As
filed with the Securities and Exchange Commission on December 13,
2006
Registration
No. 333-138247
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Amendment
No. 1 to
FORM
SB-2/A
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
MEDASORB
TECHNOLOGIES CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
(State
or Other Jurisdiction
of
Incorporation or Organization)
|
3841
(Primary
Standard Industrial
Classification
Code Number)
|
98-0373793
(I.R.S.
Employer
Identification
Number)
|
7
Deer Park Drive, Suite K
Monmouth
Junction, New Jersey 08852
(732)
329-8885
(Address,
Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant’s Principal Executive Offices)
Al
Kraus
President
and Chief Executive Officer
MedaSorb
Technologies Corporation
7
Deer Park Drive, Suite K
Monmouth
Junction, New Jersey 08852
(732)
329-8885
(Name,
Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Agent for Service)
Copies
to:
Alison
Newman, Esq.
Cooley
Godward Kronish LLP
1114
Avenue of the Americas
New
York, New York 10036
(212)
479-6000
|
Approximate
Date of Commencement of Proposed Sale to the Public: From
time
to time after the effective date of this registration statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, please
check the following box. x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ¨
______________
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ¨ ______________
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ¨ ______________
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box ¨.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING
STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND THE SELLING STOCKHOLDERS ARE NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE
IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED DECEMBER __, 2006
MEDASORB
TECHNOLOGIES CORPORATION
14,173,181
Shares of Common Stock
This
prospectus relates to the sale of up to 14,173,181 shares of our Common Stock
by
some of our stockholders. The shares offered by this prospectus include:
·
4,984,908
shares
issuable to the selling stockholders upon the conversion of currently
outstanding shares of our Series A Preferred Stock;
· 1,719,793
shares issuable to the
selling stockholders upon the conversion of shares of Series A Preferred
Stock
that may be issued to the selling stockholders as dividends;
· 2,439,954
shares issuable to the
selling stockholders upon the exercise of warrants, and
· 5,028,526
shares we could be
required to issue to the selling stockholders in the future in the event
of
adjustments to the conversion price of the Series A Preferred Stock and/or
upon
conversion of fees or penalties payable under the Series A Preferred Stock.
For
a
list of the selling stockholders, please see “Selling Stockholders.” We are not
selling any shares of Common Stock in this offering and therefore will not
receive any proceeds from this offering. We may, however, receive proceeds
upon
the exercise of the warrants registered for sale hereunder in the event that
such warrants are exercised. All costs associated with this registration will
be
borne by us.
These
shares may be sold by the selling stockholders from time to time in the
over-the-counter market or other national securities exchange or automated
interdealer quotation system on which our Common Stock is then listed or quoted,
through negotiated transactions or otherwise at market prices prevailing at
the
time of sale or at negotiated prices.
Our
Common Stock currently trades in the over-the-counter market and is quoted
on
the OTC Bulletin Board under the symbol “MSBT.” On December 12, 2006, the last
reported sale price of our Common Stock was $___ per share.
Investing
in our Common Stock involves a high degree of risks. Please refer to the
“Risk
Factors” beginning on page 4.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities, or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is ___________ __, 2006.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
|
1
|
THE
OFFERING
|
3
|
RISK
FACTORS
|
4
|
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
|
12
|
USE
OF PROCEEDS
|
13
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
13
|
EQUITY
COMPENSATION PLAN INFORMATION
|
14
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
14
|
BUSINESS
|
16
|
MANAGEMENT
|
32
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
36
|
PRINCIPAL
STOCKHOLDERS
|
38
|
SELLING
STOCKHOLDERS
|
39
|
PLAN
OF DISTRIBUTION
|
44
|
DESCRIPTION
OF SECURITIES
|
45
|
TRANSFER
AGENT
|
47
|
COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
|
48
|
LEGAL
MATTERS
|
48
|
EXPERTS
|
48
|
WHERE
YOU CAN FIND MORE INFORMATION
|
48
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-1
|
PROSPECTUS
SUMMARY
This
summary highlights selected information from this prospectus and may not contain
all of the information that is important to an investor. We encourage you to
read this entire prospectus, including our consolidated financial statements
and
the notes to our consolidated financial statements completely and carefully
before deciding whether to invest in our Common Stock. You should also review
the other available information referred to in the section entitled “Where You
Can Find More Information” on page 37.
Summary
of our Business
We
are a
medical device company that is currently in the development stage, headquartered
in Monmouth Junction, New Jersey (near Princeton). We have developed and
will
seek to commercialize a blood purification technology that efficiently removes
middle molecular weight toxins from circulating blood. We believe that our
polymer technology represents an effective therapeutic approach to severe
health
complications caused or complicated by middle molecular weight toxins and
that
current state of the art blood purification technology (such as dialysis)
is
incapable of effectively clearing these toxins.
We
have
developed two products, CytoSorb™ and BetaSorb™ utilizing our adsorbent polymer
technology. These products are known medically as hemoperfusion devices.
During
hemoperfusion, blood is removed from the body via a catheter or other blood
access device, perfused through a filter medium where toxic compounds are
removed, and returned to the body.
We
intend
to initially focus our efforts on the commercialization of our CytoSorb™
product, which we believe will provide a relatively faster regulatory pathway
to
market. The first indication for CytoSorb™ will be in the treatment of sepsis
(bacterial infection of the blood), which causes systematic inflammatory
response syndrome. CytoSorb™ has been designed to prevent or reduce the
accumulation of high concentrates of cytokines in the bloodstream associated
with sepsis. It is intended for short term use as an adjunctive device to
the
standard treatment of sepsis. The CytoSorb™ device consists of a cylinder
containing the adsorbent polymer beads. The cylinder incorporates an industry
standard luer fitting at either end of the device which connects directly
to the
extra corporeal circuit (bloodlines) on a stand alone basis. As blood passes
over the beads in the cylinder, toxins (cytokines) are adsorbed from the
blood.
To date, we have manufactured the CytoSorb™ device on a limited basis for
testing purposes, including for use in clinical trials.
Following
the sepsis indication, we intend to continue our research in other acute
conditions where CytoSorb™ has indicated potential in preliminary studies based
on its ability to prevent or reduce the accumulation of cytokines in the
bloodstream. These conditions include the prevention of post-operative
complications of cardiac surgery (cardiopulmonary bypass surgery) and damage
to
organs donated for transplant prior to organ harvest. We are also exploring
the
potential benefits the CytoSorb™ device may have in removing drugs from blood in
situations such as patient overdoses.
We
are
currently completing the design of our first pilot study utilizing the CytoSorb™
device in humans for the treatment of sepsis. We intend to submit this design
to
the United States Food and Drug Administration for approval in January 2007,
and
if the proposed pilot study is approved by the FDA, to commence clinical
trials
by the third quarter of 2007. If these trials are successful and we obtain
FDA
approval to proceed with our follow-up pivotal study, we anticipate that
we will
be able to begin sales of CytoSorb™ by mid-to-late 2009, assuming a successful
pivotal trial. Previous studies using our BetaSorb™ device in patients with
chronic kidney failure have provided valuable data which we will use in
conducting clinical trials using our CytoSorb™ device. However, limited studies
have been conducted using our CytoSorb™ device to date and no assurance can be
given that our proposed CytoSorb™ product will work as intended or that we will
be able to obtain FDA approval to sell CytoSorb™. Even if we ultimately obtain
FDA approval, because we can not control the timing of FDA responses to our
submissions, there can be no assurance as to when such approval will be
obtained.
Our
BetaSorb™ device is intended to remove beta2-microglobulin
from the blood of patients suffering from chronic kidney failure who rely
on
long term dialysis therapy to sustain their life. BetaSorb™ utilizes an
absorbent polymer packed into an identically shaped and constructed cylinder
as
utilized for our CytoSorb™ product, although the polymers used in the two
devices are physically different. The BetaSorb™ device also incorporates an
industry standard luer fitting at either end of the device which connects
directly into the extracorporeal circuit (bloodlines) in series with a dialyser.
