company recorded the $50,000 royalty as a deferred cost of sale and the payment is reported in other assets at January 31, 2010.

Lastly, the agreement provides that the Company will make the following minimum milestone payments to the Licensor, with respect to the first licensed product to achieve each milestone. However, if new licensed products are separately patentable, the same milestone payments shall apply to them.

 

Clinical Indication

  

Medical Device

$25,000 upon filing of IND

   $25,000 upon filing of FDA 510K or PMA

$100,000 upon completion of Phase I clinical trial

   $250,000 upon receipt of FDA or foreign equivalent marketing approval

$200,000 upon completion of Phase II human clinical trial

  

$300,000 upon completion of Phase III human clinical trial

  
$500,000 upon receipt of FDA or foreign equivalent marketing approval   

In November 2009, the Company amended the agreement with the licensor to include a royalty of 4% on the net sales of the perfluorocarbon gel currently marketed under the name Dermacyte.

6. STOCKHOLDERS’ EQUITY

During the nine months ended January 31, 2010:

 

  (1) The Company received $9,735,000 (net of closing costs) from the issuance of 2,933,333 shares of common stock as part of the Securities Purchase Agreement described below. An additional 146,667 shares of common stock were issued as compensation for services provided in closing the Securities Purchase Agreement.

 

  (2) As further discussed in Note 3, the Company received $57,625 from the exercise of 29,001 option shares of common stock.

 

  (3) The Company issued 90,472 shares of common stock for the conversion of notes payable with a gross carrying value of $335,199, at a conversion price of $3.705 per share. These notes included a discount totaling $117,488, and thus had a net carrying value of $217,711. The unamortized discount of $117,488 was recognized as interest expense upon conversion.

 

  (4) The Company issued 6,197 shares of its common stock as compensation to its Chief Executive Officer, valued at $31,663.

 

  (5) The Company issued 867 shares of common stock to its employees as bonus compensation. The Company recognized $5,135 in additional compensation expense for the fair value of the issued shares.

 

  (6) As further discussed in Note 3, the company recorded $743,956 for the computed fair value of options issued to employees, nonemployee directors, and consultants.

 

  (7) As further discussed in Note 3, the company recorded $37,339 for the computed fair value of 7,408 warrants issued to a consultant.

 

  (8) The Company extended the term for 151,111 outstanding warrants. The Company recorded $256,181 as additional compensation cost for the computed fair value of the modification.

 

  (9) As further discussed in Note 3, the Company issued 2,363,767 shares of restricted common stock and paid $2,836,520 in cash to warrant holders in exchange for 4,727,564 outstanding warrants. The warrants were returned to the Company and cancelled.

On June 8, 2009, the Company entered into a securities purchase agreement with JP SPC 1 Vatea, Segregated Portfolio, (“Vatea Fund”), an investment fund formed under the laws of the Cayman Islands (the “Financing Transaction”). Under the terms of the agreement, Vatea Fund purchased on July 10, 2009, 1,333,334 shares of the Company’s restricted common stock at a price of $3.75 per share, or a total of $5 million. Furthermore, the agreement establishes milestones for the achievement of product development and regulatory targets and other objectives, after which Vatea Fund is required to purchase up to 4 million additional shares of common stock at a price of $3.75 per share.

Target dates are the estimated dates by which the corresponding milestone will be accomplished. If a milestone is not achieved by its corresponding target date, then the date is automatically extended for three months. Thereafter, if a milestone is not achieved by its extended target date, the Company and Vatea Fund shall negotiate in good faith agreement on a new target date for the milestone, but if no agreement is reached within 30 days Vatea Fund has no obligation to purchase any shares with respect to that milestone should it subsequently be achieved. The obligation of Vatea Fund to purchase any additional shares upon achieving milestones ends for any milestones not achieved by September 30, 2011. On September 2, 2009, the Company and the Vatea Fund amended the agreement providing an alternative milestone schedule.

 

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In August 2009, the Company received formal approval from Swissmedic to begin Phase II clinical trials of Oxycyte in Switzerland. The Swissmedic approval triggered the first milestone payment in the amended milestone schedule of the Financing Transaction with Vatea Fund. On September 4, 2009, the Company called the milestone on the alternate milestone schedule. In accordance with the Financing Transaction, Vatea Fund was required to purchase an additional 1,600,000 shares of common stock at $3.75 per share, or $6,000,000, on or before December 10, 2009. The initial partial closing occurred on October 29, 2009, pursuant to which 160,000 shares were delivered to Vatea Fund against payment to the Company of $600,000. The second partial closing occurred on November 20, 2009, under which the Company received $2.4 million in cash for 640,000 additional common shares issued to Vatea Fund. The final closing occurred on December 9, 2009, under which the Company received $3 million in cash for 800,000 additional common shares issued to Vatea Fund. In connection with the three closings, the Company paid a consulting fee to Melixia SA for services provided in connection with the securities purchase agreement, which consists of $600,000 in cash and 80,000 shares of our restricted common stock. The Company also paid $90,000 in cash to another consultant who assisted with the securities purchase agreement.

Including the initial investment in July 2009, and assuming all milestones are achieved in a timely manner, the securities purchase agreement provides for a maximum of 5,333,334 shares being sold for $20 million. The number of shares issued is subject to adjustment for stock dividends, stock splits, reverse stock splits, and similar transactions.

Vatea Fund was introduced to the Company through the efforts of two consultants in Europe. For its services, the Company agreed to pay one of the consultants

 

  1) Cash in amount equal to 10% of the payment paid at each closing in the Financing Transaction where the sum of the payment paid for our shares at that closing and the payments for all shares sold in closings prior to that closing, but subsequent to the last closing with respect to which a cash fee was paid to the consultant, equals or exceeds $5,000,000; and

 

  2) Shares of restricted common stock in an amount equal to 5% of the shares issued at each closing, rounded to the nearest whole share, which (assuming all milestones are achieved on time) is 266,667 common shares.

7. RELATED PARTY TRANSACTIONS

Bruce Spiess, MD was a member of the Board of Directors and a full time employee at Virginia Commonwealth University when the original license agreement and the two amendments to the license agreement were executed.

8. INCOME TAXES

The Company adopted U.S. GAAP guidance related to “ Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. ” The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance the guidance involves determining whether it is more likely than not that a tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. If a tax position does not meet the more-likely-than-not recognition threshold, the financial statements do not recognize a benefit for that position. The adoption of the guidance did not result in a material impact to the Company’s results of operations or its financial condition.

The Company is subject to taxation in the U.S. and a small number of state jurisdictions. The material jurisdictions subject to potential examination by taxing authorities include the U.S., North Carolina and California. From time to time, the Company may be assessed interest or penalties by its tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company’s financial results. In the event the Company has received an assessment for interest and/or penalties, it has been classified in the financial statements as general and administrative expense.

The utilization of net operating loss carryforwards will likely be limited based on past and future issuances of common and preferred stock due to the ownership change provisions of Internal Revenue Code Section 382.

9. COMMITMENTS AND CONTINGENCIES

Supply Agreement—In November, the Company entered into a three-year exclusive supply agreement with Exflour, an unrelated third party manufacturer of perflourocarbons (“the Supply Agreement”). The Supply Agreement contains a provision by which the Company must pay an additional $100,000 per year to Exfluor in exchange for Exflour’s agreement to supply the FtBu exclusively to the Company, and no other party. The payments are due in quarterly installments of $25,000, payable on the first day of each calendar quarter. The Company paid the first $25,000 quarterly installment in December 2009 and recorded the payment as contract manufacturing expense.

 

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10. SUBSEQUENT EVENTS

On March 2, 2010, the Board approved an annual performance bonus to Christian Stern, CEO for milestones achieved in 2009. Under the terms of his employment contract, Dr. Stern was awarded a $200,000 bonus, payable in cash and shares of common stock for his performance during the calendar year 2009. The cash bonus will be paid in two installments of $50,000 on March 16, 2010 and May 15, 2010. The company issued shares of common stock to Dr. Stern on March 16, 2010 valued at $100,000 based on the closing stock price on March 2, 2010.

 

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ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Oxygen Biotherapeutics (“the Company,” “we,” “our”) is engaged in the business of developing biotechnology products with a focus on oxygen delivery to tissue. We are currently developing Oxycyte™, a product we believe is a safe and effective oxygen carrier for use in surgical and similar medical situations. We have developed a family of perfluorocarbon based oxygen carriers for use in personal care, topical wound healing, and other topical indications. In addition, we also have under development Vitavent™ and Fluorovent™, a medical device containing saturated perfluocarbon as oxygen exchange fluid for facilitating the treatment of lung conditions.

The nature of our business is to spend years in development and testing of pharmaceutical and medical device products, take products through a lengthy and expensive process of review by domestic and international regulatory authorities, such as U.S. FDA, EMEA, and equivalent. If successful in showing a product is efficacious and obtaining regulatory approval, we intend to commercialize the product in the market for which it is approved [NH1]. During the periods of development and regulatory review we have no product to sell and no revenue. We incur substantial costs pursuing this process, which requires financing from outside sources. We must continue to show progress with our products and be able to locate investors willing to commit their funds to a speculative venture that may ultimately be successful only if we can bring a product to market and gain a meaningful level of market acceptance and penetration. Because of these factors a larger number of biotechnology products under development fail, and there is no assurance that the products we have under development will not suffer the same fate.

