Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________
FORM
10-QSB
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended June
30, 2006
or
o 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: 000-51038
MedaSorb
Technologies Corporation
(Exact
Name of Small Business Issuer as Specified in Its Charter)
Nevada
|
98-0373793
|
(State
or Other Jurisdiction of
Incorporation
Or Organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
7
Deer Park Drive, Suite K, Monmouth Junction, New Jersey
08852
(Address
of Principal Executive Offices)
|
(732)
329-8885
(Issuer’s
Telephone Number, Including Area Code)
Gilder
Enterprises, Inc.
3639
Garibaldi Drive, North Vancouver, British Columbia CA A1 V7H2W, May
31
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 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. þ
Yes ¨
No
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨
Yes þ
No
As
of
August 11, 2006 there were 24,090,929 shares of the issuer’s common stock
outstanding.
Transitional
Small Business Disclosure Format: ¨
Yes þ
No
MedaSorb
Technologies Corporation
FORM
10-QSB
TABLE
OF CONTENTS
|
Page |
PART
I. FINANCIAL INFORMATION |
|
|
|
|
|
Item 1. Financial Statements |
|
|
Consolidated
Balance Sheets (unaudited)
|
3 |
|
Consolidated
Statements of Operations (unaudited)
|
4 |
|
Consolidated
Statements of Changes in Stockholders’ Equity
(Deficiency) (unaudited)
|
5 |
|
Consolidated
Statements of Cash Flows (unaudited)
|
6 |
|
Notes
to Consolidated Financial Statements (unaudited)
|
8 |
|
|
|
|
Item 2. Management’s Discussion and Analysis
or Plan of Operation |
16 |
|
|
|
|
Item
3. Controls and Procedures
|
17 |
|
|
|
PART
II. OTHER
INFORMATION |
|
|
Item
1. Legal Proceedings
|
17 |
|
|
|
|
Item 6. Exhibits |
18 |
MEDASORB
TECHNOLOGIES CORPORATION
|
|
(a
development stage company)
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS |
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,858,633
|
|
$
|
707,256
|
|
Prepaid
expenses and other current assets
|
|
|
109,948
|
|
|
19,261
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
4,968,581
|
|
|
726,517
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
428,609
|
|
|
553,657
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
180,246
|
|
|
181,307
|
|
|
|
|
|
|
|
|
|
Total
long-term assets
|
|
|
608,855
|
|
|
734,964
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
5,577,436
|
|
$
|
1,461,481
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,281,403
|
|
$
|
1,802,788
|
|
Accrued
expenses and other current liabilities
|
|
|
353,800
|
|
|
412,646
|
|
Accrued
interest
|
|
|
50,000
|
|
|
1,056,960
|
|
Stock
subscribed
|
|
|
--
|
|
|
399,395
|
|
Convertible
notes payable
|
|
|
1,000,000
|
|
|
3,429,899
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,685,203
|
|
|
7,101,688
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
--
|
|
|
4,120,000
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
--
|
|
|
4,120,000
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,685,203
|
|
|
11,221,688
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity/(Deficiency):
|
|
|
|
|
|
|
|
Common
Stock, Par Value $0.001, 100,000,000 and 300,000,000
|
|
|
|
|
|
|
|
authorized
at June 30, 2006 and December 31, 2005,
|
|
|
|
|
|
|
|
shares
respectively, 24,090,929 and 4,829,120 shares
|
|
|
|
|
|
|
|
issued
and outstanding, respectively
|
|
|
24,091
|
|
|
4,829
|
|
10%
Series A Preferred Stock, Par Value $0.001, 100,000,000 and -0-
|
|
|
|
|
|
|
|
shares
authorized at June 30, 2006 and December 31,
|
|
|
|
|
|
|
|
2005,
respectively, 5,250,000 and -0- shares issued
|
|
|
|
|
|
|
|
and
outstanding, respectively
|
|
|
5,250
|
|
|
--
|
|
Additional
paid-in capital
|
|
|
67,048,270
|
|
|
49,214,431
|
|
Deficit
accumulated during the development stage
|
|
|
(65,185,378
|
)
|
|
(58,979,467
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity (deficiency)
|
|
|
1,892,233
|
|
|
(9,760,207
|
)
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficiency)
|
|
$
|
5,577,436
|
|
$
|
1,461,481
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
PART
I -- FINANCIAL INFORMATION
Item
1. Financial Statements.
|
|
|
|
|
|
MEDASORB
TECHNOLOGIES CORPORATION |
|
|
|
|
|
|
|
|
|
(a
development stage company) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
|
|
January
22,1997
|
|
|
|
|
|
|
|
|
|
|
(date
of inception) to
|
|
Six
months ended June 30,
|
|
Three
months ended June 30,
|
|
|
|
June
30, 2006
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
40,269,493
|
|
|
488,194
|
|
|
767,389
|
|
|
199,213
|
|
|
330,711
|
|
Legal,
financial and other consulting
|
|
|
5,950,137
|
|
|
603,003
|
|
|
375,842
|
|
|
218,465
|
|
|
293,917
|
|
General
and administrative
|
|
|
19,511,274
|
|
|
301,543
|
|
|
351,969
|
|
|
163,768
|
|
|
149,831
|
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
59,675,421
|
|
|
1,392,740
|
|
|
1,495,200
|
|
|
581,446
|
|
|
774,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
--
|
|
|
(1,000
|
)
|
|
--
|
|
|
(1,000
|
)
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
--
|
|
|
(175,000
|
)
|
|
--
|
|
|
(175,000
|
)
|
|
|
|
-- |
|
|
--
|
|
|
|
|
|
--
|
|
|
--
|
|
Interest
expense, net
|
|
|
5,706,620
|
|
|
4,813,171
|
|
|
352,443
|
|
|
4,609,088
|
|
|
186,149
|
|
Net
loss
|
|
$
|
(65,185,378
|
)
|
$
|
(6,205,911
|
)
|
$
|
(1,671,643
|
)
|
$
|
(5,190,534
|
)
|
$
|
(784,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
$
|
(1.201
|
)
|
$
|
(0.35
|
)
|
$
|
(0.96
|
)
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,188,416
|
|
|
4,748,442
|
|
|
5,380,281
|
|
|
4,814,308
|
|
See
accompanying notes to consolidated financial statements.
