10-Q 1 f10q0915_oxysure.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2015

 

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

 

Commission File Number: 000-54137

 

 

 

OXYSURE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   71-0960725
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)

 

10880 John W. Elliott Drive, Suite 600, Frisco, TX 75033

(Address of principal executive offices)

 

(972) 294-6450

(Registrant’s telephone number)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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 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 ☒   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 for 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 Smaller reporting company
(Do not check if a smaller reporting company)    

 

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

 

Our common stock is traded in the over-the-counter market and quoted on the OTCQB under the symbol “OXYS.”

 

The number of shares outstanding of the registrant’s class of $0.0004 par value common stock as of November 13, 2015 was 36,220,761.

 

 

 

 

 

 

INDEX

 

    Page
    Number
PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Financial Statements F-1
  Condensed Balance Sheets – September 30, 2015 (unaudited) and December 31, 2014 F-1
  Condensed Statements of Operations – For the three and nine months ended September 30, 2015 and 2014 (unaudited) F-2
  Condensed Statements of Cash Flows – For nine months ended September 30, 2015 and 2014 (unaudited) F-3
  Condensed Notes to Financial Statements F-4 – F-13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
Item 3. Quantitative and Qualitative Disclosures about Market Risk 8
Item 4. Controls and Procedures 8
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 9
Item 1A. Risk Factors 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 10
Item 3. Defaults upon Senior Securities 10
Item 4. Mine Safety Disclosures 10
Item 5. Other Information 10
Item 6. Exhibits 10
   
SIGNATURES 11

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

 

OXYSURE SYSTEMS INC.
CONDENSED BALANCE SHEETS

 

   September 30,   December 31, 
   2015   2014 
   Unaudited     
         
ASSETS        
Current assets        
Cash and cash equivalents  $6,312   $647,093 
Restricted cash  $2,000,000   $- 
Accounts receivable, net   830,596    369,575 
Inventories   390,028    277,346 
License fee receivable   403,478    463,308 
Prepaid expenses and other current assets   91,747    53,588 
Total current assets   3,722,161    1,810,910 
           
Property and equipment, net   89,544    91,537 
Intangible assets, net   340,142    362,764 
Other assets   276,692    246,237 
           
TOTAL ASSETS  $4,428,538   $2,511,448 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $768,674   $558,338 
Related party payable   222,417    154,850 
Capital leases - current   -    149 
Notes payable - current, net of discount   47,103    40,897 
Convertible notes payable, net of discount   1,132,808    606,932 
Derivative liability   76,618    31,010 
Total current liabilities   2,247,620    1,392,176 
           
Long-term liabilities          
Notes payable   -    44,484 
Total long-term liabilities   -    44,484 
           
TOTAL LIABILITIES   2,247,620    1,436,660 
           
COMMITMENTS AND CONTINGENCY          
           
STOCKHOLDERS’ EQUITY          
Preferred stock, par value $0.0005 per share; 25,000,000 shares authorized;          
518,750 Series A convertible preferred shares issued and outstanding as of September 30, 2015 and 593,750 shares issued and outstanding as of December 31, 2014.   258    296 
750 Series B convertible preferred shares issued and outstanding as of September 30, 2015 and 1,145 shares issued and outstanding as of December 31, 2014.   1    1 
770,000 Series C convertible preferred shares issued and outstanding as of September 30, 2015 and 0 shares issued and outstanding as of December 31, 2014.   385    - 
1,050,000 Series D convertible preferred shares issued and outstanding as of September 30, 2015 and 0 shares issued and outstanding as of December 31, 2014.   525    - 
531,666 Series E convertible preferred shares issued and outstanding as of September 30, 2015 and 0 shares issued and outstanding as of December 31, 2014.   266    - 
Common stock, par value $0.0004 per share; 100,000,000 shares authorized;          
33,488,420 shares of voting common stock issued and outstanding as of September 30, 2015 and 28,436,930 shares issued and outstanding as of December 31, 2014   13,398    11,377 
Other stockholder equity   (1,231,666)   - 
Additional Paid-in Capital   25,418,546.00    19,104,322 
Accumulated deficit   (22,020,795)   (18,041,208)
           
TOTAL STOCKHOLDERS’ EQUITY   2,180,918    1,074,788 
           
TOTAL LIABILITIES  AND STOCKHOLDERS’ EQUITY  $4,428,538   $2,511,448 

 

See accompanying notes to financial statements

 

 F-1 

 

 

OXYSURE SYSTEMS INC.

STATEMENTS OF OPERATIONS

(Unaudited)

 

   For the three months
ended
September 30,
   For the nine months
ended
September 30,
 
   2015   2014   2015   2014 
   Unaudited   Unaudited   Unaudited   Unaudited 
                 
Revenues, net  $1,138,380   $818,456   $2,809,553   $1,852,796 
Cost of goods sold   580,126   $321,932    1,325,165   $792,378 
Gross profit   558,254    496,524    1,484,388    1,060,418 
                     
Operating expenses                    
Research and development  $362,599   $155,869   $873,450   $433,384 
Sales and marketing   437,442    202,825    1,231,581    444,818 
Other general and administrative   686,828    527,289    1,930,425    1,132,276 
Total operating expenses   1,486,869    885,983    4,035,456    2,010,478 
                     
Loss from operations   (928,615)   (389,459)   (2,551,067)   (950,060)
                     
Other income (expenses)                    
Interest expense   (626,127)   (169,051)   (1,519,071)   (362,638)
Change in value of derivative liabilities   219,673    -    342,257    - 
Derivative expense   (47,091)   -    (251,363)   - 
Other income (expense)   1,407    96,161    (342)   154,521 
Total other income (expenses   (452,138)   (72,890)   (1,428,519)   (208,117)
                     
Net loss  $(1,380,753)  $(462,349)  $(3,979,587)  $(1,158,177)
                     
Basic net loss per common share  $(0.04)  $(0.02)  $(0.13)  $(0.04)
                     
Weighted average common shares outstanding:                    
Basic and Diluted   32,425,195    26,120,974    30,543,678    26,042,971 

 

See accompanying notes to financial statements

 

 F-2 

 

 

OXYSURE SYSTEMS INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the nine months ended 
   September 30, 
   2015   2014 
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(3,979,587)  $(1,158,177)
Adjustments to reconcile net loss to net cash from operating activities:          
Depreciation and amortization expense   33,239    35,462 
Amortization of debt discount and beneficial conversion features   1,315,271    254,944 
Gain on forgiveness of debt   (44,954)   - 
Excess derivative over proceeds   251,363    - 
Derivative liability fair value adjustment   (342,257)   - 
Expenses paid by related parties   137,150    4,374 
Warrants issued for services   11,025    - 
Stock based compensation   119,083    62,137 
Common stock issued for services   147,363    - 
Gain on extinguishment of debt   -    (123,667)
Changes in operating assets and liabilities:          
Accounts receivable   (461,020)   (444,915)
Inventories   (112,682)   (11,618)
License fees receivable   59,830    36,692 
Prepaid expenses and other current assets   (38,159)   87,070 
Other assets   (30,455)   - 
Accounts payable and accrued liabilities   266,363    476,772 
Deferred revenue   -    (2,976)
           