We received approval of our Investigational New Drug application for Oxycyte filed with the U.S. Food and Drug Administration (FDA) and began Phase I clinical studies in October 2003, which were completed in December 2003. We submitted a report on the results, which were in line with our expectations, to the FDA along with a Phase II protocol in 2004. Phase II-A clinical studies began in the fourth quarter 2004, and were completed in 2006. A further Phase II study protocol was filed with the FDA in the spring of 2008, but put on clinical hold due to safety concerns raised by the regulatory agency. Management decided to take a radically different approach to trials from the past and filed a revised protocol as a dose-escalation study with the regulatory authorities in Switzerland and Israel. The protocol received Ethic Commission approval in Switzerland and Israel. Swissmedic approved the protocol in August 2009, and the Israel Department of Health in September 2009. The new study began in October 2009 and is currently under way both in Switzerland, and Israel. In the process of continuous improvement of the study, we have concluded that it is feasible to simplify the design and also reduce the number of patients to be enrolled. Study objectives, safety and efficacy endpoints would remain unchanged, and we feel with these optimizations the study could be concluded faster and more economically. We expect to commit a substantial portion of our financial and business resources over the next three years to testing Oxycyte and advancing this product to regulatory approval for use in one or more medical applications.

In July 2009 the Company filed a 510K medical device application for its wound product , Wundecyte™ with the U.S. Food and Drug Administration (FDA). The application has been classified as a combination device by the FDA. Since trials will be needed to substantiate claims the Company has decided to divide the regulatory path for that product into a device application (510K) for the self-oxygenating bandage, and a new drug application (IND) for the oxygen carrying gel. We have completed an initial study design for an animal trial to evaluate Wundecyte’s effectiveness at wound healing, with and without the bandage. This study will look at factors such as time to wound closure and reduction in scar tissue formation as compared to a control group and is anticipated to begin during the next calendar quarter. A prototype for an oxygenating bandage device has been developed and it is currently undergoing testing. The Company intends to follow the testing with a preclinical study covering the treatment of different kinds of wounds. The company is developing clinical research protocols for the treatment of burns, another topical indication based on Oxycyte. The Company intends to develop additional clinical research protocols for topical indications, including the treatment of acne and rosacea. There is no assurance that the topical indications we have under development will prove their claims and be successful commercial products.

In September 2009 the Company started production of its first commercial product under its topical cosmetic line Dermacyte™. The Company produced and sold a limited preproduction batch on November 16, 2009 for orders taken through the company’s website buydermacyte.com. The Company intends to have two Dermacyte products through production and available for retail sale in the first quarter of fiscal 2011. The Company plans to market and sell its products through its website, commercial distributors, and/or license partners during fiscal 2011. Marketing cosmetic products is a very speculative venture and reaching consumers through web-based marketing is dependent on many factors the company has no control of. there is no guarantee the Company will enter into a license or distribution agreement with other parties.

 

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RESULTS OF OPERATIONS

For the three months ended January 31, 2010 and 2009

General and administrative expenses

General and Administrative expenses for the three months ended January 31, 2010 were $1,753,715 compared to $523,463 for the same period in the prior year. During the quarter ended January 31, 2010, the Company incurred approximately $118,000 in costs for direct marketing and market analysis related to the cosmetic topical product line Dermacyte that were not incurred in prior periods. In addition, the company incurred an increase of approximately $303,000 in costs for investor relations over the same period in the prior year for services provided for press releases, road show presentations, investment banking fees, market listing fees and legal costs.

Salaries and wages increased approximately $389,000 due to the increase in headcount from 8 to 21 and goal-based bonus payments over the same period in the prior year. Non-cash, share-based compensation increased $154,604 due to the grant of compensatory options to employees and directors.

The Company expanded its Board of Directors from two outside directors to 7 over the same period in the prior year, resulting in an increase of approximately $60,000 in board related fees for the period. Also, in December 2009, the Company added an additional director to its board. The Company incurred an additional $115,000 in fees paid to a recruiter for the placement.

Research and development expenses

Research and Development expenses for the three months ended January 31, 2010 were $1,011,061, compared to $440,077 for the same period in the prior year. The increase in costs is due primarily to costs incurred for the development of Dermacyte that were not incurred in the prior year and the increase in costs associated with the TBI clinical trials in Switzerland and Israel.

During the three months ended January 31, 2010, the Company incurred approximately $185,000 in costs to develop and commercialize the Dermacyte topical cosmetic. Included in this amount are costs related to gel formulation, testing, and packaging design.

During the three months ended January 31, 2010, the Company incurred approximately $330,000 in costs to associated with the overseas clinical trials. Included in these costs are site set-up fees, CRO costs, and supplying the sites with equipment and Oxycyte.

Salaries and wages increased approximately $75,000 due to the hiring of employees to develop and manage an in-house product and process quality and assurance group.

During the three months ended January 31, 2010, the Company’s costs for regulatory and manufacturing activities increased approximately $130,000 over the same period in the prior year. The increased costs are the result of developing a comprehensive quality manual and contract manufacturing costs for developing cGMP clinical grade Oxycyte.

The Company’s research and develop costs associated with pre-clinical research and supplies decreased approximately $90,000 over the same period in the prior year due to the Company’s focus on furthering the cosmetic, topical, and TBI studies.

Other income and expense

The Company recognized a loss of approximately $18,000 due to foreign currency fluctuations during the three months ended January 31, 2010.

Interest expense decreased approximately $7.4 million, due to the recognition of interest costs associated with our notes payable and related amortization of debt discounts as a result of the conversion of convertible notes during the third quarter of fiscal year 2009.

For the nine months ended January 31, 2010 and 2009

General and administrative expenses

General and Administrative expenses for the nine months ended January 31, 2010 were $5,478,927, compared to $5,462,626 for the same period in the prior year. During the period ended January 31, 2010, the Company incurred approximately $119,000 in costs related to direct marketing and market analysis related to the cosmetic topical product line Dermacyte that were not incurred in prior periods In addition, the company incurred an increase of approximately $420,000 in costs for investor relations over the same period in the prior year for services provided for press releases, road show presentations, investment banking fees, market listing fees and legal costs.

Salaries and wages increased approximately $1,083,885 for the nine months ended January 31, 2010 due to the increase in headcount from 8 to 21 and goal-based bonus payments over the same period in the prior year. Non-cash, share-based compensation decreased $833,722 due to the grant of compensatory options to employees and directors during the prior year. These options were issued to the CEO and new members of the expanded Board of Directors.

 

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The Company expanded its Board of Directors from two outside directors to seven over the same period in the prior year, resulting in an increase of approximately $192,000 in board related fees for the period. Also, during the nine months ended January 31, 2010, the Company incurred an additional $265,000 in fees paid to a recruiter for the placement of two outside directors.

During the nine months ended January 31, 2010, rent expense increased approximately $100,000 (including utilities costs) over the same period in the prior year due to ongoing expansion of the corporate offices in North Carolina.

During the nine months ended January 31, 2010, travel costs increased approximately $150,000 over the same period in the prior year due to increased international travel to Switzerland and Israel, road shows in November and December, and costs related to Board meetings and investor presentations.

For the nine months ended January 31, 2010, the Company reduced consultant costs by approximately $700,000 from the same period in the previous year.

Research and development expenses

Research and Development expenses for the nine months ended January 31, 2010 were $2,169,435, compared to $972,534 for the same period in the prior year. The increase in costs is due primarily to costs incurred for the development of Dermacyte formulations that were not incurred in the prior year and the costs associated with the TBI clinical trials in Switzerland and Israel.

During the nine months ended January 31, 2010, the Company incurred approximately $185,000 in costs to develop and commercialize the Dermacyte topical cosmetic. Included in this amount are costs related to gel formulation, start-up costs for contract manufacturing, and packaging design.

During the nine months ended January 31, 2010, costs to associated with the Oxycyte clinical trials increased approximately $475,000. Included in these costs are site set-up fees, CRO costs, and supplying all of the sites with equipment and Oxycyte.

Salaries and wages increased approximately $231,000 due to the hiring of employees to develop and manage an in-house product and process quality and assurance group.

The Company’s research and develop costs associated with pre-clinical research and supplies decreased approximately $22,000 over the same period in the prior year due to the Company’s focus on furthering the cosmetic, topical, and TBI studies.

Other income and expense

The Company recognized a loss of approximately $18,000 due to foreign currency fluctuations during the three months ended January 31, 2010.

Interest expense decreased approximately $10.1 million, due to the recognition of interest costs associated with our notes payable and related amortization of debt discounts as a result of the conversion of convertible notes during the nine months ended January 31, 2009.

LIQUIDITY AND CAPITAL RESOURCES

Oxygen Biotherapeutics has financed its operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. As of January 31, 2010, we had $3,639,531 of total current assets and working capital of $2,443,220. Our practice is to invest excess cash, where available, in short-term money market investment instruments.

We are in the pre-clinical and clinical trial stages in the development of our products. We are currently conducting Phase II-b clinical trials for the use of Oxycyte in the treatment of severe traumatic brain injury. Even if we are successful with our Phase II-b study, we must then conduct a Phase III clinical study and, if that is successful, file with the FDA and obtain approval of a Biologics License Application to begin commercial distribution, all of which will take more time and funding to complete. Our other products must undergo further development and testing prior to submission to the FDA for approval to initiate clinical trials, which also requires additional funding. Management is actively pursuing private and institutional financing, as well as strategic alliances and/or joint venture agreements to obtain the necessary additional financing and reduce the cost burden related to the development and commercialization of our products. We expect our primary focus will be on funding the continued testing of Oxycyte, since this product is the furthest along in the regulatory review process. Our ability to continue to pursue testing and development of our products beyond 2010 depends on achieving license income, or obtaining outside financial resources. There is no assurance that needed license agreement, or financing will occur or that we will succeed in obtaining the necessary resources.