|
|
MEDASORB
TECHNOLOGIES CORPORATION |
|
|
|
(a
development stage company) |
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
from December 31, 2005 to June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
During
the
|
|
Total
|
|
|
|
Common
Stock
|
|
Preferred
Stock
|
|
Paid-In
|
|
Development
|
|
Stockholders'
|
|
|
|
Shares
|
|
Par
value
|
|
Shares
|
|
Par
Value
|
|
Capital
|
|
Stage
|
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
4,829,120
|
|
$
|
4,829
|
|
|
--
|
|
$
|
--
|
|
$
|
49,214,431
|
|
$
|
(58,979,467
|
)
|
$
|
(9,760,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for stock subscribed
|
|
|
240,929
|
|
|
241
|
|
|
--
|
|
|
--
|
|
|
799,644
|
|
|
--
|
|
|
799,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common
stock to investor group for price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
protection
settlement
|
|
|
100,000
|
|
|
100
|
|
|
--
|
|
|
--
|
|
|
(100
|
)
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options to employees and directors
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
46,919
|
|
|
--
|
|
|
46,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
|
|
--
|
|
|
--
|
|
|
5,250,000
|
|
|
5,250
|
|
|
5,244,750
|
|
|
--
|
|
|
5,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of raising capital associated with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuance
of preferred stock
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(620,563
|
)
|
|
--
|
|
|
(620,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
held by
original stockholders of Parent immediately prior |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
merger
|
|
|
3,750,000
|
|
|
3,750
|
|
|
--
|
|
|
--
|
|
|
(3,750
|
)
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible debt, related accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
shares to induce conversion into common stock
|
|
|
5,170,880
|
|
|
5,171
|
|
|
--
|
|
|
--
|
|
|
11,376,939
|
|
|
--
|
|
|
11,382,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in consideration for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
funding
$1,000,000 convertible note payable per terms of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
merger
transaction.
|
|
|
10,000,000
|
|
|
10,000
|
|
|
--
|
|
|
--
|
|
|
990,000
|
|
|
--
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(65,185,378
|
)
|
|
(6,205,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2006 (Unaudited)
|
|
|
24,090,929
|
|
$
|
24,091
|
|
|
5,250,000
|
|
$
|
5,250
|
|
$
|
67,048,270
|
|
$
|
(65,185,378
|
)
|
$
|
1,892,233
|
|
See
accompanying notes to consolidated financial statements.
|
|
MEDASORB
TECHNOLOGIES CORPORATION |
|
|
|
(a
development stage company) |
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
January
22,1997
|
|
Six
months
|
|
Six
months
|
|
|
|
(date
of inception) to
|
|
ended
|
|
ended
|
|
|
|
June
30, 2006
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(65,185,378
|
)
|
$
|
(6,205,911
|
)
|
$
|
(1,671,643
|
)
|
Adjustments
to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as inducement to convert
|
|
|
|
|
|
|
|
|
|
|
convertible
notes payable and accrued interest
|
|
|
3,351,961
|
|
|
3,351,961
|
|
|
--
|
|
Issuance
of stock options
|
|
|
46,919
|
|
|
46,919
|
|
|
--
|
|
Depreciation
and amortization
|
|
|
1,918,861
|
|
|
127,762
|
|
|
135,911
|
|
Amortization
of debt discount
|
|
|
1,000,000
|
|
|
1,000,000
|
|
|
--
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
--
|
|
|
(1,000
|
)
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
--
|
|
|
(175,000
|
)
|
Abandoned
patents
|
|
|
184,903
|
|
|
1,347
|
|
|
--
|
|
Bad
debts - employee advances
|
|
|
255,882
|
|
|
--
|
|
|
--
|
|
Contributed
technology expense
|
|
|
4,550,000
|
|
|
--
|
|
|
--
|
|
Consulting
expense
|
|
|
237,836
|
|
|
--
|
|
|
--
|
|
Management
unit expense
|
|
|
1,334,285
|
|
|
--
|
|
|
--
|
|
Expense
for issuance of warrants
|
|
|
468,526
|
|
|
--
|
|
|
--
|
|
Expense
for issuance of options
|
|
|
247,625
|
|
|
--
|
|
|
--
|
|
Amortization
of deferred compensation
|
|
|
74,938
|
|
|
--
|
|
|
--
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(381,496
|
)
|
|
(90,687
|
)
|
|
44,870
|
|
Other
assets
|
|
|
(51,163
|
)
|
|
--
|
|
|
--
|
|
Accounts
payable and accrued expenses
|
|
|
3,639,670
|
|
|
419,749
|
|
|
513,044
|
|
Accrued
interest expense
|
|
|
1,873,103
|
|
|
473,310
|
|
|
355,495
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(46,630,191
|
)
|
|
(875,550
|
)
|
|
(798,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
32,491
|
|
|
--
|
|
|
32,491
|
|
Purchases
of property and equipment
|
|
|
(2,199,094
|
)
|
|
--
|
|
|
--
|
|
Patent
costs
|
|
|
(331,556
|
)
|
|
(3,000
|
)
|
|
(18,183
|
)
|
Loan
receivable
|
|
|
(1,632,168
|
)
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(4,130,327
|
)
|
|
(3,000
|
)
|
|
14,308
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
400,490
|
|
|
400,490
|
|
|
--
|
|
Proceeds
from issuance of preferred stock
|
|
|
4,629,437
|
|
|
4,629,437
|
|
|
--
|
|
Equity
contributions - net of fees incurred
|
|
|
41,711,198
|
|
|
--
|
|
|
--
|
|
Proceeds
from borrowings
|
|
|
8,378,631
|
|
|
--
|
|
|
806,582
|
|
Proceeds
from subscription receivables
|
|
|
499,395
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
55,619,151
|
|
|
5,029,927
|
|
|
806,582
|
|
See
accompanying notes to consolidated financial statements.