NET CASH USED IN OPERATING ACTIVITIES   (2,668,427)   (783,900)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
    Purchase of property and equipment   (8,624)   (70,651)
Purchase of intangible assets   -    (198)
           
NET CASH USED IN INVESTING ACTIVITIES   (8,624)   (70,849)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Common stock subscribed and issued for cash   80,001    29,672 
Preferred stock issued for cash and warrants   2,650,001    - 
Cash received from related parties   43,917    9,800 
Payments made to related parties   (113,500)   (115,300)
Cash received from convertible notes payable   1,551,000    475,000 
Payments made on convertible notes payable   (175,000)   (192,000)
Payments on capital leases   (149)   (1,440)
           
NET CASH PRODUCED BY FINANCING ACTIVITIES   4,036,270    205,732 
           
Net change in cash and cash equivalents   1,359,219    (649,019)
           
Cash and cash equivalents, at beginning of period   647,093    657,673 
           
Cash and cash equivalents, at end of period  $2,006,312   $8,654 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Interest  $-   $12,996 
Income taxes  $-   $- 
           
Supplemental non-cash investing and financing activities:          
Conversion of preferred stock to common stock  $371   $- 
Common stock issued for prepaid services   -    25,000 
Conversion of convertible notes payable   1,234,730    188,358 
Beneficial conversion feature   843,515    - 
Initial value of the derivative   165,200    - 

 

See accompanying notes to financial statements

 

 F-3 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A summary of significant accounting policies of OxySure® Systems, Inc. (“OxySure” or the “Company”) is presented to assist in understanding the Company’s financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the accompanying financial statements. These financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity.

 

Basis of Presentation - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. The interim financial statements include all adjustments which, in the opinion of management, are necessary in order to make the financial statements not misleading.

 

The accompanying Condensed Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The Company's Condensed Financial Statements reflect all adjustments that management believes are necessary for the fair presentation of their financial position, results of operations, comprehensive loss and cash flows for the periods presented. The information at December 31, 2014 in the Company's Condensed Balance Sheet included in this quarterly report was derived from the audited Balance Sheet included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 31, 2015. Where applicable, the Company's 2014 Annual Report on Form 10-K is referred to in this quarterly report as the “2014 Annual Report.” This quarterly report should be read in conjunction with the 2014 Annual Report.

 

Deferred Revenue and Income - We defer revenue and income when we invoice a customer or a customer makes a payment and the requirements of revenue recognition have not been met (i.e. persuasive evidence of an arrangement exists, shipment from a company warehouse has occurred, the price is fixed or determinable and collectability is reasonably assured). Deferred Revenue was $0 for each of the periods ended September 30, 2015 and December 31, 2014, respectively.

 

Inventory – Our inventory consists of raw material and components for our portable oxygen systems as well as completed products and accessories.   Inventories are computed using the lower of cost or market, which approximates actual cost on a first-in first-out basis. Inventory components are parts, work-in-process and finished goods. Finished goods are reported as inventories until the point of title transfer to the customer.

 

Inventories as at September 30, 2015 and December 31, 2014 consisted of the following:

 

   September 30,   December 31, 
   2015   2014 
         
Parts inventory  $207,605   $133,477 
Work in process   45,120    41,114 
Finished goods   137,303    102,755 
Total inventories  $390,028   $277,346 

 

 F-4 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Cash and Cash Equivalents - We invest our cash in deposits and money market funds with major financial institutions.  We place our cash investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument.

 

Fair Value of Financial Instruments - Our financial instruments consist principally of cash and cash equivalents, accounts receivable and accounts payable.  We believe that the recorded values of all of our other financial instruments approximate their fair values because of their nature and respective maturity dates or durations. The fair value of our long-term debt is determined by using estimated market prices. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

 

Level 1:  Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

 

Level 2:  Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

 

Level 3: Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

 

The fair value of the majority of our cash equivalents was determined based on “Level 1” inputs. We do not have any marketable securities in the “Level 2” and “Level 3” category. We believe that the recorded values of all our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

 

Property and Equipment – Property and equipment are recorded at cost with depreciation and amortization provided over the shorter of the remaining lease term or the estimated useful life of the improvement ranging from three to seven years. Renewals and betterments that materially extend the life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. Furniture and fixtures are depreciated over five years. Machinery and equipments are depreciated over five to seven years. Software is depreciated over three years.  Leasehold improvements are computed using the shorter of the estimated useful lives of the assets or the lease terms.  Depreciation expense was $3,797 and $3,052 for the three month periods ended September 30, 2015 and 2014, respectively. Depreciation expense was $10,617 and $12,838 for the nine month periods ended September 30, 2015 and 2014, respectively.

 

Other Long-Lived Assets – We have two types of intangible assets – patents and trademarks. Intangible assets are carried at cost, net of accumulated amortization. Amortization expense for patents and trademarks was $7,508 and $7,557 for the three month periods ended September 30, 2015 and 2014, respectively. Amortization expense for patents and trademarks was $22,616 and $22,623 for the nine month periods ended September 30, 2015 and 2014, respectively.

 

Intangible assets with definite useful lives and other long-lived assets are tested for impairment if certain impairment indicators are identified.   Management evaluates the recoverability of its identifiable intangible assets in accordance with applicable accounting guidance, which requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Impairment charges for patents were $0 for each of the three month periods ended September 30, 2015 and 2014.

 

5-Year amortization expense for patents and trademarks is as follows:

 

2015   $ 30,232  
2016     30,232  
2017     30,232  
2018     30,232  
Thereafter     188,982  
    $ 340,142  

 

 F-5 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Other Assets– We record Other Assets net of accumulated amortization. Amortization expense for Other Assets was $9,654 and $9,654 for the three month periods ended September 30, 2015 and 2014, respectively. Amortization expense for Other Assets was $28,962 and $47,216 for the nine month periods ended September 30, 2015 and 2014, respectively.

 

Capitalization of software: The Company accounts for internal-use software and website development costs, including the development of its partner marketplaces in accordance with ASC 350-50 (Intangibles – Website cost). The Company capitalizes internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use software, as well as any external direct costs. It amortizes these costs over their estimated useful lives, which typically range between three to five years. The Company’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on management’s judgment as to the product life cycle.