To date, we have also manufactured the BetaSorb™ device on a limited basis for
testing purposes, including for use in clinical trials.
We
had
initially identified end stage renal disease (ESRD) as the target market
for our
polymer-based adsorbent technology. However, during the development of
BetaSorb™, we identified several applications for our adsorbent technology in
the treatment of critical care patients. As a result, we shifted our priorities
to pursue critical care applications (such as for the treatment of sepsis)
for
our technology given that BetaSorb’s™ potential for usage in chronic conditions
such as end stage renal disease is anticipated to have a longer and more
complex
regulatory pathway. We currently intend to pursue our BetaSorb™ product after
the commercialization of the CytoSorb™ product. At such time as we determine to
proceed with our proposed BetaSorb™ product, if ever, we will need to conduct
additional clinical studies using the BetaSorb™ device and obtain FDA approval.
To
date,
we have conducted clinical studies using our BetaSorb™ device in patients with
chronic kidney failure, which have provided valuable data which underpin
the
development of the critical care applications for our technology. The BetaSorb™
device has been in used in three human pilot trials in the U.S. and Europe,
with
347 treatments, with some patients using the device for up to 24 weeks
(in
multiple treatment sessions lasting up to four hours, three times per week)
in
connection with the application of our products to patients suffering from
chronic kidney failure. The BetaSorb™ device design was also tested on a single
patient with bacterial sepsis, producing results that our management has
found
encouraging and consistent with our belief that our device design is appropriate
for a more extensive sepsis study. In addition, CytoSorb’s™ toxin clearing
ability and the ability to interact safely with blood (hemocompatibility)
has
been demonstrated through ISO 10993 testing and in limited studies on rats.
We
have
not generated any revenue to date. We have incurred losses in each of our
fiscal
years and expect these losses to continue for the foreseeable future. We
will
need to raise significant additional funds to conduct clinical trials and
obtain
regulatory approvals to commercialize our products. No assurance can be
given
that we will ever successfully commercialize any
products.
The
Company
We
were
incorporated in Nevada on April 25, 2002 as Gilder Enterprises, Inc. and were
originally engaged in the business of installing and operating computer networks
that provided high-speed access to the Internet. On June 30, 2006, we disposed
of our original business, and pursuant to an Agreement and Plan of Merger,
acquired all of the stock of MedaSorb Technologies, Inc. in a merger, and its
business became our business. Following the merger, in August 2006, we changed
our name to MedaSorb Technologies Corporation.
Our
executive offices are located at 7 Deer Park Drive, Suite K, Monmouth Junction,
New Jersey 08852. Our telephone number is (732) 329-8885.
THE
OFFERING
Securities
Offered by Selling Stockholders
|
|
14,173,181
shares of Common Stock, including 4,984,908 shares issuable upon
conversion of currently outstanding shares of Series A Preferred
Stock;
1,719,793
shares issuable upon conversion of shares of Series A Preferred
Stock that
may be issued as dividends; 2,439,954 shares issuable to the selling
stockholders upon the exercise of warrants, and 5,028,526 shares
we could
be required to issue to the selling stockholders in the future
in the
event of adjustments to the conversion price of the Series A Preferred
Stock and/or upon conversion of fees or penalties payable under
the Series
A Preferred Stock.
|
|
|
|
Offering
Price
|
|
Determined
at the time of sale by the selling stockholders.
|
|
|
|
Use
of Proceeds
|
|
We
will not receive any proceeds from the sale of the shares of Common
Stock
by the selling stockholders. We intend to use the proceeds from the
exercise of outstanding warrants, if any, for general corporate
purposes.
|
|
|
|
Shares
of Common Stock outstanding before the offering
|
|
24,465,696
shares.
|
|
|
|
Risk
Factors
|
|
An
investment in MedaSorb involves significant risks and uncertainties.
See
“Risk Factors,” beginning on page
4.
|
RISK
FACTORS
An
investment in our Common Stock involves a high degree of risk. You should
carefully consider the risks described below before deciding to purchase shares
of our Common Stock. If any of the events, contingencies, circumstances or
conditions described in the risks below actually occur, our business, financial
condition or results of operations could be seriously harmed. The trading price
of our Common Stock could, in turn, decline and you could lose all or part
of
your investment.
RISKS
RELATED TO OUR INDUSTRY AND OUR BUSINESS
We
currently have no commercial operations and there can be no assurance that
we
will be successful in developing commercial operations.
We
are a
development stage company and have been engaged primarily in research and
development activities and have not generated any revenues to date. There
can be
no assurance that we will be able to successfully manage the transition to
a
commercial enterprise. Potential investors should be aware of the problems,
delays, expenses and difficulties frequently encountered by an enterprise
in the
early stage of development, which include unanticipated problems relating
to
development of proposed products, testing, regulatory compliance, manufacturing,
competition, marketing problems and additional costs and expenses that may
exceed current estimates. Our proposed products will require significant
additional research and testing, and we will need to overcome significant
regulatory burdens prior to commercialization. We will also need to raise
significant additional funds to complete clinical trials and obtain regulatory
approvals before we can begin selling our products. There can be no assurance
that after the expenditure of substantial funds and efforts, we will
successfully develop and commercialize any products, generate any revenues
or
ever achieve and maintain a substantial level of sales of our products.
We
have a history of losses and expect to incur substantial future losses, and
the
report of our auditor on our consolidated financial statements expresses
substantial doubt about our ability to continue as a going
concern.
We
have
experienced substantial operating losses since inception. As of September
30,
2006, we had an accumulated deficit of $66,228,527, which included losses
from
operations of $3,665,596 for the year ended December 31, 2005 and $6,851,614
for
the nine-month period ended September 30, 2006. Due to these losses, our
audited
consolidated financial statements have been prepared assuming we will continue
as a going concern, and the auditors’ report on those financial statements
express substantial doubt about our ability to continue as a going concern.
Our
losses have resulted principally from costs incurred in the research and
development of our polymer technology and general and administrative expenses.
Because our predecessor was a limited liability company until December 2005,
substantially all of these losses were allocated to that company’s members and
will not be available for tax purposes to us in future periods. We intend
to
conduct significant additional research, development, and clinical testing
activities which, together with expenses incurred for the establishment of
manufacturing arrangements and a marketing and distribution presence and
other
general and administrative expenses, are expected to result in continuing
operating losses for the foreseeable future. The amount of future losses
and
when, if ever, we will achieve profitability are uncertain. Our ability to
achieve profitability will depend, among other things, on successfully
completing the development of our technology and commercial products, obtaining
the requisite regulatory approvals, establishing manufacturing and sales
and
marketing arrangements with third parties, and raising sufficient funds to
finance our activities. No assurance can be given that our product development
efforts will be successful, that required regulatory approvals will be obtained,
that any of our products will be manufactured at a competitive cost and will
be
of acceptable quality, or that the we will be able to achieve profitability
or
that profitability, if achieved, can be sustained.
We
may have difficulty raising needed capital in the future because of our limited
operating history and business risks associated with us.
We
generate no revenues from our proposed products or otherwise, and have expended
and will continue to expend substantial funds in the research, development
and
clinical and pre-clinical testing of our polymer products. Following the June
30, 2006 merger, we completed a private placement of securities raising gross
proceeds of $5.3 million. We anticipate that the net proceeds of the private
placement will only be sufficient to fund our operations through the third
quarter of 2007, following which we will need additional financing before we
can
complete the clinical testing and commercialization of our proposed products.