 

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On June 8, 2009, the Company entered into a securities purchase agreement with JP SPC 1 Vatea, Segregated Portfolio, an investment fund formed under the laws of the Cayman Islands (the “Financing Transaction”). Under the terms of the agreement, Vatea Fund purchased on July 10, 2009, 1.333 million shares of our restricted common stock at a price of $3.75 per share, or a total of $5 million. Furthermore, the agreement establishes milestones for the achievement of product development and regulatory targets and other objectives, after which Vatea Fund is required to purchase 4 million additional shares for $15 million. On September 4, 2009, the Company had accomplished a milestone triggering the next tranche of $6 million in funding and subsequent purchase of 1.6 million of shares. Including the initial investment in July 2009, and assuming all other milestones are achieved in a timely manner, the Financing Transaction provides for the purchase of an additional 1.4 million shares $9 million. The number of shares issued and subject to issue, including share price has been adjusted for the reverse stock split.

In June 2009, the Company commenced a limited offering to persons holding approximately 6 million outstanding warrants to exchange the warrants for cash and restricted common stock. On July 20, 2009, we closed the transaction and cancelled approximately 3.4 million common stock purchase warrants with an exercise price of $3.705 per share and an additional approximately 1.3 million warrants with an exercise price of $3.675 per share, a total of approximately 4.7 million warrants. In exchange for the cancelled warrants the Company issued to the holders 2,363,767 shares of restricted common stock and paid to them $2,836,520 in cash.

Based on our working capital of $2.4 million as of January 31, 2010, we believe we have sufficient capital on hand to continue to fund operations through the first quarter of fiscal 2011.

FORWARD LOOKING STATEMENTS

Except for the historical information contained herein, the discussion and information presented in this report contain forward-looking statements that involve risks and uncertainties. Oxygen Biotherapeutics’ actual results could differ materially from those presented 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 Oxygen Biotherapeutics’ Annual Report on Form 10-K for the year ended April 30, 2009 and subsequent filings made with the Securities and Exchange Commission.

Although Oxygen Biotherapeutics believes that the expectations reflected in the forward-looking statements are reasonable, Oxygen Biotherapeutics cannot guarantee future results, levels of performance or achievements. Moreover, neither Oxygen Biotherapeutics nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Oxygen Biotherapeutics is under no obligation to update any of the forward-looking statements after the filing of this report to conform such statements to actual results or changes in expectations.

 

ITEM 4T CONTROLS AND PROCEDURES

This Report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4T includes information concerning the controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this report, Oxygen Biotherapeutics’ management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2010. Because of the material weaknesses in our internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer conclude that our disclosure controls and procedures were not effective as of January 31, 2010.

Material Weaknesses

In our annual report on Form 10-K for the year ended April 30, 2009, we reported that our disclosure controls and procedures were not effective as of April 30, 2009, because of material weaknesses in our internal control over financial reporting. A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls. As a result of management’s review and evaluations that were completed after the end of fiscal year 2009 related to the preparation of management’s report on internal controls over financial reporting required for this annual report on Form 10-K, management concluded that we had material weaknesses in our control environment and financial reporting process consisting of the following:

 

   

We have not always consistently maintained final, complete and executed copies of significant contracts, including financing agreements, warrant and option agreements, and note agreements.

 

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We did not measure board committee performance against established charters, did not strengthen entity level controls, and did not utilize a formal financial reporting close process that ensured sufficient levels of review of all key financial statement reconciliations and significant judgment estimates.

Changes in Internal Controls

There were no changes in the Company’s internal control over financial reporting during the nine-month period ended January 31, 2010, that materially affected its internal control over financial reporting.

In August 2009, the Company hired a new Chief Financial Officer to implement corrective measures to remediate the material weaknesses described above. In September 2009, the Company initiated a comprehensive program to assess the areas of significant financial reporting risk. As part of this program, the Company is documenting its internal controls structure to identify and remediate gaps in its internal control framework. These measures, outlined below, are intended both to address the identified material weaknesses and to enhance our overall financial control environment.

 

   

We are actively reviewing, remediating, documenting, and implementing a system of internal controls in accordance with the principles established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The company first identified and assessed the company risk factors by significant accounts and the relevant assertions. The company has linked these significant accounts to their relevant business processes and the related risks within those processes. The company has completed necessary process redesign, documentation of key controls and implementation of necessary remediation. These activities include the financial reporting process and the formalization of the monthly close necessary to support this process.

 

   

Due to the size of our company, greater reliance will be placed on Entity Level risk and controls. The company is in the process of evaluating and strengthening the Entity Level controls within the company. Management has revised its Ethics Policy and Corporate Code of Conduct.

 

   

We are centralizing our Finance and Administrative functions in our North Carolina corporate headquarters. As part of our centralization efforts, we hired in house legal counsel, in part, to facilitate the design and implementation of document collection and retention procedures with respect to the agreements and documents generated in our finance and business activities.

 

   

The Board of Directors has reviewed existing committee charters and is implementing programs called for by the charters to make the functioning of Board committees more effective and meaningful.

We believe the measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuously improve our internal control processes and to diligently and vigorously review our financial reporting controls and procedures. As we evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify certain of the remediation measures described above.

 

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Table of Contents

Part II-Other Information

 

ITEM 1 LEGAL PROCEEDINGS

Oxygen Biotherapeutics is not presently involved in any legal proceedings and was not involved in any such proceedings during the quarter ended January 31, 2010.

 

ITEM 1A RISK FACTORS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by Oxygen Biotherapeutics, except where such statements are made in connection with an initial public offering. All statements, other than statements of historical fact, which address activities, actions, goals, prospects, or new developments that we expect or anticipate will or may occur in the future, including such things as expansion and growth of our operations and other such matters are forward-looking statements. Any one or a combination of factors could materially affect our operations and financial condition. These factors include progress in our product development and testing activities, obtaining financing for operations, development of new technologies and other competitive pressures, legal and regulatory initiatives affecting our products, and conditions in the capital markets. Forward-looking statements made by us are based on knowledge of our business and the environment in which we operate as of the date of this report. Because of the factors discussed in the 2009 Annual Report on Form 10-K and in subsequent reports on Form 10-Q, actual results may differ from those in the forward-looking statements.

 

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In the third quarter of fiscal 2010, the Company issued to Christian Stern, its Chief Executive Officer, 1,761 shares of common stock as compensation pursuant to the terms of his compensation agreement. The shares were valued at $10,008.95 at the date of issue.

In the third quarter of fiscal 2010, the Company issued to Richard Kiral, its President and Chief Operating Officer, options to purchase 4,000 shares of common stock pursuant to the terms of his compensation arrangement. The options were granted with a weighted average exercise price of $5.76 and a ten-year term. In January 2010, the Company issued to Dr. Kiral 5,000 shares of restricted common stock for the exercise of outstanding stock options. The Company received $9,000 for the exercise price of the stock option which had an intrinsic value of $20,450 on the exercise date.

In the third quarter of fiscal 2010, the Company issued to Michael Jebsen, its Secretary and Chief Financial Officer, options to purchase 2,001 shares of common stock pursuant to the terms of his compensation arrangement. The options were granted with a weighted average exercise price of $5.97 and a ten-year term

In addition, the Company issued to its employees options to purchase 3,334 shares of common stock with a weighted average exercise price of $5.97 and a ten-year term. The Company also issued options to purchase 40,000 shares of common stock to one of its non-employee directors. These options were issued with an exercise price of $5.18 and a three-year term.

The Company issued 12,001 shares of restricted common stock for the exercise of outstanding stock options. The Company received $21,625 for the exercise price of the stock option which had an intrinsic value of $52,179 on the exercise date.

All of the securities described above were issued in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.

 

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4 RESERVED

 

ITEM 5 OTHER INFORMATION

On November 12, 2009, Oxygen Biotherapeutics entered into a three-year exclusive supply agreement with Exflour, an unrelated third party manufacturer of perflourocarbons (“the Supply Agreement”) to supply us with sufficient quantities of FtBu to support the production of PFC gels and emulsions. The Supply Agreement contains a provision by which we pay to Exfluor $100,000 per year for the term of the agreement in exchange for Exflour’s agreement to supply the FtBu exclusively to the Company, and no other party. The annual exclusivity payments are payable to Exfuor in installments of $25,000, due at the beginning of each calendar quarter.

 

19


Table of Contents

On March 2, 2010, the Board approved an annual performance bonus to Christian Stern, CEO for milestones achieved in 2009. Under the terms of his employment contract, Dr. Stern was awarded a $200,000 bonus, payable in cash and shares of common stock for his performance during the calendar year 2009. The cash bonus will be paid in two installments of $50,000 on March 16, 2010 and May 14, 2010. The company issued shares of common stock to Dr. Stern on March 16, 2010 valued at $100,000 based on the closing market price on March 2, 2010.

 

ITEM 6 EXHIBITS

 

10.1    Exclusive Supply Agreement with Exfluor
10.2    Amendment no. 1 to the Exclusive License Agreement with Virginia Commonwealth University Intellectual Property Foundation
10.3    Amendment no. 2 to the Exclusive License Agreement with Virginia Commonwealth University Intellectual Property Foundation
10.4    License Agreement with Virginia Commonwealth University dated May 22, 2008*
10.5    Waiver—convertible note
10.6    Amendment—common stock purchase warrant
31    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* This document was filed as an exhibit to the quarterly report on Form 10-Q for the period ended July 31, 2008, filed by the Company with the SEC September 22, 2008, and is incorporated herein by this reference. It is included in this report because a reference to the agreement was inadvertently left out of the Company’s annual report on Form 10-K for the year ended April 30, 2009.

 

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Table of Contents

SIGNATURES

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.

 

March 19, 2010

 

OXYGEN BIOTHERAPEUTICS, INC.