Net
increase in cash and cash equivalents
|
|
|
4,858,633
|
|
|
4,151,377
|
|
|
22,567
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of period
|
|
|
--
|
|
|
707,256
|
|
|
16,749
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
$
|
4,858,633
|
|
$
|
4,858,633
|
|
$
|
39,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
511,780
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable principal and interest conversion to equity
|
|
$
|
9,201,714
|
|
$
|
8,030,149
|
|
$
|
51,565
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of member units for leasehold improvements
|
|
$
|
141,635
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of management units in settlement of cost of raising
capital
|
|
$
|
437,206
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units for cost of raising
capital
|
|
$
|
278,087
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of loan receivable for member units
|
|
$
|
1,632,168
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of equity in settlement of accounts payable
|
|
$
|
836,319
|
|
$
|
--
|
|
$
|
836,319
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for stock
subscribed
|
|
$
|
399,395
|
|
$
|
399,395
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
paid from proceeds in conjunction with issuance preferred
stock
|
|
$
|
620,563
|
|
$
|
620,563
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the six months ended June 30, 2006, the Company issued 10,000,000
shares
|
|
|
|
|
|
|
|
|
|
|
of
common stock in consideration for funding $1,000,000 convertible
note
payable.
|
|
$
|
1,000,000
|
|
$
|
1,000,000
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
Notes
to Consolidated Financial Statements
(UNAUDITED)
June
30, 2006
1. BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the requirements of Form 10-QSB and Item 310 of
Regulation S-B of the Securities and Exchange Commission (the Commission) and
include the results of MedaSorb Technologies Corporation (the Parent), formerly
known as Gilder Enterprises, Inc., and Medasorb Technologies, Inc., its
wholly-owned subsidiary (the Subsidiary), collectively referred to as “the
Company.” Accordingly, certain information and footnote disclosures required in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Interim statements are subject to
possible adjustments in connection with the annual audit of the Company's
accounts for the year ended 2006. In the opinion of the Company’s management,
the accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for the fair presentation of the Company's consolidated
financial position as of June 30, 2006 and the results of its operations and
cash flows for the six and three month periods ended June 30, 2006 and 2005.
Results for the six and three months ended are not necessarily indicative of
results that may be expected for the entire year. The unaudited condensed
consolidated financial statements should be read in conjunction with the audited
financial statements of the Company and the notes thereto as of and for the
year
ended December 31, 2005 as included in the Company’s Form 8-K filed with the
Commission July 6, 2006.
On
June
30, 2006, pursuant to an Agreement and Plan of Merger, by and among the Parent,
MedaSorb Technologies, Inc., a Delaware corporation (formerly known as MedaSorb
Corporation) (“MedaSorb Delaware”) and the Subsidiary (formerly known as
MedaSorb Acquisition Inc.), MedaSorb
Delaware
merged (the “Merger”) with the Subsidiary, and the stockholders of MedaSorb
Delaware became stockholders of the Parent. The business of the Subsidiary
(the
business conducted by MedaSorb Delaware prior to the Merger) is now the
Company’s only business.
In
connection with the merger (i) the former stockholders of MedaSorb Delaware
were
issued an aggregate of 20,340,929 shares of Common Stock of the Parent in
exchange for the same number of shares of common stock of MedaSorb Delaware
previously held by such stockholders, (ii) outstanding warrants and options
to
purchase a total of 1,697,648 shares of the common stock of MedaSorb Delaware
were cancelled in exchange for warrants and stock options to purchase the same
number of shares of the Parent’s Common Stock at the same exercise prices and
otherwise on the same general terms as the options and warrants that were
cancelled, and (iii) certain providers of legal services to MedaSorb Delaware
who previously had the right to be issued approximately 997,000 shares
of
MedaSorb Delaware common stock as payment toward accrued legal fees, became
entitled to instead be issued the same number of shares of the Parent’s Common
Stock as payment toward such services. Immediately prior to the Merger, after
giving effect to a share cancellation transaction effected by the former
principal stockholder of the Parent, the Parent had outstanding 3,750,000 shares
of Common Stock and no warrants or options to purchase Common Stock.
For
accounting purposes, the Merger is being accounted for as a reverse merger,
since the Parent was a shell company prior to the Merger, the former
stockholders of MedaSorb Delaware now own a majority of the issued and
outstanding shares of the Parent’s Common Stock, and directors and executive
officers of MedaSorb Delaware became the Parent’s directors and executive
officers. Accordingly, MedaSorb Delaware is treated as the acquiror in the
Merger, which is treated as a recapitalization of MedaSorb Delaware, and the
pre-merger financial statements of MedaSorb Delaware are now deemed to be the
historical financial statements of the Parent. Accordingly, the accompanying
balance sheets reflect 300,000,000 authorized of common stock at December 31,
2005, the authorized capital of MedaSorb Delaware at such time, and Parent's
authorized capital of 100,000,000 shares of common stock and 100,000,000 shares
of preferred stock at June 30, 2000. Historical
information described in this report refers to the operations of MedaSorb
Delaware prior to the merger.