 

Amortization expense for websites and URLs was $9,654 and $9,654 for the three month periods ended September 30, 2015 and 2014, respectively. Amortization expense for websites and URLs was $28,962 and $28,962 for the nine month periods ended September 30, 2015 and 2014, respectively.

 

Research and Development Costs – Costs associated with the development of our products are charged to expense as incurred.  Research and development expense was $362,599 and $155,869 for the three month periods ended September 30, 2015 and 2014, respectively. Research and development expense was $873,450 and $433,384 for the nine month periods ended September 30, 2015 and 2014, respectively.

 

Equity Warrants - We issued warrants to purchase shares of our common stock in connection with convertible notes. In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the notes were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We record the fair value of the warrants at the time of issuance as additional paid in capital and as a debt discount to the notes.  We amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrants with the convertible notes, a beneficial conversion option is recorded as a debt discount reflecting the incremental conversion option intrinsic value of the conversion option provided to the holders of the notes. We also amortize this debt discount as interest expense over the life of the notes.  The intrinsic value of each conversion option was calculated as the difference between the effective conversion price and the fair value of the common stock, multiplied by the number of shares into which the note is convertible.

 

Stock-Based Compensation – We account for share-based payments, including grants of stock options to employees, consultants and non-employees; moreover, we issue warrants to the consultants and related parties.  We are required to estimate the fair value of share-based awards and warrants on the date of grant. The value of the award is principally recognized as expense ratably over the requisite service periods. We have estimated the fair value of stock options and warrants as of the date of grant or assumption using the Black-Scholes option pricing model.

 

 F-6 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

For the three month periods ended September 30, 2015 and 2014, stock based compensation expense was approximately $25,740 and $42,437, respectively, which consisted primarily of stock-based compensation expense related to stock options issued to the employees and recognized under GAAP. For the nine month periods ended September 30, 2015 and 2014, stock based compensation expense was approximately $132,651 and $60,025, respectively.

 

Shipping and Handling Costs - Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of revenues.

 

Advertising Costs - Advertising costs are charged to operations when incurred.  We incurred $437,442 and $202,825 in advertising and promotion costs during the three month periods ended September 30, 2015 and 2014, respectively. Advertising and promotion costs during the nine month periods ended September 30, 2015 and 2014 were $1,231,581 and $444,818, respectively.

 

Net Income (Loss) Per Share - Basic earnings (loss) per share is computed based on the weighted average number of common shares outstanding. However, basic loss per share excludes anti-dilutive securities. Diluted earnings per share is computed based on the weighted average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued, and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options and other stock-based awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan. As of September 30, 2015 there were 21,865,386 potentially dilutive shares.

  

Recent Accounting Pronouncements

 

We have reviewed recent accounting pronouncements and concluded that they are either not applicable to our business or that no material effect is expected on the financial statements as a result of future adoption.

 

 F-7 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 2 – NOTES PAYABLE

 

We have issued warrants for the purchase of shares of our restricted common stock in connection with raising equity and debt financing and for other professional services.  The fair value of warrants issued is determined in accordance with Codification topic 470-20.

 

Frisco Promissory Note. On March 22, 2011 we entered into an Amended and Restated Performance Agreement with the Frisco Economic Development Corporation (“FEDC”) pursuant to an economic incentive package. In terms of the Amended and Restated Performance Agreement, the FEDC provided us with economic assistance in the form of the renewal and extension a forgivable loan of $213,000 (the “Frisco Note”) together with performance credits over 5 years, commencing on March 22, 2011 and ending on the earlier to occur of: (i) the full payment of the economic incentives; or (ii) March 31, 2016.

 

The Frisco Note requires varying annual principal payments through December 2015. The Frisco Note is non-interest bearing; however, interest has been imputed at 12.34% per annum. The unamortized discount at September 30, 2015 was $4,897 and the net amount of the Frisco Note as at September 30, 2015 was $47,103.

 

Future principal payments of the Frisco Note payable are as follows:

 

2015   52,000 
Total  $52,000 

 

During the nine months ended September 30, 2015 we issued ten convertible notes with a total principal value of $1,683,500 for $1,461,500 in cash. The notes contained original issuance discounts for a total of $222,500, and interest rates ranging between 8% and 12%. The maturity dates of the notes range from January 7, 2016 to May 4, 2017. The creditors have the option at any time to convert the principal and any accrued interest into common stock of the Company at an aggregate discount rate of approximately 7% off the market price of the Company’s common stock. During the nine months ended September 30, 2014 we repaid two notes with principal values totaling $175,000 for $237,298 in cash and the two notes were extinguished in their entirety pursuant to these transactions.

 

During the nine months ended September 30, 2014 we issued eight convertible notes with a total principal value of $475,000 for $412,500 in cash. The notes contained original issuance discounts for a total of $62,500, and interest rates of 12%. The maturity dates of the notes range from January 28, 2015 to September 10, 2015. The creditors have the option at any time to convert the principal and any accrued interest into common stock of the Company at a an aggregate discount rate of approximately thirty eight percent off the market price of the Company’s common stock. During the nine months ended September 30, 2014 we repaid two notes with principal values totaling $167,500 for $207,000 in cash and the two notes were extinguished in their entirety pursuant to these transactions. During the nine months ended September 30, 2014 we exchanged a lease with an outstanding amount of $307,662 for a convertible note with a principal value of $150,000 and 75,000 shares of our common stock. The lease was extinguished in its entirety pursuant to the exchange transaction.

 

During the nine months ended September 30, 2015, we issued warrants associated with notes. In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the notes were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We recorded the relative fair value of the warrants issued with the notes in the amount of $251,363 as debt discounts upon issuance, and amortized these debt discounts as interest expense over the life of the notes. Additionally, as a result of issuing the warrants with the subordinated convertible promissory notes, a beneficial conversion option for each note was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit totaling $133,637 at the time of issuance provided to the holders of the notes, which was also amortized as interest expense over the life of the notes. We recorded interest expense in the amounts of $270,361 and $0 for the three months ended September 30, 2015 and 2014, respectively in connection with the notes (issued with warrants) that contained beneficial conversion features. We recorded interest expense in the amounts of $355,101 and $0 for the nine months ended September 30, 2015 and 2014, respectively in connection with all the notes (issued with warrants) that contained beneficial conversion features.

 

 F-8 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 3 - SHAREHOLDERS’ EQUITY

 

Preferred Shares Rights

 

We have 25,000,000 shares of preferred stock authorized, par value $0.0005 per share.

 

Series A Convertible Preferred Stock: As of September 30, 2015, the Company had authorized the issuance of 3,143,237 shares of preferred stock designated as Series A Convertible Preferred Stock (“Series A Preferred”). The original issue price of the Series A Preferred is $1.00 per share. There were 518,750 and 593,750 Series A Preferred shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

During the three months ended September 30, 2015 the Company did not issue any shares of the Series A Preferred, and no shares of the Series A Preferred have been converted into common stock.