/s/ Chris J. Stern

Chris J. Stern, Chief Executive Officer & Chairman of Board
(Principal Executive Officer)

/s/ Michael B. Jebsen

Michael B. Jebsen, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

 

21

Exhibit 10.1

SUPPLY AGREEMENT

with

Exfluor Research Corporation

This Agreement, effective as of November 12, 2009 (the “Effective Date” ), is entered by and between Oxygen Biotherapeutics, Inc., having its principal place of business at 2530 Meridian Pkwy, Suite 3078, Durham, North Carolina 27713 USA ( “OBI” ) and Exfluor Research Corporation with an address at 2350 Double Creek Dr., Round Rock, TX 78664 ( “Company” ).

WHEREAS, OBI is developing and owns rights to the therapeutic perfluorocarbon oxygen carrying compound, Oxycyte ® , consisting of perfluoro(tert-butylcyclohexane);

WHEREAS, Company possesses the expertise to manufacture perfluoro(tert-butylcyclohexane) and has developed the processes necessary to manufacture perfluoro(tert-butylcyclohexane) in commercial quantities from chemical raw materials; and

WHEREAS, OBI and Company desire to enter into this Agreement to provide for Company to manufacture and supply perfluoro(tert-butycyclohexane) exclusively to OBI for use the primary component of Oxycyte ® for research and commercial purposes.

NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants and undertakings contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, OBI and Company (each, a “ Party ” and, collectively, the “Parties” ), intending to be legally bound, hereby agree as follows:

 

1. Scope : Company agrees to provide and sell to OBI such quantities of Products as OBI may order in accordance herewith. Company shall furnish and be responsible and liable for all that is necessary or required to supply the Products, including without limitation all supervision, administration, coordination, labor and other services, machinery, equipment, materials, supplies and other goods, licenses, permits, approvals and documents, all in accordance with this Agreement and the applicable Purchase Order.

 

2. Performance of Supply :

 

  a. Definitions : The defined terms used in this Agreement shall have the meanings set forth in Exhibit A , Definitions, attached hereto and incorporated herein by reference. Any terms defined elsewhere in this Agreement shall be given equal weight and importance as though set forth in the Definitions.

 

  b. Supply Terms & Conditions : Company shall supply the Products pursuant to the terms and conditions of this Agreement, including without limitation, the Supply Terms & Conditions, attached hereto as Exhibit B , and the Purchase Schedule, attached hereto as Exhibit D , each incorporated herein by reference. This Agreement shall not apply to any supply of cGMP-grade Product. In the event that the Parties agree to the supply of cGMP-grade Product, the Parties shall enter a separate agreement therefore.

 

  c. Compliance : As an integral basis of the bargain hereof, Company agrees that it shall perform all of its obligations hereunder in accordance with any timelines provided herein and supply the Products consistent with the Purchase Specifications, attached hereto as Exhibit C , and in accordance with Applicable Laws, including not only the country of manufacture but also, in the event that any of the Products are to be supplied to another country, the Applicable Laws in such country as directed by OBI in writing. Company shall manufacture the Products at the manufacturing site identified in the Purchase Schedule and Company shall not change the manufacturing site, or the materials, process or plant used in the manufacture of the Products without first obtaining the written consent of OBI to such change.

 

  d. Quantity and Orders :

 

  i. Company shall supply Products to OBI in accordance with Purchase Orders that OBI may issue to Company from time to time. Purchase Orders shall specify the quantity of the Product(s) to be purchased by OBI, the place of delivery, the delivery date, and price. If there is any inconsistency between the provisions of this Agreement and any Purchase Order, the provisions of this Agreement shall control.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 1


  ii. Company shall notify the OBI Official Correspondent immediately of any anticipated lead times between placing a Purchase Order and delivery of the Products ordered therein, or of any occurrence that would inhibit Company’s ability to supply the Product(s) to OBI on a timely basis.

 

  iii. OBI shall have the right to postpone a delivery prior to the specified delivery date, provided that anticipated delivery not be delayed by more than ninety (90) days.

 

3.

Term: This Agreement shall commence as of the Effective Date and, unless earlier terminated as provided in the Supply Terms & Conditions, shall expire upon the third (3 rd ) anniversary of the Effective Date.

 

4. Exclusivity and Product Pricing:

 

  a. In consideration for Company’s agreement to supply the Product exclusively to OBI, and no other party, at the agreed to price, OBI shall pay to Company a non-refundable, non-creditable fee of $25,000 each quarter for the term of the Agreement, due on the first day of each quarter, beginning January 1, 2010.

 

  b. During the Term, OBI shall pay Company for the Products provided in accordance with the pricing provisions contained in Purchase Schedule. Unless otherwise expressly provided in the Purchase Schedule, the prices set forth on the Purchase Schedule do not include shipping and delivery costs, taxes applicable to the sale of the Products (including, without limitation, all sales, transfer, excise, value-added or similar taxes) duties, customs, imposts and tariffs.

 

  c. In no event will OBI be responsible for charges arising out of or resulting from any (i) error, omission or mistake of Company or a supplier of Company, (ii) defective or non-conforming performance of Company’s obligations under this Agreement, or (iii) failure of Company to meet conditions warranted under this Agreement.

 

5. Technology Escrow :

 

  a. Within sixty days of execution of this Agreement, Company shall place into an escrow account held by a third party escrow agent, to be mutually agreed to by the parties, documentation for the manufacturing processes used to produce Product in sufficient detail that another party would be capable of manufacturing Product with the information provided (“Manufacturing Technology”).

 

  b. Any modifications to the manufacturing process, including, but not limited to changes to raw materials, sub-components, or configuration of the Product will require an update to the Manufacturing Technology documentation held in escrow such that at any given time the Manufacturing Technology is current as to the last shipment of Product.

 

  c. The parties will execute the applicable Escrow Agreement within thirty (30) days of the execution of this Agreement. The Escrow Agreement will provide for immediate release of the Manufacturing Technology to OBI, and provide to OBI a perpetual, non-exclusive, royalty-free license to use the Manufacturing Technology to make or have made Product when one or more conditions in subsection “d” below occur (each a “triggering event”). The license is limited to use of the Manufacturing Technology solely for the purpose of manufacturing Product for OBI and does not include a right to sell or otherwise transfer the Manufacturing Technology to any third party, unless such party is a successor to OBI in the event of a merger or acquisition. Triggering Events:

 

  iv. Company formally dissolves the business.

 

  v. Company files for bankruptcy protection where the assets are given to a Bankruptcy trustee;

 

  vi. Creditors take action to secure rights against Manufacturing Technology to satisfy a financial obligation. For purposes of this Agreement, Company shall not offer exclusive rights to the Manufacturing Technology as security for any financial obligation and will notify OBI if they have done so prior to execution of this Agreement.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 2


  vii. Company enters into any merger or acquisition arrangement which does not specifically require the new business entity to become successor to the obligations of this agreement.

 

  d. If Company notifies OBI that they are unable or unwilling to manufacture Product, with or without the use of subcontractors, for sixty (60) days or more, Company will grant to OBI a non-exclusive license to the manufacturing Technology, for a royalty fees consisting of three percent (3%) of the purchase price of Product, which amount shall be paid annually and is due within sixty (60) days of the end of such calendar year.

 

  e. OBI shall bear the costs of setting up and maintaining the escrow account.

 

6. Available Inventory; Supply Capacity:

 

  a. Company shall maintain a twelve (12) month an on-hand inventory of T-Butyl Benzene (based on the amount of Product ordered by OBI during the previous twelve (12) month period, which inventory shall be dedicated and solely allocated to the manufacture of the Product. Notwithstanding the foregoing, in no event shall such inventory on-hand be less than that required to manufacture six hundred (600) kilograms of Product.

 

  b. Company represents and warrants that is existing facility has and will maintain the capacity to produce sixty kilograms (60kg) of Product per month, and within ninety (90) days of a written request by OBI, said request based upon Company’s estimated needs for additional manufacturing capacity, such capacity will be increased and maintained at up to one hundred twenty kilograms (120kg) per month, at Company’s sole expense.

7. Guaranty of Supply;

 

  a. Company guarantees that it shall supply the quantity of Products requested by OBI during the Term of this Agreement. In the event Company is unable or unwilling to supply the quantity of Products requested by OBI, Company shall provide immediate written notice to OBI. In the event this Agreement terminates for any reason other than OBI’s failure to pay undisputed amounts, OBI shall be entitled to receive a last time supply commitment from Company, to the extent Company remains capable of supplying Product, to deliver to OBI a quantity of Product up to the amount of Product realizable from the T-Butyl Benzene inventory on-hand as of the date of termination at the price provided in Section 4(b).

 

8. Allocation: If, due to a Force Majeure Event or if due to any other shortage not reasonably foreseeable, the quantity of one or more raw materials utilized to manufacture Products available at Company’s (or Company’s supplier’s) facility ordinarily producing Products and deliverable for sale hereunder should be insufficient to fulfill Company’s Product volume commitments, Company shall notify OBI as soon as possible, explaining the underlying reasons for such shortage, proposed remedial measures, and the date the shortage is expected to end. Company has the right and obligation to allocate its available supply of raw materials equitably among all term contract consumers of Company during the period of shortage. In order to achieve an equitable allocation result, Company shall consider its customers supply alternatives, and if the allocation is expected to cause greater hardship to OBI due to its dependence on Company as a majority supplier (if true), then Company’s allocation arrangements will reflect OBI’ greater need for Company’s Products. No consideration shall be given to Company’s own requirements for such raw materials.