However, there can be no assurance that financing will be available on
acceptable terms or at all. Our future capital requirements will depend upon
many factors, including, but not limited to, continued progress in our research
and development activities, costs and timing of conducting clinical trials
and
seeking regulatory approvals and patent prosecutions, competing technological
and market developments, and our ability to establish collaborative
relationships with third parties. If adequate funds are unavailable, we may
have
to delay, reduce the scope of or eliminate one or more of our research or
development programs or product launches or marketing efforts or cease
operations.
Our
long-term capital requirements are expected to depend on many factors,
including:
|
·
|
continued
progress and cost of our research and development
programs;
|
|
·
|
progress
with pre-clinical studies and clinical
trials;
|
|
·
|
the
time and costs involved in obtaining regulatory
clearance;
|
|
·
|
costs
involved in preparing, filing, prosecuting, maintaining, defending
and
enforcing patent claims;
|
|
·
|
costs
of developing sales, marketing and distribution
channels;
|
|
·
|
market
acceptance of our products; and
|
|
·
|
costs
for training physicians and other health care
personnel.
|
In
addition, in the event that additional funds are obtained through arrangements
with collaborative partners or other sources, we may have to relinquish economic
and/or proprietary rights to some of our technologies or products under
development that we would otherwise seek to develop or commercialize by ourself.
We
depend upon key personnel who may terminate their employment with us at any
time.
We
currently have only eight employees. Our success will depend to a significant
degree upon the continued services of our key management and advisors,
including, Al Kraus, our Chief Executive Officer; Dr. James Winchester, our
Chief Medical Officer, who is employed by us on a part time basis; David
Lamadrid, our Chief Financial Officer; and Vincent Capponi, our Chief Operating
Officer. These individuals, other than Mr. Kraus, whose employment agreement
terminates in July 2008, do not have long-term employment agreements, and
there
can be no assurance that they will continue to provide services to us. In
addition, our success will depend on our ability to attract and retain other
highly skilled personnel. We may be unable to recruit such personnel on a
timely
basis, if at all. Management and other employees may voluntarily terminate
their
employment with us at any time. The loss of services of key personnel, or
the
inability to attract and retain additional qualified personnel, could result
in
delays in development or approval of our products, loss of sales and diversion
of management resources.
Our
Chief Medical Officer’s primary employment is with another employer
Dr.
James
Winchester, our Chief Medical Officer, serves as the Chief of Beth Israel
Medical Center’s Nephrology division. Although the time Dr. Winchester provides
to us varies from time to time, it is generally in the range of one-half
day to
one full day per week. Because Dr. Winchester’s primary employment is with Beth
Israel Medical Center, Dr. Winchester may not always be available to provide
us
with his services when needed by us in a timely manner.
Acceptance
of our
medical devices in the marketplace is uncertain, and failure to achieve market
acceptance will prevent or delay our ability to generate
revenues.
Our
future financial performance will depend, at least in part, upon the
introduction and customer acceptance of our polymer products. Even if approved
for marketing by the necessary regulatory authorities, our products may not
achieve market acceptance. The degree of market acceptance will depend upon
a
number of factors, including:
|
·
|
the
receipt of regulatory clearance of marketing claims for the uses
that we
are developing;
|
|
·
|
the
establishment and demonstration of the advantages, safety and efficacy
of
the our polymer technology;
|
|
·
|
pricing
and reimbursement policies of government and third-party payers such
as
insurance companies, health maintenance organizations and other health
plan administrators;
|
|
·
|
our
ability to attract corporate partners, including medical device companies,
to assist in commercializing our products;
and
|
|
·
|
our
ability to market our products.
|
Physicians,
patients, payers or the medical community in general may be unwilling to accept,
utilize or recommend any of our products. If we are unable to obtain regulatory
approval or commercialize and market our products when planned, we may not
achieve any market acceptance or generate revenue.
We
may
face litigation from third parties claiming that our products infringe on their
intellectual property rights, or seek to challenge the validity of our
patents.
Our
future success is also dependent on the strength of our intellectual property,
trade secrets and know-how, which have been developed from years of research
and
development. In addition to the “Purolite” litigation discussed below which
we’ve recently settled, we may be exposed to additional future litigation by
third parties seeking to challenge the validity of our rights based on claims
that our technologies, products or activities infringe the intellectual property
rights of others or are invalid, or that we have misappropriated the trade
secrets of others.
Since
our
inception, we have sought to contract with large, established manufacturers
to
supply commercial quantities of our adsorbent polymers. As a result, we have
disclosed, under confidentiality agreements, various aspects of our technology
with potential manufacturers. We believe that these disclosures, while necessary
for our business, have resulted in the attempt by potential suppliers to assert
ownership claims to our technology in an attempt to gain an advantage in
negotiating manufacturing rights.
We
have
previously engaged in discussions with the Brotech Corporation and its
affiliate, Purolite International, Inc. (collectively “Purolite”), which had
demonstrated a strong interest in being our polymer manufacturer. 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
2003, Purolite filed a lawsuit against us asserting, among other things,
co-ownership and co-inventorship of certain of our patents. On September 1,
2006, the United States District Court for the Eastern District of Pennsylvania
approved a Stipulated Order and Settlement Agreement under which we and Purolite
agreed to the settlement of the action. The Settlement Agreement provides us
with the exclusive right to use our patented technology and proprietary know
how
relating to adsorbent polymers for a period of 18 years. Under the terms of
the
Settlement Agreement, we have agreed to pay Purolite royalties of 2.5% to 5%
on
the sale of certain of our products if and when those products are sold
commercially.
Several
years ago we engaged in discussions with the Dow Chemical Company, which had
indicated a strong interest in being our polymer manufacturer. After a Dow
representative on our Advisory Board resigned, Dow filed and received several
patents naming our former Advisory Board member as an inventor. In management’s
view the Dow patents improperly incorporate our technology and should not have
been granted to Dow. The existence of these Dow patents could result in a
potential dispute with Dow in the future and additional expenses for
us.
Other
than limited FDA approved testing of our products, we have not yet commenced
the
process of seeking FDA approval of our products. The approval process, if
permitted to proceed by the FDA, will involve pilot and pivotal clinical
studies
and is
lengthy and costly. The failure to obtain government approvals, including
required FDA approvals, for our polymer products, or to comply with ongoing
governmental regulations could prevent, delay or limit introduction or sale
of
our products and result in the failure to achieve revenues or maintain our
operations.
The
manufacturing and marketing of our products will be subject to extensive and
rigorous government regulation in the United States, in various states and
in
foreign countries. In the United States and other countries, the process of
obtaining and maintaining required regulatory approvals is lengthy, expensive,
and uncertain. There can be no assurance that we will ever obtain the necessary
approvals to sell our products. Even if we do ultimately receive FDA approval
for any of our products, we will be subject to extensive ongoing regulation.
Our
products will be subject to regulation as medical devices under the Federal
Food, Drug, and Cosmetic Act. In the United States, the FDA enforces, where
applicable, development, clinical testing, labeling, manufacturing,
registration, notification, clearance or approval, marketing, distribution,
record keeping, and reporting requirements for medical devices. Different
regulatory requirements may apply to our products depending on how they are
categorized by the FDA under these laws. Current FDA regulations classify our
CytoSorb™ device (the first product we intend to seek FDA approval for) as a
Class III device (CFR 876.5870—Sorbent Hemoperfusion System). We intend to
submit a 510(k) pre-market notification to the FDA for approval to market this
product. There can be no assurance, however, that the FDA will grant clearance
to market CytoSorb™ in a timely manner, if at all, or that the FDA will not
require the submission of additional clinical data or a pre-market approval
application ("PMA"), which is a lengthier process. There can be no assurance
that the clinical trials we conduct will demonstrate sufficient safety and
efficacy to obtain the required regulatory approvals for marketing, or that
we
will be able to comply with any additional FDA, state or foreign regulatory
requirements. In addition, there can be no assurance that government regulations
applicable to our products or the interpretation of those regulations will
not
change. FDA approvals are also required to commence the pilot and pivotal
clinical studies we need to conduct to further study our devices. There can
be
no assurance that the FDA will allow the clinical studies to commence. We also
are and will be subject to other Federal, state, and local laws, regulations
and
recommendations relating to laboratory and manufacturing practices as well
as
Medicare, Medicaid and anti-kickback laws. Non-compliance with applicable
requirements can result in civil penalties, the recall, injunction or seizure
of
products, an inability to import products into the United States, the refusal
by
the government to approve or clear product approval applications, the withdrawal
of previously approved product applications and criminal prosecution. The extent
of potentially adverse government regulation that might arise from future
legislation or administrative action cannot be predicted.