 

Series B Convertible Preferred Stock: As of September 30, 2015, we had 3,500 shares of preferred stock designated as Series B Convertible Preferred Stock (“Series B Preferred”). The original issue price of the Series B Preferred is $1,000 per share. There were 750 and 1,145 Series B Preferred shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

During the three months ended September 30, 2015 the Company did not issue any shares of the Series B Preferred and 150 shares of Series B Preferred were converted into 313,296 shares of our common stock.

 

Series C Convertible Preferred Stock: As of September 30, 2015, we had 770,000 shares of preferred stock designated as Series C Convertible Preferred Stock (“Series C Preferred”). The original issue price of the Series C Preferred is $2.00 per share. There were 770,000 and 0 Series C Preferred shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

During the three months ended September 30, 2015 the Company issued no shares of the Series C Preferred and no shares of Series C Preferred were converted into common stock.

 

Series D Convertible Preferred Stock: As of September 30, 2015, we had 1,050,000 shares of preferred stock designated as Series D Convertible Preferred Stock (“Series D Preferred”). The original issue price of the Series D Preferred is $2.00 per share. There were 1,050,000 and 0 shares of the Series D Preferred issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

During the three months ended September 30, 2015 the Company issued no shares of the Series D Preferred and no shares of Series D Preferred were converted into common stock.

 

Series E Convertible Preferred Stock: As of September 30, 2015, we had 531,666 shares of preferred stock designated as Series E Convertible Preferred Stock (“Series E Preferred”). The original issue price of the Series E Preferred is $1.00 per share. There were 531,666 and 0 shares of the Series E Preferred issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

During the three months ended September 30, 2015 the Company issued no shares of the Series E Preferred and no shares of Series E Preferred were converted into common stock.

 

Common Stock

 

The Company has authorized 100,000,000 shares of $0.0004 par value common stock.

 

During the three months ended September 30, 2015:

 

  (1) We issued 313,296 shares of common stock pursuant to the cashless conversion of 150 shares of Series B Preferred;
  (2) We issued 1,767,650 shares of common stock pursuant to the conversion of convertible notes;
  (3) We issued 90,000 shares of common stock for services;
  (4) We issued 93,474 shares of common stock for compensation;
  (5) We recorded $2,380 in expenses in connection warrants issued for services;
  (6) We recorded $219,673 in connection with derivative revaluation;
  (7) We recorded $26,740 for the computed fair value of options issued to employees, non-employee directors, and consultants, net of cancellations and forfeitures; and
  (8) We recorded $434,983 in connection with beneficial conversion features.

 

During the nine months ended September 30, 2015:

 

  1. We issued 133,333 shares of common stock for $80,001 in cash;
  2. We issued 91,500 shares of common stock pursuant to the cashless conversion of 75,000 shares of Series A Preferred;
  3. We issued 835,833 shares of common stock pursuant to the cashless conversion of 395 shares of Series B Preferred;

 

 F-9 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

  4. We issued 770,000 shares of the Series C Preferred for which we received $700,000 in cash and recorded a stock subscription receivable for the remaining $700,000;
  5. We issued 1,050,000 shares of the Series D Preferred for $2,000,000 in cash held in escrow, to be released upon our uplisting to a national exchange;
  6. We issued 3,719,350 shares of common stock pursuant to the conversion of convertible notes;
  7. We issued 178,000 shares of common stock for services;
  8. We issued 93,474 shares of common stock for compensation;
  9. We recorded $11,025 in expenses in connection warrants issued for services;
  10. We recorded $342,257 in connection with derivative revaluation;
  11. We recorded $132,651 for the computed fair value of options issued to employees, non-employee directors, and consultants, net of cancellations and forfeitures; and
  12. We recorded $1,315,271 in connection with beneficial conversion features.

 

During the three months ended September 30, 2014:

 

  (1) We issued 26,580 shares of common stock for $19,000 in cash; and
  (2) We issued 360,781 shares of common stock pursuant to cashless conversions of convertible notes payable and accrued interest, valued at $150,858.

 

During the nine months ended September 30, 2014:

 

  (1) We issued 41,580 shares of common stock for $29,700 in cash;
  (2) We issued 444,072 shares of common stock pursuant to cashless conversions of convertible notes payable and accrued interest, valued at $188,358; and
  (3) We issued 122,000 shares of common stock pursuant to the cashless conversion of 100,000 shares of Series A Preferred.

  

As of September 30, 2015 we had approximately 33,488,420 shares of common stock issued and outstanding.

 

NOTE 4 - STOCK OPTIONS AND WARRANTS

 

Equity Incentive Plans

 

In April 2004, our Board of Directors and the stockholders at that time approved the adoption of a Voting Stock Option Plan (“the Plan”), which provides for the issuance of stock options to eligible employees, consultants, Board members and Advisory Board members of the Company to acquire up to a maximum of 5,000,000 shares of common stock.

 

Our Board of Directors, which determines the number of options that will be granted, the effective dates of the grants, the option process and the vesting schedules, administers the Plan. In the absence of an established market for the common stock of the Company, the Board of Directors determines the fair market value of our common stock. Options generally expire between five and ten years from the date of grant and automatically terminate 90 days after such optionee ceases to be an eligible individual under the Plan other than by reason of death or disability.

 

The portion of options granted that is not exercisable on the date the optionee ceases to be an eligible individual under the Plan by reason other than death, shall terminate and be forfeited to the Company on the date of such cessation. An optionee has no right as a stockholder with respect to any shares covered by the options granted to him until a certificate representing such shares is issued to them.

 

Stock Options

 

The following table summarizes information about the number and weighted average of the options that were forfeited or expired under the Plan as at September 30, 2015:

 

   Employee   Non-Employee     
       Weighted       Weighted     
   Number   Average   Number   Average   Combined 
   Of   Exercise   Of   Exercise   Total 
Outstanding at June 30, 2015   2,513,838   $0.41    -   $-    2,513,838 
Granted   -   $-    -   $-    - 
Exercised   -   $-    -   $-    - 
Forfeited/Cancelled   (62,500)  $-    -   $-    - 
Outstanding at September 30, 2015   2,451,338   $0.39    -   $-    2,451,338 

 

The number of stock options exercisable at September 30, 2015 was 1,886,721.