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction
of
liabilities in the normal course of business. The Company has experienced
negative cash flows from operations since inception and has a deficit
accumulated during the development stage at June 30, 2006 of $65,185,378. The
Company is not currently generating revenue and is dependent on the proceeds
of
present and future financings to fund its research, development and
commercialization program. The Company is continuing its fund-raising
efforts. Although the Company has been successful in raising additional
equity and debt financing, there can be no assurance that the Company will
be
successful in raising additional capital in the future or that it will be on
favorable terms. Furthermore, if the Company is successful in raising the
additional financing, there can be no assurance that the amount will be
sufficient to complete the Company's plans. These consolidated financial
statements do not include any adjustments related to the outcome of this
uncertainty.
The
Company is a development stage company and has not yet generated any revenues.
Since inception, the Company's expenses relate primarily to research and
development, organizational activities, clinical manufacturing, regulatory
compliance and operational strategic planning. Although the Company has
made advances on these matters, there can be no assurance that the Company
will
continue to be successful regarding these issues, nor can there be any assurance
that the Company will successfully implement its long-term strategic
plans.
The
Company has developed an intellectual property portfolio, including 21 issued
and 5 pending patents, covering materials, methods of production, systems
incorporating the technology and multiple medical uses.
2. PRINCIPAL
BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Nature
of Business
The
Company, through its subsidiary, is engaged in the research, development and
commercialization of medical devices with its platform blood purification
technology incorporating a proprietary adsorbent polymer technology. The
Company is focused on developing this technology for multiple applications
in
the medical field, specifically to provide improved blood purification for
the
treatment of acute and chronic health complications associated with blood
toxicity. As of June 30, 2006, the Company has not commenced commercial
operations and, accordingly, is in the development stage. The Company has
yet to generate any revenue and has no assurance of future revenue.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Parent, MedaSorb
Technologies Corporation, and its wholly-owned subsidiary, MedaSorb
Technologies, Inc. All significant intercompany transactions and balances have
been eliminated in consolidation.
Development
Stage Corporation
The
accompanying consolidated financial statements have been prepared in accordance
with the provisions of Statement of Financial Accounting Standard (SFAS) No.
7,
"Accounting and Reporting by Development Stage Enterprises."
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less
to
be cash equivalents.
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation
of property and equipment is provided for by the straight-line method over
the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lesser of their economic useful lives or the term of the
related leases. Gains and losses on depreciable assets retired or sold are
recognized in the statements of operations in the year of disposal. Repairs
and
maintenance expenditures are expensed as incurred.
Patents
Legal
costs incurred to establish patents are capitalized. When patents are issued,
capitalized costs are amortized on the straight-line method over the related
patent term. In the event a patent is abandoned, the net book value of the
patent is written off.
Impairment
or Disposal of Long-Lived Assets
The
Company assesses the impairment of patents and other long-lived assets under
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
whenever events or changes in circumstances indicate that the carrying value
may
not be recoverable. For long-lived assets to be held and used, the Company
recognizes an impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss based
on
the difference between the carrying amount and fair value.
Research
and Development
All
research and development costs, payments to laboratories and research
consultants are expensed when incurred.
Income
Taxes
Income
taxes are accounted for under the asset and liability method prescribed by
SFAS
No. 109, “Accounting for Income Taxes.” Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the
tax
basis of assets and liabilities. Deferred tax assets and liabilities reflect
the
tax rates expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely
than
not that some or all of the deferred tax asset will not be realized. Under
Section 382 of the internal revenue code the net operating losses generated
prior to the reverse merger may be limited due to the change in ownership.
Use
of Estimates
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 and disclosure of contingent assets and liabilities. Actual results
could differ from these estimates.
Concentration
of Credit Risk
The
Company maintains cash balances, at times, with financial institutions in excess
of amounts insured by the Federal Deposit Insurance Corporation. Management
monitors the soundness of these institutions and considers the Company’s risk
negligible.
Financial
Instruments
The
carrying values of prepaid expenses and other current assets, accounts payable
and accrued expenses approximate their fair values due to their short-term
nature. Convertible notes payable approximate their fair value based upon the
borrowing rates available for the nature of the underlying debt.
Stock-Based
Compensation
Through
December 31, 2005, the Company has accounted for its stock compensation plans
under the recognition and measurement principles of Accounting Principles
Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and related
interpretations. Under APB No. 25, no compensation cost was generally recognized
for fixed stock options in which the exercise price is greater than or equal
to
the market price on the grant date. Through December 31, 2005, the Company
had
not adopted the recognition requirements of Statement of Financial Accounting
Standards (“SFAS”) No. 123, “Accounting
for Stock-Based Compensation”,
for
employees and directors and, accordingly, has made all pro forma disclosures
required. The Company adopted the requirements of SFAS No. 123 and EITF Issue
No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods and Services” with
regard to non-employees. Each option granted is valued at fair market value
on
the date of grant. Had compensation cost for options granted to employees and
directors been determined consistent with SFAS No. 123, the Company's pro forma
net loss would have been as follows:
|
|
Six
Months
|
|
Three
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2005
|
|
2005
|
|
Net
Loss
|
|
|
|
|
|
As
reported
|
|
$
|
1,671,643
|
|
$
|
784,608
|
|
Pro
forma
|
|
$
|
1,671,643
|
|
$
|
784,608
|
|
|
|
|
|
|
|
|
|
Net
Loss per Share:
|
|
|
|
|
|
|
|
Basic
and diluted, as reported
|
|
$
|
0.35
|
|
$
|
0.16
|
|
Basic
and diluted, proforma
|
|
$
|
0.35
|
|
$
|
0.16
|
|
Under
SFAS No. 123, the fair value of each option was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions: (1) expected lives of five-ten years, (2) dividend yield of 0%,
(3)
risk-free interest rates ranging from 3.25% - 5.63%, and (4) volatility
percentage of 0.01%.