 

9. Assignment: This Arrangement may not be assigned by either Party to any other Party without the prior written consent of the other Party hereto; provided, however, that OBI may assign its rights and obligations hereunder, by written notice to Company, to a successor or transferee (whether by merger, consolidation, purchase or otherwise) of either all, or substantially all, of the assets of OBI. Any purported assignment in violation of this provision shall be void from the beginning.

 

10. Severability: If any or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

 

11. Entire Agreement: This Agreement, with all exhibits hereto (including without limitation, any Purchase Order) constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between the Parties (whether written or oral) relating to the subject matter hereof; provided, however, in the event the Parties have entered or subsequently enter a separate confidentiality agreement related to the subject matter hereof, the provisions with respect to confidentiality obligations shall be cumulative. In the event of a conflict between the terms and conditions of this Agreement and any exhibit (including without limitation, any Purchase Order), the terms of this Agreement shall control.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 3


12. Amendments: No modification of this Agreement shall be effective unless made in writing and signed by a duly authorized representative of each Party.

 

13. Governing Law: This Agreement shall be governed by the laws of the State of North Carolina, without regard to conflicts of laws principles, and the Parties hereby submit to the exclusive jurisdiction of the North Carolina courts, both state and federal.

IN WITNESS WHEREOF, the Parties have executed this Agreement as set forth below.

 

OXYGEN BIOTHERAPEUTICS, INC.     EXFLUOR RESEARCH CORPORATION
By:  

/s/ MICHAEL JEBSEN

    By:  

/s/ Thomas R. Bierschenk

Name:  

MICHAEL JEBSEN

    Name:  

Thomas R. Bierschenk

Title:  

CFO

    Title:  

Vice President

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 4


EXHIBIT A

Definitions

 

  a. Act ” means the United States Federal Food, Drug and Cosmetic Act, 21 C.F.R. § 210 et seq. , as amended.

 

  b. Adverse Event ” means any adverse event associated with the use of the Product in a human, whether or not considered drug-related.

 

  c. Affiliate ” means, with respect to a Party, any individual, corporation or other business entity which, either directly or indirectly, controls such Party, is controlled by such Party, or is under common control with such Party. As used herein, “control” means possession of the power to direct, or cause the direction of the management and policies of a corporation or other entity whether through the ownership of voting securities, by contract or otherwise.

 

  d. Agreement ” means this Supply Agreement, and all exhibits attached hereto including all accepted Purchase Orders that expressly reference this Supply Agreement.

 

  e. Applicable Law ” means (i) any international, country, federal, state, provincial, commonwealth, municipal or local government law, statute, rule, requirement, code, regulation, permit, ordinance, authorization or similar such governmental requirement and interpretation and guidance documents of the same by a Governmental Authority as applicable to the manufacture or supply of Products hereunder; and (ii) any of OBI compliance, safety and security rules, programs and policies as applicable to Company or this Agreement.

 

  f. Business Day ” means any day other than a day which is a Saturday, Sunday, or federal bank or federal government holiday in the United States.

 

  g. Certificate of Analysis ” means a certificate in form and substance satisfactory to OBI, signed by the Company Official Correspondent, and authenticating the analysis of each batch of the Product delivered to OBI.

 

  h. cGMP-grade product ” means Product manufactured, handled, stored, and delivered in accordance with Current Good Manufacturing Practices.

 

  i. Company Official Correspondent ” means Dr. Timothy J. Juhlke, Vice President.

 

  j. Current Good Manufacturing Practices ” or “ cGMPs ” means (i) the applicable regulatory requirements, as amended from time to time, for current good manufacturing practices, including without limitation those promulgated by the Food and Drug Administration under the Act or under the Public Health Service Act, Biological Products, 21 C.F.R. §§ 600-610, and its associated regulations; (ii) any applicable guidance documents published by a Governmental Authority; and (iii) current industry practice consistent and in accordance therewith.

 

  k. Governmental Authority ” means any nation or government, any state, province, or other political subdivision thereof or any entity with legal authority to exercise executive, legislative, judicial, regulatory or administrative functions or pertaining to government in any of the relevant markets.

 

  l. Manufacturing Technology means all intellectual property, including know how, used to manufacture Product.

 

  m. Product ” (collectively, “ Products ”) means those materials to be supplied by Company to OBI as described in the Purchase Schedule, manufactured in accordance with the Purchase Specifications.

 

  n. Purchase Order ” means any purchase order issued by OBI in accordance with the terms and conditions of this Agreement.

 

  o. Purchase Schedule ” means the purchase schedule containing the Products, applicable prices, and manufacturing site, attached hereto as Exhibit D and incorporated herein by reference.

 

  p. Purchase Specifications ” means the specifications set forth in Exhibit C .

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 5


  q. Supply Terms & Conditions ” means the term and conditions governing the supply of the Products, attached hereto as Exhibit B , and incorporated herein by reference.

 

  r. OBI Official Correspondent ” means, Vice President Legal Affairs.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 6


EXHIBIT B

SUPPLY TERMS & CONDITIONS

 

1. Delivery :

 

  a. Company shall deliver the Products purchased by OBI to that location set forth in the applicable Purchase Order (the “ Destination Point ”).

 

  b. Company shall furnish Products within the time established in the applicable Purchase Order. Time is of the essence in relation to the performance of any and all of Company’s obligations pursuant to this Agreement and to each Purchase Order. Products shall be deemed delivered on time if delivered in accordance with Purchase Order terms (including location, specifications, requirements and date) and no sooner than three (3) days prior or following the delivery date stated in the Purchase Order. A delivery of Product that does not meet the specifications of Exhibit C or a delivery to an improper location, shall be deemed a late delivery (“ Late Delivery ”). Company agrees to use its best efforts to meet any request by OBI for delivery of Products prior to a delivery date stated in the applicable Purchase Order. Company shall notify OBI of any Late Delivery and specify the estimated delivery date and the circumstances causing the delay, keeping OBI informed about the status of the Late Delivery.

 

  c. Unless the Parties otherwise agree in writing, Products delivered to OBI under this Agreement shall be shipped from the manufacturing facility identified in the Purchase Schedule. A carrier approved by OBI in writing shall deliver the Products via the mode of transportation indicated by OBI on the applicable Purchase Order.

 

  d. All Products shipped by Company shall be shipped FOB/FCA Shipping Point stated in the applicable Purchase Order (as defined in INCOTERMS, 2000). OBI shall be solely responsible for all transportation expenses and risk of loss or damage to Products. Company shall ship Products in compliance with all Applicable Laws. Company shall pay for transportation costs when Products are returned to Company by OBI due to failure to meet Purchase Specifications.

 

  e. Company shall pack and ship all Products in accordance with the Specifications to ensure that no damage shall result in shipping.

 

  f. All chemicals delivered by Company shall bear a label stating the identity of the chemical and any hazards associated therewith. Such chemicals shall be accompanied by the Material Safety Data Sheet (“ MSDS ”) provided by the manufacturer of the chemical.

 

2. Invoice Payment :

 

  a. Company shall prepare and deliver to OBI an invoice for each shipment of Product purchased hereunder. All invoices shall be submitted in writing to:

Oxygen Biotherapeutics, Inc.

Attention: Accounts Payable

2530 Meridian Parkway, Suite 3078

Durham, NC 27713

or if different, in accordance with OBI’s written instructions.

 

  b. All invoices shall be submitted contemporaneously with or subsequent to the delivery of the Products. The invoices shall specify the price in respect of the Product delivered, the Purchase Order number, the quantity of Product delivered, and the invoice amounts shall be stated and paid for in the currency of the United States. In no event shall any invoice be dated prior to the date of shipment of the related Product.

 

  c. Payment terms for each undisputed shipment of Products shall be net thirty (30) days from the date of invoice, provided that no invoice shall be dated prior to the delivery of and acceptance corresponding Products. Payment due shall be net of any and all credits due to OBI, including without limitation, credit for returns, recalls, and/or warranty replacements.

 

3. Notice of Claim or Rejection :

 

  a. In the event that OBI learns, or should reasonably learn of any claim with respect to Product, OBI will inform Company in writing of the claim. In the event that a shipment of Products fails to conform to Purchase Specifications or to meet any warranty hereunder, OBI, at its option and at the expense and risk of company, shall notify Company and return such Products to Company or store them pending instructions from Company as to their disposal. The payment obligation in relation to any such delivery may be suspended forthwith pending resolution of any dispute with respect to defective Products. Neither payment nor passage of title or risk of loss to the Product(s) to OBI shall be deemed to constitute acceptance of the Product(s). Failure to make such notification shall not be deemed to constitute acceptance of the delivered lot of Products. Acceptance of any lot of Products shall not relieve Company of its warranty obligations under this Agreement.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 7


  b. Company agrees (at OBI’s option) to refund the purchase price thereof or replace any shipment rejected pursuant hereto with new Product within ten (10) business days after receipt of notice of rejection and supporting data thereof free of charge. Company shall be responsible for shipping within such time period any replacement Product and delivery of same to the rejecting Destination Point. If the Out-of-Specification Product is not replaced within such ten (10) business days or within the timeframe agreed upon by the Parties, OBI shall have the right to terminate this Agreement, effective immediately upon notice to Company.

 

4. Specifications; Quality:

 

  a. Company shall label and package Product in accordance with the provisions of all Laws, and Purchase Specifications, as applicable.

 

  b. Each Product delivered pursuant to this Agreement shall comply with the Purchase Specifications. A Certificate of Analysis showing the OBI Purchase Order number, size and description, lot or batch number, and the specifics of the analysis of all Product properties requested by OBI, will be provided by Company with each lot of Product.