 

 F-10 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 4 - STOCK OPTIONS AND WARRANTS (CONTINUED)

 

We used the following assumptions to estimate the fair value of options granted under the Plan for the three and nine months ended September 30, 2015 and 2014:

 

   Equity Incentive Plans   Equity Incentive Plans 
   for the Three Months Ended September 30,   for the Nine Months Ended September 30, 
   2015   2014   2015   2014 
                 
Expected terms (in years)   5-10    5-10    5-10    5-10 
Volatility (weighted ave.)   83.79%   40.45%   83.79%   40.45%
Risk-free interest rate   .85% - 1.74%   1.50% - 1.80%   .85% - 1.74%   1.44% - 1.80%
Expected dividend rate   0%   0%   0%   0%

  

The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by optionees.  We use historical volatility in deriving our expected volatility assumption because it believes that future volatility over the expected term of the stock options is not likely to differ from the past.

 

The expected dividend assumption is based on our history and expectation of dividend payouts.  The fair value of the shares of common stock underlying the stock options has historically been determined by the board of directors. On or before February 2012, when our common stock commenced trading on the over the counter bulletin board (OTCQB), there has been no public market for our common stock. Consequently, the board of directors has historically determined the fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including valuation of comparable companies, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors.  

 

FASB ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company only records stock-based compensation expense for awards that are expected to vest. While we generally consider historical forfeitures in its estimates, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. The Company’s estimates for forfeitures may differ from actual forfeitures. If actual results differ significantly from these estimates, stock-based compensation expense and its results of operations could be materially impacted when the Company records a true-up for the difference in the period that the awards vest. We adjust stock-based compensation expense based on our actual forfeitures on an annual basis, if necessary.

 

Stock compensation cost, using the graded vesting attribute method in accordance with Codification topic 718, is recognized over the requisite service period, generally 5 years, during which each tranche of shares is earned (zero, one, two, three, and four years).  The value of each tranche is generally amortized on a straight-line basis.  For the three months ended September 30, 2015 and 2014, stock based compensation expense was approximately $26,736 and $42,437 respectively, which consisted primarily of stock-based compensation expense related to stock options recognized under GAAP issued to employees.  For each of the three months ended September 30, 2015 and 2014, the number of options exercised was 0.

 

Compensation expense is recognized only for the portion of stock options that are expected to vest, assuming an expected forfeiture rate in determining stock-based compensation expense, which could affect the stock-based compensation expense recorded if there is a significant difference between actual and estimated forfeiture rates. As of September 30, 2015, total unrecognized compensation cost related to stock-based awards granted to employees and non-employee directors was $323,715.

 

 F-11 

 

 

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 4 - STOCK OPTIONS AND WARRANTS (CONTINUED)

 

Warrants.

 

The following table summarizes our warrant activities for the three months ended September 30, 2015:

 

       Weighted 
   Number   Average 
   Of   Exercise 
   Warrants   Price 
Outstanding at June 30, 2015   4,863,956   $1.22 
Granted   15,000   $1.23 
Exercised   -   $- 
Forfeited/Cancelled   -   $- 
Outstanding at September 30, 2015   4,878,956   $1.23 

 

The number of warrants exercisable at September 30, 2015 was 4,878,956.

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

A summary of the related party financings and notes as at September 30, 2015 is as follows:

 

Related party  Julian Ross (1) 
Amount  $222,417 
Stated interest rate   0%
Maturity   n/a 

 

(1) Our CEO, Mr. Ross provides us shareholder cash advances and other consideration from time to time to fund working capital.

 

 

NOTE 6 – OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

 

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.

 

NOTE 7 – FAIR VALUE MEASUREMENTS

 

Changes related to derivatives for the nine months ended September 30, 2015 are as follows:

 

Balance as of December 31, 2014  $31,010 
Additions related to embedded derivative of convertible notes issued   416,563 
Gain on decrease in value of derivative liabilities   (342,257)
Conversions   (28,698)
Balance as of September 30, 2015  $76,618 

 

During the nine month period the Company recorded derivatives related to convertible notes of $416,563 of which $251,363 exceed the proceeds of the convertible notes and was recorded as a derivative expense. The Company also converted $28,698 and recorded gains on the change in the fair values of the derivatives of $342,257.

 

 F-12 

 

  

OXYSURE® SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

Assets Measured at Fair Value on a Recurring Basis

 

       Fair value measurements at
reporting date using:
 
   Total   Level 1   Level 2   Level 3 
                 
Cash (1)  $2,006,312   $2,006,312    -    - 
Derivatives   (76,618)   -    (76,618)   - 
Total assets at fair value as of September 30, 2015  $1,929,694   $2,006,312   $(76,618)  $- 

 

(1) Included in Cash and cash equivalents on the Company's Balance Sheet.

 

   Total   Level 1   Level 2   Level 3 
                 
Cash (1)  $647,093   $647,093    -    - 
Total assets at fair value as of December 31, 2014  $647,093   $647,093    -    - 

 

(1) Included in Cash and cash equivalents on the Company's Balance Sheet.

 

NOTE 8 – SEGMENT INFORMATION

 

We are organized as, and operate in, one reportable segment: the development, distribution and sale of specialty respiratory products and related medical products, accessories, and services. Our chief operating decision-maker is our Chief Executive Officer. Our Chief Executive Officer reviews financial information presented for purposes of evaluating financial performance and allocating resources, accompanied by information about revenue by geographic regions. Our assets are primarily located in the United States of America and not allocated to any specific region and we do not measure the performance of our geographic regions based upon asset-based metrics. Therefore, geographic information is presented only for revenue. Revenue by geographic region is based on the ship to address on our customer orders.

 

The following presents total revenue by geographic region for the three month periods ended September 30, 2015 and 2014:

 

   Three Months Ended
September 30,
 
   2015   2014 
         
United States - product sales  $1,138,380   $814,619 
ROW - product sales   -    3,837 
           
Totals  $1,138,380   $818,456 

 

The following presents total revenue by geographic region for the nine month periods ended September 30, 2015 and 2014:

 

    Nine Months Ended September 30,
    2015   2014
         
United States - product sales   $ 2,807,600     $ 1,793,729  
ROW - product sales     1,953       41,567  
ROW - license fees/service revenue     -       17,500  
                 
Totals   $ 2,809,553     $ 1,852,796  

 

NOTE 9 – GOING CONCERN

 

Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Historically we have been suffering from recurring loss from operations. We have an accumulated deficit of $22,020,795 and $18,041,208 at September 30, 2015 and December 31, 2014, respectively, and stockholders’ equity of $2,180,918 and $1,074,787 as of September 30, 2015 and December 31, 2014, respectively. We require substantial additional funds to manufacture and commercialize our products. Our management is actively seeking additional sources of equity and/or debt financing; however, there is no assurance that any additional funding will be available.

 

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying September 30, 2015 balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain present financing, and to generate cash from future operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence.

 

 F-13 

 

 

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

 

The following discussion and analysis summarizes the significant factors affecting our results of operations, financial conditions and liquidity position for the three months ended September 30, 2015 and 2014, and should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this report.