Effective
January 1, 2006, the Company has adopted the recognition requirements of
Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting
for Stock-Based Compensation”,
for
employees and directors. The adoption of SFAS No. 123(R) did not have an effect
on the previously issued financial statements.
Effects
of Recent Accounting Pronouncements
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-monetary Assets - an amendment of APB Opinion No. 29." The
statement addresses the measurement of exchanges of non-monetary assets and
eliminates the exception from fair value measurement for non-monetary exchanges
of similar productive assets and replaces it with an exception for exchanges
that do not have commercial substance. SFAS No. 153 is effective for
non-monetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. Effective January 1, 2006, the Company has adopted SFAS No.
153. The adoption of SFAS No. 153 did not have an effect on the previously
issued financial statements.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
This statement replaces APB No. 20 and SFAS No. 3 and changes the requirements
for the accounting and reporting of a change in accounting principle. APB No.
20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the accounting principle. SFAS No. 154 requires
retrospective application to prior periods’ financial statements of voluntary
changes in accounting principle. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The adoption of SFAS No. 154 did not have an effect on the previously
issued financial statements.
In
February 2006, the FASB issued SFAS No. 155,”Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 140,” to
simplify and make more consistent the accounting for certain financial
instruments. Specifically, SFAS No. 155 amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, to permit fair value
re-measurement for any hybrid financial instrument with an embedded derivative
that otherwise would require bifurcation, provided that the whole instrument
is
accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140,
Accounting for the Impairment or Disposal of Long-Lived Assets, to allow a
qualifying special-purpose entity (SPE) to hold a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS No. 155 applies to all financial instruments acquired
or issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006, with earlier application allowed. The Company is currently
evaluating this pronouncement for its potential impact on the results of
operations or financial position of the Company.
In
July
2006, FASB has published FASB Interpretation No. 48 (FIN No. 48), Accounting
for
Uncertainty in Income Taxes, to address the noncomparability in reporting tax
assets and liabilities resulting from a lack of specific guidance in SFAS No.
109, Accounting for Income Taxes, on the uncertainty in income taxes recognized
in an enterprise’s financial statements. FIN No. 48 will apply to fiscal
years beginning after December 15, 2006, with earlier adoption permitted.
The adoption of FIN No. 48 is not expected to have a material effect on the
Company’s financial condition or results of operations.
3.
CONVERTIBLE NOTES PAYABLE
From
time
to time during the period of 2003 until June 30, 2006, MedaSorb Delaware issued
convertible notes to various investors in the aggregate principal amount of
$6,549,900 bearing interest at a rate of 12% per annum, and convertible into
common stock at exercise prices ranging from $3.32 per share to $6.64 per share.
These notes were issued with warrants. All of these Notes along with $1,480,270
in accrued interest, were converted into equity upon the closing of the reverse
merger (see Note 1). In connection with this conversion the Parent issued
5,170,880 shares of Common Stock and 5 year warrants to purchase a total of
816,691 shares of Common Stock at a price of $4.98 per share, which includes
3,058,141 shares issued as partial inducement for conversion of Notes. The
inducement shares were valued at $3,351,961 and is included as a charge to
interest expense and included in the consolidated statements of operations
for
the six months ended June 30, 2006.
Separately,
in 2005 the Company received a $1 million bridge loan in anticipation of the
reverse merger transaction (see Note 1) which closed in June of 2006. The loan
bears interest at 6% per annum, repayable in cash or, at the option of the
Noteholder, converted into the Preferred Stock and Warrants of the Parent,
which
were sold in the current offering (see Note 4 Private Placement Offering).
The
loan and accrued interest is due and payable on December 31, 2006 or due
immediately, as a result of the Company meeting certain contingencies included
in the debt agreement. In consideration for funding the loan, assisting in
arranging the merger transaction and concurrent offering, the Noteholder was
also issued 10 million shares of common stock. The issuance of common stock
associated with the convertible note resulted in the Company recording a debt
discount charge in the amount of $1,000,000. The terms of the agreement provided
the note to be due currently, therefore, the Company has amortized the debt
discount entirely, resulting in a charge to the consolidated statements of
operations for the six months ended in the amount of $1,000,000.
4. STOCKHOLDERS'
EQUITY
During
the six months ended June 30, 2006 the Company received approximately $400,000
from an existing investor. For this investment as well as approximately $399,000
received in stock subscriptions during 2005, the Company issued 240,929 shares
of common stock and five year warrants to purchase approximately 240,929 shares
of common stock at an exercise price of $4.98. The investors who participated
in
this offering have the option to exchange their shares and warrants for the
equivalent dollar amount of preferred stock sold in the private placement
described below.
During
the six months ended June 30, 2006, the Company issued 100,000 shares of common
stock to resolve a price protection provision with an existing investor
group.
On
June
30, 2006, immediately following the closing of the reverse merger, the Company
completed an initial closing of a $5.25 million private placement. For this
investment the Parent issued 5,250,000 shares of 10% Series A Preferred Stock
and five year warrants to purchase 2,100,000 shares of common stock at an
initial price of $2.00 per share. The preferred shares are initially convertible
into common stock at a rate of $1.25 per share subject to certain adjustments.