We
have conducted limited clinical testing of our BetaSorb™
device
and no clinical testing of our CytoSorb™
device. Data obtained from clinical and pre-clinical trials is susceptible
to
varying interpretations, which could delay, limit or prevent regulatory
clearances.
To
date,
we have conducted limited clinical testing on our products. There can be
no
assurance that we will successfully complete the clinical trials necessary
to
receive regulatory approvals. While tests conducted by us and others have
produced results we believe to be encouraging and indicative of the efficacy
of
our products and technology, data already obtained, or in the future obtained,
from pre-clinical studies and clinical trials do not necessarily predict
the
results that will be obtained from later pre-clinical studies and clinical
trials. Moreover, pre-clinical and clinical data are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval.
A
number of companies in the medical device and pharmaceutical industries have
suffered significant setbacks in advanced clinical trials, even after promising
results in earlier trials. The failure to adequately demonstrate the safety
and
effectiveness of an intended product under development could delay or prevent
regulatory clearance of the device, resulting in delays to commercialization,
and could materially harm our business.
We
rely extensively on research and testing facilities at various universities
and
institutions, which could be adversely affect us should we lose access to those
facilities.
Although
we have our own research laboratories and clinical facilities, we collaborate
with numerous institutions, universities and commercial entities to conduct
research and testing of our products. We currently maintain a good working
relationship with these parties. However, should the situation change, the
cost
and time to establish or locate alternative research and development could
be
substantial and delay gaining FDA approval and commercializing our
products.
We
are and will be exposed to product liability risks, and clinical and preclinical
liability risks, which could place a substantial financial burden upon us should
we be sued.
Our
business exposes us to potential product liability and other liability risks
that are inherent in the testing, manufacturing and marketing of medical
devices. We cannot be sure that claims will not be asserted against us. A
successful liability claim or series of claims brought against us could have
a
material adverse effect on our business, financial condition and results of
operations.
We
do not
currently have any product liability insurance or other liability insurance
relating to clinical trials or any products. We cannot give assurances that
we
will be able to obtain or maintain adequate product liability insurance on
acceptable terms, if at all, or that such insurance will provide adequate
coverage against potential liabilities. Claims or losses in excess of any
product liability insurance coverage that we may obtain could have a material
adverse effect on our business, financial condition and results of
operations.
Certain
university and other relationships are important to our business and may
potentially result in conflicts of interests.
Dr.
John
Kellum and Dr. David Powner, among others, are critical care advisors and
consultants of ours and are associated with University of Pittsburgh Medical
Center and University of Texas, respectively. Their association with these
institutions may currently or in the future involve conflicting interests in
the
event they or these institutions enter into consulting or other arrangements
with competitors of ours.
We
have limited manufacturing experience, and once our products are approved,
we
may not be able to manufacture sufficient quantities at an acceptable cost,
or
without shut-downs or delays.
We
remain
in the research and development and clinical and pre-clinical trial phase of
product commercialization. Accordingly, once our products are approved for
commercial sale, we will need to establish the capability to commercially
manufacture our products in accordance with FDA and other regulatory
requirements. We have limited experience in establishing, supervising and
conducting commercial manufacturing. If we or the third-party manufacturers
of
our products fail to adequately establish, supervise and conduct all aspects
of
the manufacturing processes, we may not be able to commercialize our products.
Due
to our limited marketing, sales and distribution experience, we may be
unsuccessful in our efforts to sell our products.
We
expect
to enter into agreements with third parties for the commercial manufacture
and
distribution of our products. There can be no assurance that parties we may
engage to market and distribute our products will:
|
·
|
satisfy
their financial or contractual obligations to
us;
|
|
·
|
adequately
market our products; or
|
|
·
|
not
offer, design, manufacture or promote competing
products.
|
If
for
any reason any party we engage is unable or chooses not to perform its
obligations under our marketing and distribution agreement, we would experience
delays in product sales and incur increased costs, which would harm our business
and financial results.
If
we are unable to convince physicians and other health care providers as to
the
benefits of our products, we may incur delays or additional expense in our
attempt to establish market acceptance.
Broad
use
of our products may require physicians and other health care providers to be
informed about our products and their intended benefits. The time and cost
of
such an educational process may be substantial. Inability to successfully carry
out this education process may adversely affect market acceptance of our
products. We may be unable to educate physicians regarding our products in
sufficient numbers or in a timely manner to achieve our marketing plans or
to
achieve product acceptance. Any delay in physician education may materially
delay or reduce demand for our products. In addition, we may expend significant
funds towards physician education before any acceptance or demand for our
products is created, if at all.
The
market for our products is rapidly changing and competitive, and new devices
and
drugs which may be developed by others could impair our ability to maintain
and
grow our business and remain competitive.
The
medical device and pharmaceutical industries are subject to rapid and
substantial technological change. Developments by others may render our
technologies and products noncompetitive or obsolete. We also may be unable
to
keep pace with technological developments and other market factors.
Technological competition from medical device, pharmaceutical and biotechnology
companies, universities, governmental entities and others diversifying into
the
field is intense and is expected to increase. Many of these entities have
significantly greater research and development capabilities and budgets than
we
do, as well as substantially more marketing, manufacturing, financial and
managerial resources. These entities represent significant competition for
us.
If
users of our products are unable to obtain adequate reimbursement from
third-party payers, or if new restrictive legislation is adopted, market
acceptance of our products may be limited and we may not achieve anticipated
revenues.
The
continuing efforts of government and insurance companies, health maintenance
organizations and other payers of healthcare costs to contain or reduce costs
of
health care may affect our future revenues and profitability, and the future
revenues and profitability of our potential customers, suppliers and
collaborative partners and the availability of capital. For example, in certain
foreign markets, pricing or profitability of medical devices is subject to
government control. In the United States, given recent federal and state
government initiatives directed at lowering the total cost of health care,
the
U.S. Congress and state legislatures will likely continue to focus on health
care reform, the cost of medical devices and on the reform of the Medicare
and
Medicaid systems. While we cannot predict whether any such legislative or
regulatory proposals will be adopted, the announcement or adoption of these
proposals could materially harm our business, financial condition and results
of
operations.
Our
ability to commercialize our products will depend in part on the extent to
which
appropriate reimbursement levels for the cost of our products and related
treatment are obtained by governmental authorities, private health insurers
and
other organizations, such as health maintenance organizations (“HMOs”).
Third-party payers are increasingly challenging the prices charged for medical
care. Also, the trend toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and medical
devices, as well as legislative proposals to reform health care or reduce
government insurance programs, may all result in lower prices for our products.
The cost containment measures that health care payers and providers are
instituting and the effect of any health care reform could materially harm
our
ability to operate profitably.
INVESTMENT
RISKS
Directors,
executive officers and principal stockholders own a significant percentage
of
the shares of Common Stock, which will limit your ability to influence corporate
matters.
Our
directors, executive officers and principal stockholders together beneficially
own approximately 75% of our outstanding shares of Common Stock. Accordingly,
these stockholders could have a significant influence over the outcome of any
corporate transaction or other matter submitted to stockholders for approval,
including mergers, consolidations and the sale of all or substantially all
of
our assets and also could prevent or cause a change in control. The interests
of
these stockholders may differ from the interests of our other stockholders.