 

Forward-Looking Statements

 

Statements and information included in this Quarterly Report on Form 10-Q that are not purely historical, including, without limitation, statements that relate to the Company's expectations with regard to the future impact on the Company's results from new products in development, are forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. When used in this report, words such as “believe,” “expect,” “intend,” “goal,” “plan,” “pursue,” “likely,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “evaluate,” “opinion,” “may,” “could,” “future,” “potential,” “probable,” “if,” “will” and similar expressions generally identify forward-looking statements. These statements are subject to risks and uncertainties.

 

Forward-looking statements in this Quarterly Report on Form 10-Q represent our beliefs, projections and predictions about future events. These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievement described in or implied by such statements. Actual results may differ materially from the expected results described in our forward-looking statements, including with respect to the correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of publicly available information relating to the factors upon which our business strategy is based, or the success of our business. The factors or uncertainties that could cause actual results, performance or achievement to differ materially from forward-looking statements contained in this report can be found in our filings with the Securities and Exchange Commission, including our filings on Form 10-K.

 

Highlights

 

Financial highlights:

 

Total revenue increased 39% to $1,138,380 for the three months ended September 30, 2015 as compared to $818,456 for the prior period;
   
Total revenue increased 52% to $2,809,553 for the nine months ended September 30, 2015 as compared to $1,852,796 for the prior period;
   
Gross profit increased 12% to $558,254 for the three months ended September 30, 2015 as compared to $496,524 for the prior period;
   
Gross profit increased 40% to $1,484,388 for the nine months ended September 30, 2015 as compared to $1,060,418 for the prior period;
   
Total cash equivalents increased 210% to $2,006,312 at September 30, 2015 from $647,093 at December 31, 2014;
   
Working capital surplus increased 252% to $1,474,540 at September 30, 2015 from $418,734 at December 31, 2014;
   
Total assets increased 110% to $4,428,538  at September 30, 2015 from $2,511,448 at December 31, 2014; and
   
Stockholder equity increased 103% to $2,180,918 at September 30, 2015 from $1,074,788 at December 31, 2014.

 

 2 

 

 

Non-financial highlights and milestones:

 

We appointed Dr. Joseph M. Chalil, MD, MBA, FACHE, a Physician and Executive at Boehringer Ingelheim to our Strategic Advisory Board;
   
Our business and industry received support from an opinion paper published in the Journal of Emergency Medical Services (JEMS) that appears to pave the way for “public/first aid oxygen” usage, prior to the arrival of professional first responders;
   
Our stockholders voted to approve two proposals designed to support an uplisting of the Company to a national exchange such as Nasdaq and an amendment of the Company’s capital structure to facilitate significant future growth;
   
We conducted an investor day, at our headquarters where a tour of the Company’s production plant and operations was provided;

 

We announced the appointment of two new Territory Sales Managers in Indiana and Colorado;
   
We placed fourth on the Fast Tech Award listing honoring the fastest growing technology Companies in North Texas – our Company grew at an average of 801.45% for the two-year period under review;
   
We received commercial drone approval from the Federal Aviation Administration (FAA) - The Company’s petition for exemption for commercial drone usage was granted by the FAA, a division of the United States Department of Transportation (DOT);
   
We presented at 2015 Sidoti Emerging Growth Conference;
   
We retained Donohoe Advisory Associates LLC of Rockville, Maryland to advise and assist us in our efforts to obtain a listing on a national securities exchange;
   
Our OxySure Model 615 portable emergency oxygen device was used eighteen times during the Special Olympics World Games which took place July 25 - August 2, 2015 in Los Angeles;
   
We teamed up with Cardiac Science Corporation (Cardiac Science), a market-leading manufacturer and marketer of automated external defibrillators (AEDs) and related services with a partnership covering various joint strategic initiatives; and 
   
We closed a $3 million institutional financing transaction.

 

 3 

 

 

Overview

 

OxySure Systems, Inc. was formed on January 15, 2004 as a Delaware “C” Corporation for the purpose of developing products with the capability of generating medical grade oxygen “on demand,” without the necessity of storing oxygen in compressed tanks.  Our technology, process and methodologies involve the creation of medically pure (USP) oxygen from two dry, inert powders.  We believe that other available chemical oxygen generating technologies contain hazards that make them commercially unviable for broad-based emergency use by lay rescuers or the general public.  Our launch product is the OxySure Model 615 portable emergency oxygen system.  We believe that the OxySure Model 615 is currently the only product on the market that can be safely pre-positioned in public and private venues for emergency administration of medical oxygen by lay persons, without the need for training.

 

To date, we have been issued 7 patents and we have other patents pending on this process and technology that we believe is revolutionizing the emergency/short duration oxygen supply marketplace. We believe that OxySure makes the delivery devices lighter, safer, more affordable and easier to use. We believe our products can improve access to emergency oxygen that affects the survival, recovery and safety of individuals in several areas of need: (1) Public and private places and settings where medical emergencies can occur; (2) Individuals at risk for cardiac, respiratory or general medical distress needing immediate help prior to emergency medical care arrival; and (3) Those requiring immediate protection and escape from exposure situations or oxygen-deficient situations in industrial, mining, military, or other “Immediately Dangerous to Life or Health” (IDLH) environments.

 

The OxySure Model 615 emergency oxygen device was cleared by the Food and Drug Administration (“FDA”) (510k, Class II) for over-the-counter purchase in December 2005. We believe it bridges the gap between the onset of a medical emergency and the time first responders arrive on the scene. We believe it allows a lay rescuer – a bystander or loved one – to administer medical oxygen during those first, critical minutes after an emergency occurs, improving medical outcomes and saving lives in the process. In March 2014 we also received CE Marking approval for Model 615, allowing us to begin commercializing it in the European Union.

 

We have since diversified our product portfolio to provide include solutions focused on the emergency medical preparedness and respiratory needs of our education, commercial and government customers. Our solutions include Automated External Defibrillators (AEDs) and accessories, resuscitation equipment, and respiratory and monitoring equipment and supplies.

 

 4 

 

 

The OxySure Strategy

 

The following summarizes the principal elements of our strategy:

 

We launched the OxySure Model 615 into the K-12 education market in the United States, and we subsequently diversified into other institutional markets, such as colleges, churches and places of worship, manufacturing facilities and other commercial and municipal buildings. We plan to continue to pursue institutional customers in these and other vertical markets, both in the United States and internationally.

 

We believe that Model 615 is a natural complement and companion product to an Automated External Defibrillator (AED). We plan to continue to market Model 615 as a companion product to AEDs, and our goal in the foreseeable future is to pursue the placement of the OxySure Model 615 next to as many AEDs as possible, in the United States as well as internationally. According to Frost & Sullivan, there are approximately We believe in the long term, however, Model 615 has the potential to become a standard issue item for public and private settings, just like a fire extinguisher.