In connection with the private placement, the Company incurred costs associated
with raising capital in the amount of $620,563. Both the conversion price of
the
Series A Preferred Stock and the exercise price of the warrants are subject
to
“full-ratchet” anti-dilution provisions, so that upon future issuances of common
stock or equivalents thereof, subject to specified customary exceptions, at
a
price below the conversion price of the Series A Preferred Stock and/or exercise
price of the warrants, such conversion price and/or exercise price will be
reduced to such lower price.
During
the six months ended June 30, 2006, the Company issued 2,112,739 shares of
common stock in exchange for the conversion of convertible notes payable and
related accrued interest amounting to $7,980,170. In addition, the note holders
also received 3,058,141 shares of common stock as an inducement to convert
said
debt. An inducement charge has been included in the consolidated statements
of
operations (see Note 3).
During
the six months ended June 30, 2006, the Company issued 10,000,000 shares of
common stock to an existing bridge loan holder in consideration for funding
a
$1,000,000 loan, and assisting in arranging the merger transaction and
concurrent offering.
During
the six months ended June 30, 2006, the Company granted options to purchase
106,756 shares of common stock to employees and directors resulting in
compensation expense of $46,919.
The
summary of the stock option activity for the six months ended June 30, 2006
is
as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
Average
|
|
Remaining
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
|
|
Shares
|
|
per
Share
|
|
Life
(Years)
|
|
Outstanding,
January 1, 2006
|
|
|
512,247
|
|
$
|
27.49
|
|
|
5.7
|
|
Granted
|
|
|
106,756
|
|
|
1.25
|
|
|
10.0
|
|
Cancelled
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Outstanding,
June 30, 2006
|
|
|
619,003
|
|
$
|
22.96
|
|
|
6.4
|
|
The
summary of the status of the Company’s non-vested options for the six months
ended June 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Non-vested,
January 1, 2006
|
|
|
1,105
|
|
$
|
0.00
|
|
Granted
|
|
|
106,756
|
|
$
|
0.48
|
|
Cancelled
|
|
--
|
|
|
|
--
|
|
Vested
|
|
|
96,757
|
|
$
|
0.48
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
|
|
--
|
|
Non-vested,
June 30, 2006
|
|
|
11,104
|
|
$
|
0.43
|
|
|
|
|
As of June 30, 2006, approximately $4,800
of total
unrecognized compensation cost related to stock options is expected to be
recognized over a weighted avergae period of 1.46 years.
As
of
June 30, 2006, the Company has the following warrants to purchase common stock
outstanding:
Number
of Shares
|
|
Warrant
Exercise
|
|
Warrant
|
|
To
be Purchased
|
|
Price
per Share
|
|
Expiration
Date
|
|
1,206
|
|
|
$
|
41.47
|
|
|
January
9, 2007
|
|
25,995
|
|
|
$
|
19.91
|
|
|
February
8, 2007
|
|
603
|
|
|
$
|
41.47
|
|
|
February
24, 2007
|
|
2,652
|
|
|
$
|
41.47
|
|
|
May
30, 2007
|
|
15,569
|
|
|
$
|
6.64
|
|
|
March
31, 2010
|
|
240,929
|
|
|
$
|
4.98
|
|
|
March
31, 2011
|
|
816,691
|
|
|
$
|
4.98
|
|
|
June
30, 2011
|
|
2,100,000
|
|
|
$
|
2.00
|
|
|
June
30, 2011
|
|
As
of
June 30, 2006, the Company has the following warrant to purchase preferred
stock
outstanding:
Number
of
|
|
Warrant
Exercise
|
|
Warrant
|
|
Shares
to be
|
|
Price
per
|
|
Expiration
|
|
Purchased
|
|
Preferred
Share
|
|
Date
|
|
525,000
|
|
$
|
1.00
|
|
|
June
30, 2011
|
|
If
the
holder of warrants for preferred stock exercises in full, the holder will
receive additional 5 year warrants to purchase a total of 210,000 shares of
common stock at $2.00 per share.
5. COMMITMENTS
AND CONTINGENCIES
The
Company is involved in various claims and legal actions. Management is of the
opinion that these claims and legal actions have no merit, but may have a
material adverse impact on the consolidated financial position of the Company
and/or the results of its operations.
Aside
from normal trade creditor claims, the Company is involved with various claims
and a legal action relating to its technology. Management is of the
opinion that these claims and legal action have no merit, but may have a
material adverse impact on the consolidated financial position of the Company
and/or the results of its operations. In January 2003 the Company was sued
by Brotech Corp. (Purolite International, Ltd.) claiming co-inventorship and/or
joint ownership of some of the Company’s patents. Recently Purolite
expanded its claims, to allege that they are the sole owner of these patents
and
are seeking equitable relief and monetary damages. The Company has filed a
motion for summary judgment. At the same time the parties have engaged in
ongoing efforts to settle the case. In addition, the Court ordered
mediation with a magistrate judge and there has been some progress in seeking
a
resolution of the litigation, but there has still not been agreement on all
issues and at this time there can be no assurance that the parties will be
able
to reach an accord. If the case is not settled, the Court will decide on the
Company’s summary judgment motion. If the motion is denied, the Company
expects the matter will go to trial within a few months thereafter. As of the
date of the consolidated financial statements, the outcome of the case could
not
be determined and the damages, if any, could not be reasonably estimated.
Accordingly, a loss contingency has not been accrued.