Third parties may be discouraged from making a tender offer or bid to acquire
us
because of this concentration of ownership.
Our
Series A Preferred Stock Provides for the Payment of
Penalties.
Immediately
following our June 30, 2006 merger, we issued 5,250,000 shares of Series A
10%
Cumulative Convertible Preferred Stock with an aggregate stated value of
$5,250,000. We subsequently issued an additional 1,981,135 shares of Series
A
Preferred Stock to additional investors as well as in respect of dividends
issued on the shares of Series A Preferred Stock we initially issued, and we
may
issue additional shares of this series of preferred stock in the future as
dividends. The Certificate of Designation designating the Series A Preferred
Stock provides that upon the following events, among others, the dividend rate
with respect to the Series A Preferred Stock increases to 20% per annum, which
dividends would then be required to be paid in cash:
|
·
|
the
occurrence of “Non-Registration Events” including, the failure to cause a
registration statement registering the shares of Common Stock underlying
the Series A Preferred Stock and Warrants issued in connection therewith
to be effective within 240 days following the closing of the private
placement;
|
|
·
|
an
uncured breach by us of any material covenant, term or condition
in the
Certificate of Designation or any of the related transaction documents;
and
|
|
·
|
any
money judgment or similar final process being filed against us for
more
than $100,000.
|
The
registration rights provided for in the subscription agreement we entered into
with the purchasers in this offering:
|
·
|
require
that we file a registration statement with the SEC on or before 120
days
from the closing to register the shares of Common Stock issuable
upon
conversion of the Series A Preferred Stock and exercise of the Warrants,
and cause such registration statement to be effective within 240
days
following the closing; and
|
|
·
|
entitles
each of these investors to liquidated damages in an amount equal
to two
percent (2%) of the purchase price of the Series A Preferred Stock
if we
fail to timely file that registration statement with, or have it
declared
effective by, the SEC.
|
The
Certificate of Designation, Subscription Agreement and related transaction
documents also provide for various penalties and fees for breaches or failures
to comply with provisions of those documents, such as the timely payment of
dividends, delivery of stock certificates, and obtaining and maintaining an
effective registration statement with respect to the shares of Common Stock
underlying the Series A Preferred Stock and Warrants sold in the
offering.
Anti-Dilution
Provisions Of The Series A Preferred Stock And Warrants, As Well As The Terms
Of
The Employment Agreement With Our Chief Executive Officer, Could Result In
Dilution Of Stockholders
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 our 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, further
diluting holders of our Common Stock.
In
addition, under our Employment Agreement with Al Kraus, our Chief Executive
Officer, Mr. Kraus is entitled to be issued options to purchase Common Stock
at
a price of $6.64 per share so that the combined total of Common Stock owned
by
Mr. Kraus, including upon exercise of options, equals 5% of our outstanding
Common Stock on a fully diluted basis. Mr. Kraus has such right until such
time
as an aggregate of $20 million of financing has been received by us following
the commencement of his employment. Pursuant to his Employment Agreement,
based
on the number of currently outstanding shares of Common Stock, Series A
Preferred Stock, warrants and options, Mr. Kraus is entitled to purchase
approximately 367,483 shares of Common Stock at a price $6.64 per share.
Penny
Stock Regulations May Affect Your Ability To Sell Our Common
Stock.
To
the
extent the price of our Common Stock remains below $5.00 per share, our Common
Stock will be subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker dealers which sell these
securities to persons other than established customers and accredited investors.
Under these rules, broker-dealers who recommend penny stocks to persons other
than established customers and "accredited investors" must make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the associated risks. The additional burdens imposed upon
broker-dealers by these requirements could discourage broker-dealers from
effecting transactions in our Common Stock and may make it more difficult for
holders of our Common Stock to sell shares to third parties or to otherwise
dispose of them.
Future
Sales of Common Stock Could Result in a Decline in Market
Price.
Following
the completion of the merger, the holders of 3,750,000 shares of Common Stock
are able to sell such shares without registering them under the Securities
Act.
In addition, this registration statement covers the resale of 14,173,181
shares
of Common Stock underlying the Series A Preferred Stock and Warrants sold
in the
offering or issuable in connection therewith, as well as the shares of Common
Stock underlying the warrants we issued to Margie Chassman in consideration
of
her pledge of securities to investors in the offering as described below.
Sales
of a significant number of shares of Common Stock in the public market could
result in a decline in the market price of our Common Stock.
Our
Board of Directors may, without stockholder approval, issue and fix the terms
of
shares of preferred stock and issue additional shares of common stock adversely
affecting the rights of holders of our common stock.
Our
certificate of incorporation authorizes the issuance of up to 100,000,000
shares
of “blank check” preferred stock, with such designation rights and preferences
as may be determined from time to time by the Board of Directors. We have
designated 12,000,000 shares of Series A Preferred Stock as described above.
Subject to the rights of the holders of the Series A Preferred Stock, our
Board of Directors is empowered, without stockholder approval, to issue up
to
88,000,000 additional shares of preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the rights
of
the holders of our common stock. In addition, our certificate of incorporation
authorizes the issuance of up to 100,000,000 shares of common stock, of which
approximately 75,000,000 shares remain available for issuance and may be
issued
by us without stockholder approval. Issuances of additional shares of common
stock and/or preferred stock may be utilized as a method of discouraging,
delaying or preventing a change in control of our company.
Our
Charter Documents and Nevada Law May Inhibit A Takeover That Stockholders May
Consider Favorable.
Provisions
in our articles of incorporation and bylaws, and Nevada law, could delay or
prevent a change of control or change in management that would provide
stockholders with a premium to the market price of their Common Stock. The
authorization of undesignated preferred stock, for example, gives our board
the
ability to issue preferred stock with voting or other rights or preferences
that
could impede the success of any attempt to effect a change in control of us,
or
otherwise adversely affect holders of Common Stock in relation to holders of
preferred stock.
Compliance
with changing corporate governance and public disclosure regulations may result
in additional expense.
Keeping
abreast of, and in compliance with, changing laws, regulations and standards
relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations will require an increased amount
of management attention and external resources. In addition, prior to the
merger, our current management team was not subject to these laws and
regulations, as MedaSorb was a private corporation. We intend to continue to
invest all reasonably necessary resources to comply with evolving standards,
which may result in increased general and administrative expense and a diversion
of management time and attention from revenue-generating activities to
compliance activities.
Our
Common Stock is thinly traded on the OTC Bulletin Board, and we may be unable
to
obtain listing of our common stock on a more liquid market.
Our
Common Stock is quoted on the OTC Bulletin Board, which provides significantly
less liquidity than a securities exchange (such as the American or New York
Stock Exchange) or an automated quotation system (such as the Nasdaq Stock
Market). There is uncertainty that we will ever be accepted for a listing on
an
automated quotation system or securities exchange.
CAUTIONARY
STATEMENT CONCERNING
FORWARD-LOOKING
STATEMENTS
This
document contains “forward-looking statements”. These statements are subject to
risks and uncertainties and are based on the beliefs and assumptions of
management and information currently available to management. The use of
words
such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,”
“should,” “likely” or similar expressions, indicates a forward-looking
statement. Forward-looking statements are not guarantees of performance.
They
involve risks, uncertainties and assumptions. Future results may differ
materially from those expressed in the forward-looking statements. Many of
the
factors that will determine these results are beyond the ability of MedaSorb
to
control or predict. Stockholders are cautioned not to put undue reliance
on any
forward-looking statements, which speak only to the date made. For a discussion
of some of the factors that may cause actual results to differ materially
from
those suggested by the forward-looking statements, please read carefully
the
information under “Risk Factors” beginning on page 4.