 

We plan to continue to leverage our core competencies in oxygen, breathing technologies, research and manufacturing to pursue revenue opportunities in new vertical markets, including the military.

 

We plan to continue to build our sales force by recruiting dedicated sales professionals focusing on business to business sales, former first responders, paramedics and firefighters as well individuals from other medical, first aid and safety sales areas to market our products and craft solutions for our customers.
   
Our channel strategy includes leveraging distribution partnerships to enhance market penetration, and we plan to increase our efforts to partner with distributors, including distributors of AEDs, safety products and medical devices.  We plan to invest resources in training and tools for our distribution partners’ sales, systems and support organizations, in order to improve the overall efficiency and effectiveness of these partnerships.

 

We plan to continue our increasing efforts to promote market awareness and education of our products and their critical need, and our efforts may include partnerships with industry, medical thought leaders, and community and advocacy organizations.

 

We plan to market to “at risk” markets – people with conditions such as asthma and other respiratory and medical conditions where supplemental or emergency oxygen is either required or desired – by way of direct to consumer campaigns utilizing television, print and online media to increase sales, awareness and brand recognition.

 

We plan to pursue market catalysts such as a legislative agenda for state and federal mandates, medical reimbursement for at risk markets, and insurance underwriting benefits and discounts for product users.

 

We plan to continue to diversify our product offerings through the addition of complimentary or additive products and solutions that enhance our core product usability, feasibility, appeal or application, or that enhances our ability to access or add value to existing and new customers. In addition, we plan to continue our development efforts focused on developing new products incorporating our core “oxygen from powder” technology for other vertical markets, such as aviation, mining, and sports and recreation as applicable.

 

We plan to pursue strategic alliances where applicable to accelerate our growth and access to new customers, sales channels, markets and products.

 

 5 

 

 

Results of Operations

 

You should read the selected financial data set forth below along with our discussion and our financial statements and the related notes. We have derived the financial data from our unaudited financial statements. We believe the financial data shown in the table below include all adjustments consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of such information. Operating results for the period are not necessarily indicative of the results that may be expected in the future.

 

Results for the Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014 (unaudited)

 

   Three Months Ended 
   September 30, 
   2015   2014 
         
Net loss  $(1,380,753)  $(462,349)
Shares used in computing basic and diluted loss per share amounts (weighted ave.)   32,425,195    26,120,974 
Net loss per share:          
Basic and diluted  $(0.04)  $(0.02)

 

Revenues

 

We had $1,380,753 in revenues from operations for the three months ended September 30, 2015 as compared to revenues of $818,456 for the three months ended September 30, 2014.  The increase in revenues is primarily attributable to an increase in US product sales and military products.

 

Expenses

 

Total expenses for the three months ended September 30, 2015 were $2,740,213, which amount includes $1,486,870 of operating expenses, $580,126 in cost of goods sold, $626,127 in interest expense and $47,091 in derivative expense, as compared to total expenses for the three months ended September 30, 2014 of $1,376,966, which amount includes $885,983 of operating expenses, $321,932 in cost of goods sold, and $169,051 in interest expense. The increase in total selling, general and administrative expenses is primarily attributable to an increase in advertising and promotional expense, an increase in other general and administrative expense, and an increase in research and development expense. The increase in interest expense is primarily attributable to an increase in interest expense related to convertible notes. The in other general and administrative expense is primarily attributable to an increase in salaries and wages, stock compensation expense, professional fees and insurance expense.

 

Research and Development

 

Research and development expenses of $362,599 and $155,869 were incurred in the three months periods ended September 30, 2015 and 2014, respectively.  The increase in research and development expense is primarily attributable to an increase in research and development expense associated with products for military markets.

 

Net Income (Loss)

 

Net loss for the three months ended September 30, 2015 was $1,380,753 and basic and diluted net loss per share was $(0.04) as compared to a net loss for the three months ended September 30, 2014 of $462,349 and basic and diluted net loss per share of $(0.02). The increase in net loss during the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 is primarily due to the combined effect of an increase in research and development expense, an increase in interest expense, an increase in sales and marketing expense and an increase in other general and administrative expenses, offset by an increase in revenues and gross profit.

 

 6 

 

 

Results for the Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014 (unaudited)

 

   Nine Months Ended 
   September 30, 
   2015   2014 
         
Net loss  $(3,979,587)  $(1,158,177)
Shares used in computing basic and diluted loss per share amounts (weighted ave.)   30,543,678    26,042,971 
Net loss per share:          
Basic and diluted  $(0.13)  $(0.04)

 

Revenues

 

We had $2,809,553 in revenues from operations for the nine months ended September 30, 2015 as compared to revenues of $1,852,796 for the nine months ended September 30, 2014.  The increase in revenues is primarily attributable to an increase in US product sales and military products.

 

Expenses

 

Total expenses for the nine months ended September 30, 2015 were $7,131,396, which amount includes $4,035,456 of operating expenses, $1,325,165 in cost of goods sold, $1,519,071 in interest expense, and $251,363 in derivative expense, and $342 net in other expenses as compared to total expenses for the nine months ended September 30, 2014 of $3,165,494, which amount includes $2,010,479 of operating expenses, $792,378 in cost of goods sold, and $362,638 in interest expense. The increase in total selling, general and administrative expenses is primarily attributable to an increase in advertising and promotional expense, an increase in other general and administrative expense, and an increase in research and development expense. The increase in interest expense is primarily attributable to an increase in interest expense related to convertible notes.

 

Research and Development

 

Research and development expenses of $873,450 and $433,384 were incurred in the nine months periods ended September 30, 2015 and 2014, respectively.  The increase in research and development expense is primarily attributable to an increase in research and development expense associated with products for military markets.

 

Net Income (Loss)

 

Net loss for the nine months ended September 30, 2015 was $3,979,587 and basic and diluted net loss per share was $(0.13) as compared to a net loss for the nine months ended September 30, 2014 of $1,158,177 and basic and diluted net loss per share of $(0.04). The increase in net loss during the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 is primarily due to the combined effect of an increase in research and development expense, an increase in interest expense, an increase in derivative expense, an increase in sales and marketing expense and an increase in other general and administrative expenses, offset by an increase in revenues and gross profit.

 

Liquidity and Capital Resources

 

We had a cash balance of approximately $2,006,312 as of September 30, 2015, as compared to $647,093 as of December 31, 2014.  Of this amount, $2,000,000 is held in a U.S. based third party escrow account, and is to be released upon an uplisting of our Company to a national stock exchange. The remainder of our funds is kept in financial institutions located in the United States of America.

 

We had a working capital surplus of $1,479,075 as of September 30, 2015 as compared to a working capital surplus of $418,734 as of December 31, 2014.