 

  c. Subject to Applicable Laws, neither the Purchase Specifications, nor any change in any Product that may alter its properties, impurities, or any other characteristic of the Products, may be changed without OBI prior written consent. Company shall not unreasonably withhold its agreement to any change in the Purchase Specifications requested by OBI. Company shall not make any substitutions for Products ordered without the prior written approval of OBI.

 

  d. Company shall ensure that quality assurance tests agreed by the Parties from time to time are adopted.

 

  e. Company shall retain samples of each batch of the Products for a period not less than five (5) years.

 

5. Recalls:

 

  a. Company shall investigate all reports of nonconformity and Product complaints relating to materials in order to assure the conformity of Products to Purchase Specifications.

 

  b. In the event Company believes that a recall, products withdrawal or field correction by OBI may be necessary or appropriate, Company shall promptly notify OBI and the Parties shall cooperate in determining the necessity and nature of such action.

 

  c. With respect to any recall, product withdrawal or field correction OBI shall make all statements to the media and the public, including but not limited to press releases and interviews. Company will not issue any press release or otherwise make any public statement, advertisement or disclosure with respect to this Agreement, any of the Products, or any recall, product withdrawal or field correction relating to any product manufactured by OBI containing Products without the prior written consent of OBI such consent not to be unreasonably withheld; provided, however, that either Party shall be entitled to make a public announcement relating to such events if, in the opinion of the announcing Party’s legal counsel, such announcement is required to comply with Applicable Laws and provided to the extent practicable that the other Party has received not less than two (2) business days notice.

 

  d. If any recall, product withdrawal, or field correction is initiated because of a defect in Products, Company shall credit, or at the option of OBI, refund to OBI all amounts invoiced therefore, including transportation, duties, taxes, insurance and all other related costs.

 

  a. OBI shall have the right to audit and inspect all inventory of the Products contained at such facility. Such audits or inspections shall occur not more than once per year (unless for cause), shall occur during business hours and shall be scheduled by OBI at least ten (10) days in advance Purposes for such inspections may include compliance with Purchase Specifications, and/or investigations of complaints and/or compliance with any Laws or the terms of this Agreement. OBI’ audit and inspection rights hereunder shall not extend to any portions of such facility, documents, records or the other information: (i) which do not relate to the Products, or (ii) to the extent they relate or pertain to third parties or their products or materials.

 

6. Regulatory and Environmental Compliance :

 

  a. To the extent and Adverse Event of which a Party becomes aware implicates manufacturing of the Product, such Party shall promptly inform the other Party of such Adverse Event and shall disclose to the other Party any information it has regarding that Adverse Event.

 

  b. If any Governmental Authority shall take any action which shall require a response or action by Company with respect to Products, Purchase Specifications, or the manufacturing facility at which Products are manufactured, or any operating procedure affecting the Products, Company shall immediately notify OBI of the required response or action.

 

  c. In carrying out its obligations under this Agreement, Company shall comply in all respects with Applicable Laws in effect from time to time.

 

  d. Company is solely responsible for the safety and health of its employees, consultants and visitors and compliance with all Applicable Laws related to health, safety and the environment, including, without limitation, providing its employees, consultants and visitors, with all appropriate information and training concerning any potential hazards involved in the manufacture, packaging, storage and supply of the Products and/or materials and taking any precautionary measures to protect its employees from any such hazards.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 8


7. Confidential Matters :

 

  a. During the course of the performance of this Agreement, either Party (as “Discloser” ) may disclose certain information relating to this Agreement to the other Party (as “Receiver” ). Receiver shall keep in strictest confidence all information relating to this Agreement which may be acquired in connection with or as a result of this Agreement which has been designated as proprietary to Discloser or which from the surrounding circumstances in good conscience ought to be treated as proprietary to Discloser ( “Confidential Information” ). During the Term of this Agreement and for five (5) years thereafter, without the prior written consent of Discloser, Receiver shall not publish, communicate, divulge, disclose, or use any Confidential Information, except as otherwise provided herein. Upon termination or expiration of this Agreement, Receiver shall deliver all records, data information, and other documents and all copies thereof of Discloser, to Discloser, and such shall remain the property of Discloser. Purchase Specifications and changes to the Purchase Specifications shall be treated as Confidential Information by both Parties.

 

  b. Nothing herein shall be construed to impose an obligation of confidentiality on Receiver in connection with any information to the extent such information:

 

  i. is at the time of disclosure already known to Receiver, as clearly established by competent proof;

 

  ii. is at the time of disclosure or subsequently becomes part of the public domain through no fault, act or omission by Receiver; or

 

  iii. is subsequently disclosed to Receiver by a third party whose receipt and disclosure of such information does not constitute a violation of any confidentiality obligation.

 

  c. The obligation of confidentiality imposed on Receiver herein shall survive any termination or expiration of this Agreement.

 

  d. In the event Receiver is asked or subpoenaed by a Governmental Authority to provide Confidential Information received hereunder, Receiver shall promptly inform Discloser and shall cooperate with Discloser to obtain any and all protection that may be afforded such Confidential Information, prior to disclosing it, if such disclosure is ultimately requited.

 

  e. Receiver shall, upon request by Discloser, return all Confidential Information received hereunder, except, and only upon written request by Receiver, for one (1) photocopy that may be kept in its legal archives solely for the purpose of monitoring Receivers obligation hereunder, provided such photocopy is reasonably secured to maintain the confidentiality thereof.

 

  f. Each Party shall maintain the confidentiality of this Agreement and all provisions of this Agreement and, without the prior consent of the other Party, no Party shall make any press release or other public announcement of or otherwise disclose this Agreement or any of its provisions to any third party (a) other than to its directors, officers and employees and attorneys, accountants, investment bankers and other professional advisers whose duties reasonably require to maintain the confidentiality of this Agreement and (b) except for such disclosures as may be required by applicable law or by regulation, in which case the disclosing Party shall provide the other Party with prompt advance notice of such disclosure so that the other Party has the opportunity if it so desires to seek a protective order or other appropriate remedy.

 

8. Termination :

 

  a. OBI shall have the right to terminate this Agreement immediately upon notice in the event Company ceases to conduct its operations in the normal course of business, including inability to meet its obligations as they mature, or if any proceeding under the bankruptcy or insolvency laws is brought by or against Company, or a receiver is appointed for Company.

 

  b. Either Party may terminate this Agreement in the event of breach of a material obligation of the other Party if such breach remains uncured thirty (30) days after written notice of such breach is delivered to such breaching Party.

 

  c. Upon termination of this Agreement, Company shall promptly pay to OBI any credits due to OBI and OBI shall pay to Company all undisputed amounts then due and payable.

 

  d. In the event of termination, OBI shall only be responsible for the purchase of Product which constitute firm orders as of the effective date of termination; and OBI shall not otherwise be responsible for any material ordered by Company in anticipation of forecasts or future orders or for costs or profits on Products not supplied.

 

  e. Except as otherwise provided for, neither Party shall make a claim against, nor be liable to, the other Party for an indirect, special, incidental, consequential or punitive damages, in connection with or arising out of this Agreement or the termination of this Agreement, under contract, tort or any other theory of law, including without limitation, damages for lost profits business opportunity or other losses, or injury to reputation, resulting from a Party’s action or inaction taken in anticipation of the execution of this Agreement and of the undertaking of such Party’s obligations hereof, regardless of the cause of action under which such damages may be sought.

 

  f. The respective rights and obligation of the Parties hereunder shall survive the termination or expiration of this Agreement to the extent necessary for the intended preservation of such rights and obligations including, but not limited to, insurance, indemnification, confidentiality, regulatory compliance, records retention, audit rights, and recall responsibilities.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 9


9. Representations and Warranties:

 

  a. Company represents and warrants that the execution and delivery of this Agreement and the performance of its obligations hereunder (i) do not conflict with or violate any requirement of applicable laws or regulations, and (ii) do not conflict with , or constitute under, any contractual obligation of Company.

 

  b. Company warrants title to Products sold hereunder to be free and clear of all liens, encumbrances and/ or colorable claims at the time of delivery. Company further warrants that all Products shall be merchantable quality, shall be free form any latent or patent defects and shall conform to applicable Purchase Specifications. Company further warrants that in the performance of this Agreement, Company has complied or will comply with all Applicable Laws.

 

  c. Company represents and warrants that neither the design, the manufacture, nor the function of the Products nor the provision, use, or sale thereof shall in anyway infringe upon or violate any intellectual property rights or other rights of any third party.

 

10. Indemnity : Company shall indemnify and hold harmless OBI, its successors, Affiliates, shareholders, officers, directors, employees, agents, representatives and assigns, from and against any and all claims, liability, suits, damages, loss, costs, fines, penalties and expenses, including but not limited to attorney’s fees and litigation costs ( “Claims” ), to the extent such Claims are caused by or alleged to have been caused by (i) the acts or omissions of Company or any of its agents, employees, representatives, subcontractors or invitees; (ii) Company’s negligence or misconduct in the performance of this Agreement; (iii) any breach of this Agreement by Company or any of its agents, employees, representatives, subcontractors or invitees; or (iv) third party claims of patent infringement with respect to the Products. Such acts and omissions may include, but are not limited to, strict liability, breach of contract or warranty, or statutory violation. Company shall endeavor to amicably settle all Claims asserted by any other person or entity arising from such acts or omissions; provided, however, that Company shall obtain the written consent of OBI prior to settling or otherwise disposing of any claim.

 

14. Insurance: During the Term of this Agreement and for two (2) years after its expiration or termination for any reason, Company, at its own expense, shall maintain in full force and effect, general liability and such other insurance sufficient, in the reasonable opinion of Company, to address liabilities arising from Company’s performance under this Agreement. Upon request by OBI, OBI shall have the right to review Company’s insurance certificates therefore.