The
identification in this document of factors that may affect future performance
and the accuracy of forward-looking statements is meant to be illustrative
and
by no means exhaustive. All forward-looking statements should be evaluated
with
the understanding of their inherent uncertainty. You may rely only on the
information contained in this prospectus. We have not authorized anyone to
provide information different from that contained in this prospectus. Neither
the delivery of this prospectus nor the sale of Common Stock means that
information contained in this prospectus is correct after the date of this
prospectus. This prospectus is not an offer to sell or solicitation of an offer
to buy these securities in any circumstances under which the offer or
solicitation is unlawful.
USE
OF PROCEEDS
There
will be no proceeds to us from the sale of shares of Common Stock in this
offering. However, we may receive up to approximately $4,879,816 upon exercise
of the outstanding warrants covered by this prospectus (assuming that no
warrant
holder acquires shares by a “cashless” exercise). We intend to use any proceeds
from the exercise of warrants for working capital
purposes.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
Common Stock trades in the over-the-counter-market on the OTC Bulletin Board
under the symbol “MSBT.” Our Common Stock began trading on such market on August
9, 2006. The quotations listed below reflect inter-dealer prices, without retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
|
|
Price
|
|
|
|
High
|
|
Low
|
|
2006 |
|
|
|
|
|
First
quarter
|
|
|
n/a
|
|
|
n/a
|
|
Second
quarter
|
|
|
n/a
|
|
|
n/a
|
|
Third
quarter (from August 9)
|
|
$
|
3.95
|
|
$
|
1.80
|
|
The
number of holders of record for our Common Stock as of October 16, 2006 was
approximately 385. This number excludes individual stockholders holding stock
under nominee security position listings.
Dividends
We
have
not paid any cash dividends on our Common Stock and do not anticipate declaring
or paying any cash dividends in the foreseeable future. In addition, the terms
of our Series A Preferred Stock prohibit the payment of dividends on our Common
Stock. Nonetheless, the holders of our Common Stock are entitled to dividends
when and if declared by our board of directors from legally available
funds.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table summarizes outstanding options as of September 30, 2006,
after
giving effect to the merger. The Registrant had no options outstanding prior
to
the merger, and all of the options below were issued in connection with the
merger to former option holders of MedaSorb.
|
|
Number
of securities to be issued upon exercise of outstanding
options
|
|
Weighted-average
exercise price of outstanding options
|
|
Number
of securities remaining available for future issuance under
equity
compensation plans (excluding securities reflected in first
column)
|
|
Equity
compensation plans approved by stockholders
|
|
|
0
|
|
|
n/a
|
|
|
400,000
|
(1)
|
Equity
compensation plans not approved by stockholders
|
|
|
951,097
|
|
$
|
17.26
|
|
|
2,273,300
|
(2)
|
Total
|
|
|
951,097
|
(3)
|
$
|
17.26
|
(3)
|
|
2,673,300
|
|
|
(1)
|
Represents
options that may be issued under our 2003 Stock Option
Plan.
|
|
(2)
|
Represents
options that may be issued under our 2006 Long-Term Incentive Plan.
|
|
(3)
|
Represents
options to purchase (i) 118,788 shares of Common Stock at a price
of
$41.47 per share, (ii) 232,051 shares of Common Stock at a price
of $31.52
per share, (iii) 56,279 shares of Common Stock at a price of $21.57
per
share, (iv) 18,958 shares of Common Stock at a price of $19.91
per share,
(v) 358,265 shares of Common Stock at a price of $6.64 per share,
and (vi)
166,756 shares of Common Stock at a price of $1.25 per
share.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Reverse
Merger
On
June
30, 2006, pursuant to an Agreement and Plan of Merger, by and among us (formerly
known as Gilder Enterprises, Inc.), MedaSorb Technologies, Inc., a Delaware
corporation (“MedaSorb Delaware”) and MedaSorb Acquisition Inc., a newly formed
wholly-owned Delaware subsidiary of ours, MedaSorb
Delaware
merged with MedaSorb Acquisition Inc. (now known as MedaSorb Technologies,
Inc.), and the stockholders of MedaSorb Delaware became our stockholders.
MedaSorb Technologies, Inc. is now a wholly owned subsidiary of ours, and its
business (the business conducted by MedaSorb Delaware prior to the merger)
is
now our 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 will seek to commercialize a blood purification technology that
efficiently
removes middle molecular weight toxins from circulating blood. We believe
that
our polymer technology represents an effective therapeutic approach to severe
health complications caused or complicated by middle molecular weight toxins
and
that current state of the art blood purification technology (such as dialysis)
is incapable of effectively clearing these toxins.
We
intend
to initially focus our efforts on the commercialization of our CytoSorb™
product, which we believe will provide a relatively faster regulatory pathway
to
market. The first indication for CytoSorb™ will be in the treatment of sepsis
(bacterial infection of the blood), which causes systematic inflammatory
response syndrome. CytoSorb™ has been designed to prevent or reduce the
accumulation of high concentrates of cytokines in the bloodstream associated
with sepsis. It is intended for short term use as an adjunctive device to
the
standard treatment of sepsis. To date, we have manufactured the CytoSorb™ device
on a limited basis for testing purposes, including for use in clinical
trials.
Following
the sepsis indication, we intend to continue our research in other acute
conditions where CytoSorb™ has indicated potential in preliminary studies based
on its ability to prevent or reduce the accumulation of cytokines in the
bloodstream. These conditions include the prevention of post-operative
complications of cardiac surgery (cardiopulmonary bypass surgery) and damage
to
organs donated for transplant prior to organ harvest. We are also exploring
the
potential benefits the CytoSorb™ device may have in removing drugs from blood in
situations such as patient overdoses.
We
are
currently completing the design of our first pilot study utilizing the CytoSorb™
device in humans for the treatment of sepsis. We intend to submit this design
to
the United States Food and Drug Administration for approval in January 2007.
If
the proposed pilot study is approved by the FDA, of which approval there
can be
no assurance, we anticipate the commencement of clinical trials by the third
quarter of 2007. If these trials are successful and we obtain FDA approval
to
proceed with our follow-up pivotal study, we anticipate that we will be able
to
begin sales of CytoSorb™ by mid-to-late 2009. There can be no assurance that the
FDA will allow us to conduct the pivotal study following receipt of data
from
the pilot study. Previous studies using our BetaSorb™ device in patients with
chronic kidney failure have provided valuable data which we will use in
conducting clinical trials using our CytoSorb™ device. No assurance can be given
that our proposed CytoSorb™ product will work as intended or that we will be
able to obtain FDA approval to sell CytoSorb™. Even if we ultimately obtain FDA
approval, because we can not control the timing of FDA responses to our
submissions, there can be no assurance as to when such approval will be
obtained.
Our
research and development costs were $750,411 and $1,021,039 for the nine
months
ended September 30, 2006 and 2005, respectively, and $262,217 and $253,650,
for
the three months ended September 30, 2006 and 2005, respectively. We have
experienced substantial operating losses since inception. As of September
30,
2006, we had an accumulated deficit of $66,228,527 which included losses
from
operations of $3,665,596 for the year ended December 31, 2005, $645,703 for
the
three-month period ended September 30, 2006 and $6,851,614 for the nine-month
period ended September 30, 2006. In comparison, we had losses from operations
of
$962,812 and $2,634,455, respectively, for the three and nine month periods
ended September 30, 2005. 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,
$649,625, and $1,439,362 respectively, for the year ended December 31, 2005,
the
three-months ended September 30, 2006, and the nine months ended September
30,
2006, respectively. In addition, our loss for the nine months ended September
30, 2006 includes net interest expense of $4,790,329, primarily consisting
of
the following, offset by interest income of $49,941:
|
·
|
debt
discount charges of $3,351,961 as a result of the issuance of 3,058,141
shares of common stock to the holders of MedaSorb Delaware convertible
notes in the aggregate principal amount of $6,549,900 to induce
those
holders to convert those notes into common stock prior to the
merger,
|
|
·
|
$423,309
of interest expense with respect to those convertible
notes,
|
|
·
|
$1,000,000
of debt discount charges as a result of the issuance to Margie
Chassman of
10,000,000 shares of common stock in connection with the funding
of a
$1,000,000 bridge loan to MedaSorb Delaware prior to the merger,
and
|
|
·
|
$65,000
of interest expense with respect to the $1,000,000 bridge loan
from Ms.