 

We had total notes payable of $1,177,869 and $692,313 as of September 30, 2015 and December 31, 2014, respectively. The increase in Notes Payable was primarily due to an increase in new convertible notes payable offset by note repayments in cash, partial note conversions into common stock and note forgiveness related to an economic incentive received from the City of Frisco.

 

We generally provide our customers with terms of up to 30 days on our accounts receivable.  In some cases we require prepayment, depending on history or credit review.  Further, we generally require pre-payment on orders shipped to international destinations.  Our accounts receivable, net of allowances, were $830,596 and $369,575 as at September 30, 2015 and December 31, 2014, respectively.

 

Since inception, we have been engaged primarily in product research and development, obtaining certain regulatory approvals, investigating markets for our products, developing manufacturing and supply chain partners, developing our production capability, and developing distribution, licensing and other channel relationships. In the course of funding research and development activities, we have sustained operating losses since inception and have an accumulated deficit of $22,020,795 at September 30, 2015.

 

 7 

 

 

We completed product development of our launch product, the OxySure Model 615 and launched sales thereof in 2008.  We have and will continue to use significant capital to manufacture and commercialize our products.  These factors raise doubt about our ability to continue as a going concern.  In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of our common stock.

 

During the remainder of 2015 and 2016, we will need additional capital to market and sell our products, and to further develop and enhance our current product offerings, introduce new products and address unanticipated competitive threats, technical problems, economic conditions or other requirements.  We estimate that we will require approximately $3.5 million over the next 12 months to remain viable.  There is no assurance that we will be successful in raising this additional capital or in achieving profitable operations.  The 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 result from this uncertainty.  However, there can be no assurance that any additional financing will be available to us.  Additional equity financing may involve substantial dilution to our then existing stockholders.  In the event we are unable to raise additional capital, we may be required to substantially reduce or curtail our activities.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our President and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of period covered by this report.  Based upon such evaluation,  the President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 8 

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is subject to litigation in the normal course of business, none of which management believes will have a material adverse effect on the Company’s financial statements.

 

On or about December 13 of 2013, Wall Street Buy Sell Hold, Inc., (“WSBSH”) filed a lawsuit against the Company in the New York Supreme Court, Nassau County. The suit seeks damages in the form of money, stock and warrants for breach of a marketing agreement entered into on October 22, 2012 and another entered into on March 11, 2013. We have answered the complaint and filed a counterclaim against WSBSH seeking the return of all moneys and shares we paid or transferred to WSBSH, as well as punitive damages for fraud.

 

On May 8, 2015, we filed a lawsuit against Wall Street Buy Sell Hold, Inc., and its principals Christopher and Jerry Castaldo in federal court in the Eastern District of Texas. The suit arises out of certain agreements made between the defendants and us. These and/or similar agreements are also the subject of parallel breach of contract actions between us and WSBSH in the 2013 suit in New York state.

 

The core of the Texas federal suit is that WSBSH attempted to contract to provide broker/dealer services despite the fact that, unbeknownst to us, its principal was a disgraced former broker who was not licensed to provide such services under state and federal law. Irrespective of the defendants' failed performance, the Texas suit seeks the return of the compensation and shares we paid and rescission of their illegal contracts, which are voidable at the option of the innocent party, as well as our attorney's fees.

 

On September 30, 2015, we issued $2.7 million in convertible preferred stock (“Series C, Series D and Series E Preferred Stock”) and $.3 million in 2 convertible notes (“Convertible Notes”). On July 14, 2015, a lawsuit was filed by Alpha Capital Anstalt (“Alpha”) against us and Adar Bays LLC, Union Capital LLC, JSJ Investments LLC, Group 10 Holdings LLC, and Macallan Partners LLC (the “Noteholders”) in the United States District Court for the Southern District of New York (the “Court”). Alpha is one of the holders of our Series B convertible preferred stock (“Series B Preferred”). In its complaint, Alpha claims that the issuance of the Series C, D and E Preferred Stock and of the Convertible Notes without allowing the Alpha the opportunity to invest constitutes, and that future conversions of the Series, C, D and E Preferred Stock and of the Convertible Notes into our common stock could constitute, a breach of contract under the terms of the Series B Preferred Stock and the terms of the stock purchase agreements pursuant to which the Alpha acquired its Series B Preferred Stock. Alpha asked for preliminary and permanent injunctive relief and monetary damages. On July 16, 2015, the Court, upon hearing oral arguments from us and Plaintiff and ruling from the bench, denied Alpha preliminary injunctive relief. The case has entered the discovery phase. We believe this lawsuit to be an attempt by Alpha to extract more favorable terms from us and that it has no merit, and we intend to vigorously contest any remaining claims that might remain.

 

 9 

 

 

On November 3, 2015, we issued a press release announcing that we have filed a lawsuit in the Texas District Court in Collin County, Texas, against TEGNA Inc., WFAA T.V. Channel 8, Jobin Panicker, a reporter for WFAA T.V., The Redwine Law Firm PLLC (the “Redwine Law Firm”), and Symone Redwine, an attorney at the Redwine Law Firm (“Redwine,” and together with the Redwine Law Firm, the “Redwine Defendants”). We filed the lawsuit seeking declaratory relief against the defendants for publicly making false statements about the OxySure Model 615 in which they falsely and fraudulently attempted to fabricate a link between the product and the December 2013 passing of Meaghan Levy (“Ms. Levy”). The lawsuit further alleges tortious interference against the Redwine Defendants and seeks damages in excess of $1 million. In a separate case, the Redwine Defendants represent Jolandi Nicole Kennedy and Marvin Levy, individually and as representatives of the estate of Ms. Levy, in a lawsuit filed against the Company in the District Court in Collin County, Texas, on October 19, 2015. The lawsuit seeks an unspecified amount of damages for the injuries suffered by Ms. Levy prior to her death and for the alleged wrongful death of Ms. Levy. The plaintiffs in this case allege that the OxySure Model 615 contributed to Ms. Levy’s death in December 2013. The allegation is contrary to the conclusion of the Collin County Medical Examiner’s autopsy report, which stated that Ms. Levy “died as a result of asphyxia resulting from an obstruction of her airway by a push pin.” The allegation also contradicts the findings of two separate investigations conducted by the Frisco Police Department and the school district in which Ms. Levy’s school was located, both concluding that the passing of Ms. Levy was an accident. We believe this lawsuit is misguided, baseless, is contrary to all available factual, medical or scientific evidence and has no merit, and we intend to vigorously defend the Company’s good name and reputation.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None. 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The following Exhibits are filed herein:

 

No.   Title
     
31.1   Certification of President Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32   Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 10 

 

 

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.

 

OXYSURE SYSTEMS, INC.
   
DATED: November 16, 2015 /s/ Julian T. Ross
  BY: Julian T. Ross
  ITS: President and Chief Financial Officer
  (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

 

11