 

15. LIMITATION OF LIABILITY : NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY IN CONTRACT OR IN TORT FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS ARISING OUT OF OR RESULTING FROM PERFORMANCE HEREUNDER, EXCEPT TO THE EXTENT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF SUCH PARTY, ITS EMPLOYEES, AGENTS, REPRESENTATIVES, OR SUBCONTRACTORS.

 

16. Subcontracting : Company shall not enter into a subcontract with respect to the subject matter of this Agreement, without the prior written consent of OBI. No such written consent shall relieve Company from any of its obligations or liabilities hereunder. Nothing herein shall constitute any contractual relationship between OBI and any subcontractor of Company or any obligation on the part of OBI to pay, or be responsible for the payment of, any sums to any such subcontractors. Company shall be responsible for all work performed by, and for acts, omissions, or negligence of its subcontractors and for compliance of its subcontractors with the requirements of this Agreement, and all Laws to the same extent that Company would be responsible if Company were doing such work directly.

 

17. Force Majeure: Subject to the provisions hereof, if supervening events, including, but not limited to, natural disasters, act of government after the Effective Date of this Agreement, power failure, acts of God, labor disputes, riots, acts of war, or epidemics, (each, a “ Force Majeure Event ”), beyond the reasonable control of a party hereto occur that render performance by such party of its obligations under this Agreement impossible, then such party is excused from whatever performance is rendered impossible by the Force Majeure Event (“ Suspension of Performance ”); provided that (i) such Force Majeure Event is unforeseeable, (ii) such party is without fault is causing such Force Majeure Event, (iii) such party informs the other party immediately of such Force Majeure Event, (iv) such party promptly informs the other party of the length of the expected delay, (v) such party takes all reasonable actions to avoid or overcome such Force Majeure Event, to mitigate damages hereunder, and to mitigate the length of any such Suspension of Performance, and (vi) such party, to the extent it is able, continue to perform its obligations under this Agreement, unless otherwise directed by the other party. A party’s performance of covenants (i) to (iv) herein are conditions precedent to its Suspension of Performance and covenants (v) and (vi) herein are conditions precedent to its continued Suspension of Performance. If the Suspension of Performance continues, or is expected to continue, for more than sixty (60) days, then the other party is entitled to terminate this Agreement upon giving notice thereof to the party which is excused by the Suspension of Performance. Force Majeure Event includes the unavailability of materials, equipment or transportation that is caused by a Force Majeure Event. Force Majeure Event does not include economic hardship, changes in market conditions, unavailability of materials, equipment or transportation that is caused by an event other than a Force Majeure Event, or insufficiency of funds.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 10


18. Notice: Any notice required or permitted under this Agreement shall be given to the receiving Party in writing (i) by (A) delivery in hand, facsimile transmission (receipt verified), or by postage prepaid, United States first class with proof of mailing, and (B) registered or certified mail, return receipt requested, or (ii) by recognized national overnight courier service to each respective Party’s Official Correspondent with a copy to:

OBI:

2530 Meridian Pkwy

Suite 3078

Durham, North Carolina 27713

Attn: Chris Stern

Company:

2350 Double Creek Dr.

Round Rock, TX 78664

Attn: Timothy Juhlke

In addition, in the event that correspondence with other personnel of OBI becomes necessary, copies of such correspondence shall be sent to the Official Correspondent so that the Official Correspondent may keep a complete file.

 

19. Independent Contractor: In all matters relating to this Agreement, the Parties shall be acting as independent contractors. Neither Party shall have any authority to and shall not assume or create any obligation, express or implied, on behalf of the other Party and shall have no authority to and shall not represent itself as an agent, employee, or in any other capacity of such other Party.

 

20. Use of Trade Name and Trademarks: Each Party recognizes that the name of the other Party represents a valuable asset of such other Party and that substantial recognition and goodwill are associated with such trade name and such Party’s various trademarks. Each Party hereby agrees it shall not use the name, insignia, symbol, logo or other identifying information of the other Party hereto orally, writing or in electronic format in any advertising, press release, promotional materials or otherwise without the prior written consent of such other Party, except as required by Law. Nothing in this Agreement constitutes a license entitling a Party to use the other Party’s name, logos or trademarks.

 

21. No Third Party Beneficiaries : No provision of this Agreement shall in any way inure to the benefit of any third person so as to constitute to any such person a third-party beneficiary of this Agreement or otherwise give rise to any cause of action in any person not a party hereto.

 

22. Waiver: Waiver of any provision of this Agreement, in whole or in part, in any one instance shall not constitute a waiver of any other provision in the same instance, nor any waiver of the same provision in the same instance, nor any waiver of the same provision in another instance, but each provision shall continue in full force and effect with respect to any other then-existing or subsequent breach. All waivers by either Party must he contained in a writing signed by the Party to be charged and, in the case of OBI, by an executive officer of OBI or other person duly authorized by OBI.

 

23. Remedies: Unless otherwise set forth herein, the rights and remedies set forth in this Agreement are cumulative with and not exclusive of any other remedy. The exercise by either Party of any right or remedy conferred by this Agreement does not preclude the exercise of any other rights or remedies that may now or subsequently exist in law or in equity or by stature or otherwise.

 

24. Injunctive Relief: The Parties recognize and agree that remedies at law for breach by other Party of its obligations hereunder with respect to confidentiality, indemnification, and use of trade names and trademarks may be inadequate and each Party shall, in addition to any other rights which it may have, be entitled to injunctive relief.

 

25. Heading and Plural Terms: The headings and subheadings contained herein are inserted for convenience of reference only and shall in no way be construed to be interpretations of text. Terms defined in the singular have the same meaning in the plural and vice versa, as applicable.

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 11


EXHIBIT C

PURCHASE SPECIFICATIONS

E XFLUOR REASEACH CORPORATION

2350 Double Creek Drive

Round Rock, Texas 78664

(512) 310-9044

S P E C I F I C A T I O N

 

Issue Date:    October 19, 2009
Product Name:    Perfluoro-tert-butylcyclohexane, high purity
Chemical Formula:    C 10 F 20
Physical state:    Clear colorless liquid, no visible particles
Minimum purity by GC/FID detector:    > 96.0 Area %
Residual Conjugated Olefin (STP 9.1.4):    < 1 PPM
Residual Free Fluoride (STP 9.1.3)    < 1 PPM
Residual Organic Hydrogen (STP 9.1.5)    < 10 PPM

Shipping Container Specification:

Primary Mfr. & Vendor: Alloy Products, 1045 Perkins Ave, PO Box 529, Waukesha WI 53187

Manufacturer’s ID: Pressure Vessel, Sunnyvale Model Specifications, 9” ID and 2” Round Opening

Drawing No. C526-0402-00 (5 GAL.) Rev. C 3/4/97

Approved Vendor: Alloy Products

Swagelok Parts: Qty. 2 each: SS-4-P, pipe plug (NPT); SS-400-1-4, male connector (NPT);

and SS-400-P, where the SS in the part no. indicates 316 stainless steel

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 12


EXHIBIT D

PURCHASE SCHEDULE

Price for FtBu (non-cGMP) Product (per kilogram):

Pricing Formula

Price = $900.00 per kg until the amount of aggregate Product purchased under the Agreement during the previous 12

months totals one (1) metric ton

and thereafter

Price = {$900,000.00 + [(V-1,000) x 500]} ÷ V

V = the average 12-month volume of Product in kilograms (including cGMP-grade Product obtained from FluoroMed L.P.) following acceptance of first (1 st ) ton of Product in aggregate delivered and accepted under this Agreement,

 

Exfluor Research Corporation

Supply Agreement

November 2009

 

Page 13

Exhibit 10.2

AMENDMENT No. 1 TO EXCLUSIVE LICENSE AGREEMENT

This Amendment No. 1 to Exclusive License Agreement (“Amendment”) is made and entered into as of November 20,2009 by and between Oxygen Biotherapeutics, Inc., successor to Synthetic Blood Institute, including its directors, officers, employees and agents (“OBI” or “Licensee”) and Virginia Commonwealth University Intellectual Property Foundation, including its directors, officers, employees and agents ( “Licensor”).

RECITALS

 

A. OBI and Licensor entered into an Exclusive License Agreement dated May 21, 2008 (the “License Agreement”).

 

B. OBI and Licensor wish to amend the terms of the License Agreement as set forth below to formally settle the intellectual property rights of the parties to various products which will be manufactured or sold by OBI, and to provide for milestone, sublicensing and royalty payments for those products.

NOW, THEREFORE , it is hereby agreed as follows:

 

  1. This Amendment No. 1 is made in full settlement of any rights either party may have to OBIs products Woundecyte ™, Dermacyte ™, and any other cosmetic or dermatology products which OBI has or will develop which will employ a perfluorocarbon (PFC) gel.

 

  2. By signing this Amendment No.1, Licensor expressly releases OBI from any claims (including attorney’s fees, costs, and expenses of every kind and however denominated) that Licensor could have asserted, or may assert in the future against OBI, related to their rights on PFC gel based products including Woundecyte ™, Dermacyte ™, and any current or future cosmetic or dermatological product line developed, manufactured or marketed by OBI.

 

  3. The parties understand and agree that this Amendment No. 1 constitutes a final compromise of any claims released and is not an admission by either party that any such claims exist and/or of liability by a party with respect to such claims.