Chassman.
|
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 the reverse merger), 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 (which are now our
financial statements) 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.
As
of
September 30, 2006 we had cash on hand of $3,576,869, and current liabilities
of
$2,397,453. We believe that we have sufficient cash to fund our operations
for
the next 12 months,
following
which we will need additional financing before we can complete the clinical
testing and commercialization of our proposed products. There
can
be no assurance that we will be successful in our capital raising efforts.
In
October 2005, MedaSorb Delaware entered into an Investment Agreement with Margie
Chassman pursuant to which she advanced us $1,000,000. The advance bore interest
at the rate of 6% per annum. Pursuant to the terms of the Investment Agreement,
on October 28, 2006, the $1,000,000 advance was converted into
1,000,000 shares
of
Series A Preferred Stock and warrants to purchase 400,000 shares
of
Common Stock at a price of $2.00 per share.
BUSINESS
Overview
We
are a
medical device company that is currently in the development stage, headquartered
in Monmouth Junction, New Jersey (near Princeton). We have developed and
will
seek to commercialize a blood purification technology that efficiently removes
middle molecular weight toxins from circulating blood. We believe that our
polymer technology represents an effective therapeutic approach to severe
health
complications caused or complicated by middle molecular weight toxins and
that
current state of the art blood purification technology (such as dialysis)
is
incapable of effectively clearing these toxins.
We
have
developed two products, CytoSorb™ and BetaSorb™ utilizing our adsorbent polymer
technology. These products are known medically as hemoperfusion devices.
During
hemoperfusion, blood is removed from the body via a catheter or other blood
access device, perfused through a filter medium where toxic compounds are
removed, and returned to the body.
We
intend
to initially focus our efforts on the commercialization of our CytoSorb™
product, which we believe will provide a relatively faster regulatory pathway
to
market. The first indication for CytoSorb™ will be in the treatment of sepsis
(bacterial infection of the blood), which causes systematic inflammatory
response syndrome. CytoSorb™ has been designed to prevent or reduce the
accumulation of high concentrates of cytokines in the bloodstream associated
with sepsis. It is intended for short term use as an adjunctive device to
the
standard treatment of sepsis. The CytoSorb™ device consists of a cylinder
containing the adsorbent polymer beads. The cylinder incorporates an industry
standard luer fitting at either end of the device which connects directly
to the
extracorporeal circuit (bloodlines) on a stand alone basis. As blood passes
over
the beads in the cylinder, toxins (cytokines) are adsorbed from the blood.
To
date, we have manufactured the CytoSorb™ device on a limited basis for testing
purposes, including for use in clinical trials.
Following
the sepsis indication, we intend to continue our research in other acute
conditions where CytoSorb™ has indicated potential in preliminary studies based
on its ability to prevent or reduce the accumulation of cytokines in the
bloodstream. These conditions include the prevention of post-operative
complications of cardiac surgery (cardiopulmonary bypass surgery) and damage
to
organs donated for transplant prior to organ harvest. We are also exploring
the
potential benefits the CytoSorb™ device may have in removing drugs from blood in
situations such as patient overdoses.
We
are
currently completing the design of our first pilot study utilizing the CytoSorb™
device in humans for the treatment of sepsis. We intend to submit this design
to
the United States Food and Drug Administration for approval in January 2007,
and
if the proposed pilot study is approved by the FDA, to commence clinical
trials
by the third quarter of 2007. If these trials are successful and we obtain
FDA
approval to proceed with our follow-up pivotal study, we anticipate that
we will
be able to begin sales of CytoSorb™ by mid-to-late 2009. Previous studies using
our BetaSorb™ device in patients with chronic kidney failure have provided
valuable data which we will use in conducting clinical trials using our
CytoSorb™ device. However, limited studies have been conducted using our
CytoSorb™ device to date and no assurance can be given that our proposed
CytoSorb™ product will work as intended or that we will be able to obtain FDA
approval to sell CytoSorb™. Even if we ultimately obtain FDA approval, because
we can not control the timing of FDA responses to our submissions, there
can be
no assurance as to when such approval will be obtained.
Our
BetaSorb™ device is intended to remove beta2-microglobulin
from the blood of patients suffering from chronic kidney failure who rely
on
long term dialysis therapy to sustain their life. BetaSorb™ utilizes an
absorbent polymer packed into an identically shaped and constructed cylinder
as
utilized for our CytoSorb™ product, although the polymers used in the two
devices are physically different. The BetaSorb™ device also incorporates an
industry standard luer fitting at either end of the device which connects
directly into the extracorporeal circuit (bloodlines) in series with a dialyser.
To date, we have also manufactured the BetaSorb™ device on a limited basis for
testing purposes, including for use in clinical trials.
We
had
initially identified end stage renal disease (ESRD) as the target market
for our
polymer-based adsorbent technology. However, during the development of
BetaSorb™, we identified several applications for our adsorbent technology in
the treatment of critical care patients. As a result, we shifted our priorities
to pursue critical care applications (such as for the treatment of sepsis)
for
our technology given that BetaSorb’s™ potential for usage in chronic conditions
such as end stage renal disease is anticipated to have a longer and more
complex
regulatory pathway. We currently intend to pursue our BetaSorb™ product after
the commercialization of the CytoSorb™ product. At such time as we determine to
proceed with our proposed BetaSorb™ product, if ever, we will need to conduct
additional clinical studies using the BetaSorb™ device and obtain FDA approval.
To
date,
we have conducted clinical studies using our BetaSorb™ device in patients with
chronic kidney failure, which have provided valuable data which underpin
the
development of the critical care applications for our technology. The BetaSorb™
device has been in used in three human pilot trials in the U.S. and Europe,
with
347 treatments, with some patients using the device for up to 24 weeks (in
multiple treatment sessions lasting up to four hours, three times per week)
in
connection with the application of our products to patients suffering from
chronic kidney failure. The BetaSorb™ device design was also tested on a single
patient with bacterial sepsis, producing results that our management has
found
encouraging and consistent with our belief that our device design is appropriate
for a more extensive sepsis study. In addition, CytoSorb’s™ toxin clearing
ability and the ability to interact safely with blood (hemocompatibility)
has
been demonstrated through ISO 10993 testing and in limited studies on rats.
We
have
not generated any revenue to date. We have incurred losses in each of our
fiscal
years and expect these losses to continue for the foreseeable future. We
will
need to raise significant additional funds to conduct clinical trials and
obtain
regulatory approvals to commercialize our products. No assurance can be given
that we will ever successfully commercialize any products.
Corporate
History
We
were
incorporated in Nevada on April 25, 2002 as Gilder Enterprises, Inc. and
were
originally engaged in the business of installing and operating computer networks
that provided high-speed access to the Internet. On June 30, 2006, we disposed
of our original business, and pursuant to an Agreement and Plan of Merger,
acquired all of the stock of MedaSorb Technologies, Inc. (“MedaSorb Delaware”)
in a merger, and its business became our business. In connection with the
merger, we also changed our principal executive offices to those of MedaSorb
Delaware, which are located at 7 Deer Park Drive, Suite K, Monmouth Junction,
New Jersey 08852. Following the merger, in July 2006 we changed our name
to
MedaSorb Technologies Corporation.
MedaSorb
Delaware was originally organized as a Delaware limited liability company in
August 1997 as Advanced Renal Technologies, LLC. MedaSorb Delaware changed
its
name to RenalTech International, LLC in November 1998, and to MedaSorb
Technologies, LLC in October 2003. In
December 2005, MedaSorb Delaware converted from a limited liability company
to a
corporation.