A
former
employee of the Company has initiated a legal action against the Company seeking
reimbursement of certain claimed expenses. The matter is under legal review
by
Company counsel. As of the date of the consolidated financial statements, the
outcome of the case could not be determined and the financial impact, if any,
could not be reasonably estimated. Accordingly, a loss contingency has not
been
accrued.
The
Company has employment agreements with certain key executives through July
2008.
One of these agreements provides for an additional bonus payment based on
achieving specific milestones as defined in the agreement, however, as of the
date of this report, these milestones have not been met. Furthermore, this
agreement includes an anti-dilution provision whereby the employee is granted
options for the right to obtain 5% of the outstanding stock of the Company
on a
fully diluted basis.
In
an
agreement dated August 11, 2003 an existing investor agreed to make a $4 million
equity investment in the Company. These amounts were received by the Company
in
2003. In connection with this agreement the Company granted the investor a
future royalty of 3% on all gross revenues received by the Company from the
sale
of its CytoSorb device. The Company has not generated any revenue from this
product and has not incurred any royalty costs through June 30, 2006. The amount
of future revenue subject to the royalty agreement could not be reasonably
estimated nor has a liability been incurred, therefore, an accrual for royalty
payments has not been included in the consolidated financial
statements.
In
connection with the closing of the private placement, the Company agreed to
make
a short-term advance, due on demand, to one of its majority stockholders in
the
amount of $500,000 bearing interest at the rate of 6 percent per annum, the
repayment of which may be offset against amounts owed by the Company to the
stockholder under the $1,000,000 advance previously made to the Company. The
short-term advance, if any, will be secured by a pledge of publicly-traded
securities with a market value equal to $500,000.
6.
NET LOSS PER SHARE
Basic
earnings per share and diluted earnings per share for the six and three months
ended June 30, 2006 and 2005 have been computed by dividing the net loss for
each respective period by the weighted average number of shares outstanding
during that period. All outstanding warrants and options at June 30, 2006 and
2005, respectively, have been excluded from the computation of diluted EPS
as
they are anti-dilutive.
7. SUBSEQUENT
EVENTS
In
anticipation of a settlement that has been agreed to by the Company and Purolite
International, Ltd. which is being circulated for signature, the court has
dismissed the action. The settlement agreement, by its terms requires court
approval and it is expected that it will be submitted for approval shortly.
Under the terms of the settlement, the action has been concluded without any
admission of wrongdoing by the Company; the Company’s exclusive rights to the
disputed patent properties has been confirmed as well as the Company’s right to
continue to employ the disputed trade secrets and the services of certain
scientists who have been acting as consultants for both the Company and
Purolite. The Company has agreed to pay royalties of 2.5% to 5% on the sale
of
certain of its products if and when those products are sold commercially. The
amount of future revenue subject to the royalty agreement could not be
reasonably estimated nor has a liability been incurred, therefore, an accrual
for royalty payments has not been included in the consolidated financial
statements.
In
August
2006, the Parent changed its name from Gilder Enterprises, Inc. to MedaSorb
Technologies Corporation.
Item
2. Management’s Discussion and Analysis or Plan of
Operation.
These
unaudited
condensed consolidated financial statements
and
discussion should
be
read in conjunction with the audited financial statements of the Company and
the
notes thereto as of and for the year ended December 31, 2005 as included in
the
Company’s Form 8-K filed with the Commission July 6, 2006.
Forward-looking
statements
Statements
contained in this Quarterly Report on Form 10-QSB, other than the historical
financial information, constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All such
forward-looking statements involve known and unknown risks, uncertainties or
other factors which may cause actual results, performance or achievement of
the
Company to be materially different from any future results, performance or
achievement expressed or implied by such forward-looking statements. Primary
risk factors include, but are not limited to: ability
to successfully develop commercial operations; the ability to obtain adequate
financing in the future when needed; dependence on key personnel; acceptance
of
the Company's medical devices in the marketplace; the outcome of pending and
potential litigation; obtaining government approvals, including required FDA
approvals; compliance with governmental regulations; reliance on research and
testing facilities of various universities and institutions; product liability
risks; limited manufacturing experience; limited marketing, sales and
distribution experience; market acceptance of the Company's products;
competition; unexpected changes in technologies and technological advances;
and
other factors detailed in the Company's Current Report on Form 8-K filed with
the SEC on July 6, 2006.
Reverse
Merger
On
June
30, 2006, pursuant to an Agreement and Plan of Merger, by and among the Company
(formerly known as Gilder Enterprises, Inc.), MedaSorb Technologies, Inc.,
a
Delaware corporation (formerly known as MedaSorb Corporation) (“MedaSorb
Delaware”) and MedaSorb Acquisition Inc., a newly formed wholly-owned Delaware
subsidiary of the Company, MedaSorb
Delaware
merged (the “Merger”) with MedaSorb Acquisition Inc. (now known as MedaSorb
Technologies, Inc.), and the stockholders of MedaSorb Delaware became
stockholders of the Company. MedaSorb Technologies, Inc. is now a wholly owned
subsidiary of the Company, and its business (the business conducted by MedaSorb
Delaware prior to the Merger) is now the Company’s only business.
Plan
Of Operations
We
are a
development stage company and expect to remain so for at least the next twelve
months. We have not generated revenues to date and do not expect to do so until
we commercialize and receive the necessary approvals to sell our proposed
products. We are preparing to commercialize a blood purification technology
that
efficiently removes toxic compounds from circulating blood using our proprietary
polymer-based adsorbent technology. We believe that our technology will support
novel therapeutic approaches to critical health conditions, including sepsis,
organ transplant, post-operative complications of cardiopulmonary bypass surgery
and drug detoxification.