 

  4. The License Agreement is amended by adding Section X, which shall read as follows:

SECTION X – ADDITIONAL UNDERSTANDINGS

10.1 For purposes of the License Agreement, Licensor shall be deemed to have been a contributor on the development of perfluorocarbon (PFC) gel based products used to treat burns and wounds, whether with our without the use of a bandage or with or without the use of an oxygen generator. This includes Woundecyte ™. For purposes of the License Agreement, the PFC gel based products used to treat burns and wounds will be considered “LICENSED PRODUCTS”, whether or not any patents are obtained on the PFC gel based products used to treat burns and wounds, and OBI will be obligated to pay milestone, sublicensing and royalty payments on the PFC gel based products used to treat burns and wounds in the manner specified in Article III and Appendix B. This obligation will survive termination of the License Agreement and will expire February 13, 2029 or when the last of the LICENSED PATENTS expires, whichever is later. This obligation will be binding on all sublicensees, assignees, and successors in interest.


10.2 For purposes of the License Agreement, Licensor shall not be deemed to have been a contributor on the product applications of using the PFC gel formulations for cosmetic or dermatological purposes. This includes Dermacyte TM

10.3 Notwithstanding the foregoing, OBI shall pay Licensor royalty fees of 4% of Net Sales on the PCF gel currently marketed under the name Dermacyte ™. However, this provision shall only apply to that formulation as it is currently manufactured, and close variants thereof, and shall not extend to any new formulations or applications. For purposes of this section, the parties agree that the applicable formulation shall be limited to a PFC gel that contains each and every one of (1) FtBu, (2) water, (3) one or more Pluronic ® constituents, and (4) a preservative or stabilizer (e.g., EDTA).

4. Except as expressly provided in this Amendment, all other terms, conditions and provisions of the License Agreement shall continue in full force and effect as provided therein.

IN WITNESS WHEREOF , OBI and Licensor have entered into this Amendment effective as of the date first set forth above.

 

Oxygen Biotherapeutics, Inc.,    

Virginia Commonwealth University

Intellectual Property Foundation

By  

/s/ CHRIS J. STERN

    By  

/s/ IVELINA METCHEVA

Name:  

CHRIS J. STERN

    Name:  

IVELINA METCHEVA

Title:  

CHAIRMAN OF THE BOARD

    Title:  

PRESIDENT

Date:  

11/25/09

    Date:  

11/25/09

Exhibit 10.3

AMENDMENT NO. 2

to the Exclusive License Agreement between

VIRGINIA COMMONWEALTH UNIVERSITY

INTELLECTUAL PROPERTY FOUNDATION

and

OXYGEN BIOTHERAPEUTICS, INC.

Whereas, Virginia Commonwealth University Intellectual Property Foundation (LICENSOR) and Oxygen Biotherapeutics, Inc. (LICENSEE, formally Synthetic Blood International, Inc.) are parties to an Exclusive License Agreement entered into on May 21 st , 2008;

Whereas, Section 2.2 of the Agreement states that “LICENSOR grants to LICENSEE, and LICENSEE accepts, an exclusive first option to enter into good faith negotiations for a license in the FIELD OF USE to include any inventions with respect to oxygen therapeutics invented by Dr. Bruce Spiess together with other inventors (if no inventor objects in writing) in this AGREEMENT upon payment of $25,000 fee.”, and;

Whereas, LICENSOR, in a letter dated December 4, 2008, notified LICENSEE of such invention described in VCU invention disclosure 08-052, entitled “Intravenous Perfluorocarbon Emulsions for the Treatment of Traumatic Brain and Spinal Cord (Central Nervous System) Injury.” LICENSEE has elected to include this invention in the Exclusive License Agreement by paying the $25,000 fee on January 15,2009, and;

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1. In Appendix A, the following invention is added to the list of Licensed Patents:

4. PCT application and US patent application filed July 17,2009, Serial Nos. PCT/US2009/004165 and 12/460,409, respectively, entitled “METHOD OF TREATING TRAUMATIC BRAIN INJURY” based on VCU invention 08-052.

 

Agreed and Accepted:
Oxygen Biotherapeutics, Inc.     VCU Intellectual Property Foundation
By       By  

/s/ Michael Jebsen

   

/s/ Ivelina S. Metcheva

Name   Michael Jebsen    

Ivelina S. Metcheva, Ph.D., MBA

President

Title   CFO    
Date:  

3/8/2010

    Date:  

3/10/10

Exhibit 10.5

WAIVER – CONVERTIBLE NOTE

This Waiver is given with respect to the Convertible Note Due January 2013 identified at the foot of this Waiver (the “Note”), by the person whose signature appears at the foot of this Waiver, who is the holder of the Note (the “Holder”), to Oxygen Biotherapeutics, Inc., a Delaware corporation (the “Company”). The Company is the successor to Synthetic Blood International, Inc., a New Jersey corporation, which originally issued the Note. Capitalized terms used herein that are not otherwise defined shall have the meaning ascribed to such terms in the Warrant.

Recital

The Company and Holder agree and acknowledge that the obligation to register the Conversion Shares pursuant to Section 6 of the Note will divert financial and other resources from the Company’s operations, which is contrary to the Holder’s desire to see long-term growth and development of the Company and an increase in shareholder value. The parties further acknowledge that the obligation to register the Conversion Shares by January 2009 is of nominal value to the Holder in light of the Holder’s interest in the long-term growth of the Company and the Holder’s right to exercise its conversion rights under Section 4 of the Note.

Waiver

In consideration of the foregoing Recital, the Holder, for itself and its successors and assigns, waives and releases the Company from any and all present and future duties, obligations and liabilities set forth in Section 6 of the Note.

Except as specifically provided for herein, all terms of the original Note shall remain in full force and effect.

EXECUTED by the Holder this      day of              2008.

 

 

Holder Signature
Name:  

 

Title:  

 

 

Holder’s Name:  

 

Note No.:  

 

Exhibit 10.6

AMENDMENT - COMMON STOCK PURCHASE WARRANT

This Amendment to the Common Stock Purchase Warrant identified at the foot of this Amendment (the “Warrant”), is made and entered into this      day of              , 2008, by and between Oxygen Biotherapeutics, Inc., a Delaware corporation and formerly Synthetic Blood International, Inc. (the “ Company ”), and the Holder of the Warrant whose signature appears at the foot of this Amendment. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to such terms in the Warrant.

Recitals

The Company and Holder agree and acknowledge that the obligation to register the Warrant Shares pursuant to Section 5(f) of the Warrant will divert financial and other resources from the Company’s operations, which is contrary to the Holder’s desire to see long-term growth and development of the Company and an increase in shareholder value. The parties further acknowledge that the obligation to register the Warrant Shares by January 2009 is of nominal value to the Holder in light of the Holder’s interest in the long-term growth of the Company.

Agreement

In consideration of the foregoing Recitals, the Holder, for itself and its successors and assigns, agrees with the Company as follows:

1. Section 2(c) of the Warrant is hereby deleted in its entirety and the following new section 2(c) is inserted in lieu thereof:

c) Cashless Exercise . If at any time after the registration statement contemplated by Section 5(f), below, is declared effective by the Securities and Exchange Commission there is not an effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder for more than 30 consecutive days, then after the expiration of such 30-day period and so long as there remains no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder this Warrant may also be exercised during such period of non-registration by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A)   =   the closing bid price on the Trading Day immediately preceding the date of such election;
(B)   =   the Exercise Price of this Warrant, as adjusted; and
(X)   =   the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.


2. Section 5(f) of the Warrant is hereby deleted in its entirety and the following new section 5(f) is inserted in lieu thereof:

f) Registration of Warrant Shares . The Company shall file a registration statement under the Securities Act with the Securities and Exchange Commission (the “Commission”) on or before August 14, 2009, for the purpose of registering for resale the Warrant Shares, and shall use its best efforts to keep such registration statement continuously effective under the Securities Act until all such shares covered by such registration statement have been sold or the Warrant Shares (or the Warrant Shares issuable through exercise under Section 2(c)) may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. The Holder shall provide to the Company in writing all information reasonably required by the Company to comply with its disclosure obligations in the registration statement imposed by the Securities Act and the regulations promulgated thereunder. The failure of the Holder for any reason to provide such information at least five Business Days prior to the filing of the registration statement covering the Warrant Shares (and five Business Days prior to any pre or post effective amendment to such registration Statement) shall effect a termination of any obligation of the Company to file any registration statement pertaining to the Warrant Shares, the Company shall have no liability to the Holder with respect thereto, and the Holder’s right to exercise this warrant in the manner provided for in Section 2(c) shall be void and unenforceable.

3. Except as specifically provided for herein, all terms of the original Warrant shall remain in full force and effect.

AGREED AND ENTERED INTO this      day of              2008, by the undersigned thereunto duly authorized.

 

 

    Warrant No.  

 

Print Holder’s Name      

 

     
Holder Signature      
Name:  

 

     
Title:  

 

     
Oxygen Biotherapeutics, Inc.      
By  

 

     
Name:  

 

     
Title:  

 

     

 

2

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Chris J. Stern, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended January 31, 2010, of Oxygen Biotherapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-a5(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 19, 2010    

/s/ Chris J. Stern

    Chris J. Stern
    Chief Executive Officer & Chairman of the Board

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Michael B. Jebsen, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended January 31, 2010, of Oxygen Biotherapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-a5(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 19, 2010     By:  

/s/ Michael B. Jebsen

      Michael B. Jebsen, Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Oxygen Biotherapeutics, Inc. (the “Company”) on Form 10-Q for the period ended January 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chris J. Stern, Chief Executive Officer and Chairman of the Board of Directors of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

  1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date: March 19, 2010    

/s/ Chris J. Stern

    Chris J. Stern
    Chief Executive Officer & Chairman of the Board

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Oxygen Biotherapeutics, Inc. (the “Company”) on Form 10-Q for the period ended January 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael B. Jebsen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

  1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date: March 19, 2010    

/s/ Michael B. Jebsen

    Michael B. Jebsen
    Chief Financial Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.