Our
near
term goal is focused on conducting clinical trials of our CytoSorb™ product in
the treatment of sepsis. Over the next twelve months, provided that we have
sufficient funds for our operations, we expect to design and conduct a pilot
study of the use of our product on at least 10 sepsis patients. We believe
that
submission of data from this pilot study to the FDA will allow us to then
conduct the subsequent pivotal study required for FDA approval of our CytoSorb™
product for sepsis treatment.
Our
research and development costs for the six months ended June 30, 2006 and 2005,
were $488,194 and $767,389, respectively. We have experienced substantial
operating losses since inception. As of June 30, 2006, we had an accumulated
deficit of $65,185,378 which included losses from operations of $3,665,596
for
the year ended December 31, 2005 and $6,205,911 for the six-month period ended
June 30, 2006. Historically, our losses have resulted principally from costs
incurred in the research and development of our polymer technology, and general
and administrative expenses, which together were $2,162,703 and $789,737
respectively, for the year ended December 31, 2005 and the six months ended
June
30, 2006. In addition, our loss for the six months ended June 30, 2006 includes
interest expense of $4,813,171, primarily resulting from
inducement and debt discount charges of $3,351,961 and $1,000,000 in connection
with the conversion to equity of principal and interest under outstanding debt
instruments during the six-month period.
Liquidity
and Capital Resources
Since
inception, the operations of MedaSorb Delaware have been financed through the
private placement of its debt and equity securities. At December 31, 2005 (prior
to its merger with a subsidiary of the Company), MedaSorb Delaware had cash
of
$707,256, an amount sufficient to fund its operations for approximately four
months. Due to its losses and available cash at that time, MedaSorb
Delaware’s
audited consolidated financial statements for its year ended December 31, 2005
have been prepared assuming MedaSorb Delaware
will
continue as a going concern, and the auditors’ report on those financial
statements expresses
substantial doubt about the ability of MedaSorb
Delaware to
continue as a going concern.
Immediately
following the closing of the Merger, we closed an offering of our securities
that resulted in net proceeds to us of $4,629,437, so that as of June 30, 2006
we had cash on hand of $4,858,633, and current liabilities of
$3,685,203. We
believe that we have sufficient cash to fund our operations for the next
15 months,
following which time we will be required to raise additional capital. There
can
be no assurance that we will be successful in our capital raising efforts.
An
evaluation was performed, under the supervision of, and with the participation
of, our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-(e)
to
the Securities and Exchange Act of 1934). Based on that evaluation, the
Company’s management, including our Chief Executive Officer and Chief Financial
Officer, concluded that the Company’s disclosure controls and procedures were
adequate and effective, as of June 30, 2006, to ensure that
information required to be disclosed by the Company in the reports that it
files
or submits 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 that such information is accumulated and communicated to
management, including our
Chief
Executive Officer and Chief Financial Officer,
as
appropriate, to allow timely decisions regarding required
disclosure.
There
has
not been any changes in our internal controls over financial reporting that
occurred during our quarter ended June 30, 2006 that has materially affected,
or
is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
Purolite
For
a
period of time beginning in December 1998, Purolite engaged in efforts to
develop and optimize the manufacturing process needed to produce our polymer
products on a commercial scale. However, the parties eventually decided not
to
proceed. In January, 2003, Purolite commenced an action against us in United
States District Court for the Eastern District of Pennsylvania asserting
that our adsorbent technology was developed in part using Purolite’s technology,
that two of its employees should be included as co-inventors on some of our
patents, and that Purolite was therefor a joint owner of the technology and
had
rights to the use of the technology. Purolite later expanded its claims,
alleging they are the sole owner of these patents, and that we misappropriated
these patents from them. Purolite has sought equitable relief declaring that
it
is the exclusive owner of our technology, as well as monetary
damages.
In
anticipation of a settlement that has been agreed to by the Company and
Purolite, which is being circulated for signature, the court has dismissed
the
action. The settlement agreement, by its terms requires court approval and
it is
expected that it will be submitted for approval shortly. Under the terms of
the
settlement, the action has been concluded without any admission of wrongdoing
by
the Company; the Company’s exclusive rights to the disputed patent properties
has been confirmed as well as the Company’s right to continue to employ the
disputed trade secrets and the services of certain scientists who have been
acting as consultants for both the Company and Purolite. The Company has agreed
to pay royalties of 2.5% to 5% on the sale of certain of its products if and
when those products are sold commercially. The amount of future revenue subject
to the royalty agreement can not be reasonably estimated nor has a liability
been incurred, therefore, an accrual for royalty payments has not been included
in the consolidated financial statements.
Former
Employee
In
May
2006, a former employee of ours initiated a legal action against us in the
United States District Court for the Southern District of New York, seeking
damages in an amount exceeding $245,500. The employee alleges that we are
required to pay or reimburse him for (as applicable) credit card charges to
his
account made by another former employee of ours and a related party. The matter
is currently under review by our legal counsel.
Item
6. Exhibits.
Number
|
Description
|
|
|
31.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
|
31.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant
to
Rules 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
|
32.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|
|
|
32.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant
to
Rules 13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|
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.
|
MEDASORB
TECHNOLOGIES CORPORATION
|
Date:
August
14, 2006
|
By:
/s/
David Lamadrid
|
|
|
Name:
David Lamadrid
Title:
Chief Financial Officer
|
|
(On
behalf of the registrant and as
principal
accounting officer)
|
EXHIBIT
INDEX
Number
|
Description
|
|
|
31.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
|
31.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant
to
Rules 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
|
32.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|
|
|
32.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant
to
Rules 13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|