MedaSorb
Delaware has been engaged in research and development since its inception,
and
prior to the merger, had raised approximately $53 million from
investors. These proceeds have been used to fund the development of multiple
product applications and to conduct clinical trials. These funds have also
been
used to establish in-house manufacturing capacity to meet clinical testing
needs, expand our intellectual property through additional patents and to
develop extensive proprietary know-how with regard to our products.
Immediately
prior to the merger, MedaSorb Delaware had 292 stockholders that held an
aggregate of 20,340,929 shares of common stock of MedaSorb Delaware.
In
connection with the merger, certain stockholders of ours (i.e.,
persons who were stockholders of Gilder Enterprises prior to the merger),
including Joseph Bowes, a former principal stockholder and our sole director
and
officer prior to the merger, sold an aggregate of 3,617,500 shares of our
Common
Stock to several purchasers, and forfeited 4,105,000 shares of Common Stock,
which we cancelled. As a result, prior to giving effect to the merger, we
had
outstanding 3,750,000 shares of Common Stock and, after giving effect to
the
merger, we had outstanding 24,090,929 shares of Common Stock.
The
principal stockholders of MedaSorb Delaware immediately prior to the merger
were
Margie Chassman, Guillermina Montiel, Al Kraus and Robert Shipley, who
respectively beneficially owned 10,000,000 shares (49.2%), 5,052,456 shares
(24.6%), 1,393,631 shares (6.9%) and 1,248,372 shares (6%), of the outstanding
common stock of MedaSorb Delaware. Immediately following the merger and the
closing of the Series A Preferred Stock financing described below, Ms. Chassman
beneficially owned an additional 630,000 shares of Common Stock underlying
the
warrant we issued to her in connection with her pledge of stock to the
purchasers of the Series A Preferred Stock, as described below. On July 5,
2006,
Ms. Chassman transferred 2,005,000 shares of Common Stock owned by her to
her
designees as provided for under the Investment Agreement described elsewhere
in
this prospectus. In addition, following the closing of the Series A Preferred
Stock financing, without giving effect to applicable restrictions that prohibit
conversion of the Series A Preferred Stock or exercise of warrants if as
a
result the holder would hold in excess of 4.99% of our Common Stock, Longview
Fund, LP beneficially owned 3,600,000 shares (13%) of our Common
Stock.
Principal
Terms of the Reverse Merger
In
connection with the merger,
the
former stockholders of MedaSorb Delaware were issued an aggregate of 20,340,929
shares of Common Stock in exchange for the shares of MedaSorb common stock
previously held by them. In addition, pursuant to the terms of the merger,
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
options to purchase the same number of shares of our Common Stock at the
same
exercise prices and otherwise on the same general terms as the MedaSorb
Delaware
options and warrants that were cancelled. 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 our Common Stock
as
payment toward such services.
Concurrently
with the closing of the merger, Joseph G. Bowes, our sole director and
officer
prior to the merger, appointed Al Kraus, Joseph Rubin, Esq., and Kurt Katz
to
the Board of Directors, and then resigned from the Board and from his positions
as an officer. In addition, at such time, Al Kraus was appointed our President
and Chief Executive Officer, James Winchester, MD was appointed our Chief
Medical Officer, Vincent Capponi was appointed our Chief Operating Officer
and
David Lamadrid was appointed our Chief Financial Officer.
For
accounting purposes, the merger is being accounted for as a reverse merger,
since we were a shell company prior to the merger, the former stockholders
of
MedaSorb Delaware own a majority of the issued and outstanding shares of
our
Common Stock after the merger, and the directors and executive officers
of
MedaSorb Delaware became our 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 our historical financial statements.
Principal
Terms of the Series A Financing Consummated upon the Closing of the
Merger
On
June
30, 2006, immediately following the merger, we sold to four institutional
investors, in a private offering generating gross proceeds of $5.25 million,
an
aggregate of 5,250,000 shares of our Series A 10% Cumulative Convertible
Preferred Stock initially convertible into 4,200,000 shares of Common Stock,
and
five-year warrants to purchase an aggregate of 2,100,000 shares of our
Common
Stock.
The
Series A Preferred Stock has a stated value of $1.00 per share. The Series
A
Preferred Stock is not redeemable at the holder’s option but may be redeemed by
us at our option following the third anniversary of the issuance of the Series
A
Preferred Stock for 120% of the stated value thereof plus any accrued but
unpaid
dividends upon 30 days' prior written notice (during which time the Series
A
Preferred Stock may be converted), provided a registration statement is
effective under the Securities Act with respect to the shares of our Common
Stock into which such Series A Preferred Stock is then convertible, and an
event
of default, as defined in the Certificate of Designations relating to the
Series
A Preferred Stock is not then continuing.
The
Series A Preferred Stock has a dividend rate of 10% per annum, payable
quarterly. The dividend rate increases to 20% per annum upon the occurrence
of
the events of default specified in the Certificate of Designations. Dividends
may be paid in cash or, provided no event of default is then continuing,
with
additional shares of Series A Preferred Stock valued at the stated value
thereof. The Series A Preferred Stock is convertible into Common Stock at
the
conversion rate of one share of Common Stock for each $1.25 of stated value
or
accrued but unpaid dividends converted.
The
warrants issued in the private placement have an initial exercise price of
$2.00
per share. The aggregate number of shares of Common Stock covered by the
Warrants equaled, at the date of issuance, one-half the number of shares
of
Common Stock issuable upon the full conversion of the Series A Preferred
Stock
issued to the investors on that date.
We
have
agreed to file a registration statement (of which this prospectus is a part)
under the Securities Act covering the Common Stock issuable upon conversion
of
the Series A Preferred Stock and exercise of the warrants within 120 days
following closing of the private placement and to cause it to become effective
within 240 days of that closing. We also granted the investors demand and
piggyback registration rights with respect to such Common Stock.
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 our 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, the conversion
price and/or exercise price will be reduced to the lower price.
In
connection with the sale of the Series A Preferred Stock and warrants to
the
four institutional investors, to induce those investors to make the investment,
Margie Chassman pledged to those investors securities of other publicly traded
companies. The pledged securities consist of a $400,000 promissory note of
Xechem International, Inc. convertible into Xechem common stock at $.005
per
share, and 250,000 shares of the common stock of Novelos Therapeutics, Inc.
Based on the market value of the Xechem common stock ($.07 per share) and
the
Novelos common stock ($1.03) per share, on June 30, 2006, the aggregate fair
market value of the pledged securities at the date of pledge was approximately
$5,857,500.
In
the
event those investors have suffered a loss on their investment in our securities
as of June 30, 2007 (as determined by actual sales by those investors or
the
market price of our Common Stock on such date), the investors may sell all
or a
portion of the pledged securities so that the investors receive proceeds
from
such sale in an amount equal to their loss on their investment in our
securities. In consideration of her pledge to these investors, we paid Ms.
Chassman (i) $525,000 in cash (representing 10% of the cash amount raised
from
the institutional investors), and (ii) five-year warrants to
purchase
|
·
|
525,000
shares of Series A Preferred Stock (representing 10% of the Series
A
Preferred Stock purchased by those investors), and
|
|
·
|
warrants
to purchase 210,000 shares of Common Stock at an exercise price
of $2.00
per share (representing 10% of the Series A Preferred Stock purchased
by
those investors),
|
for
an
aggregate exercise price of $525,000.
Technology,
Products and Applications
For
approximately the past half-century, the field of blood purification has been
focused on hemodialysis, a mature, well accepted medical technique primarily
used to sustain the lives of patients with permanent or temporary loss of kidney
function. It is widely understood by the medical community that dialysis has
inherent limitations in that its ability to remove toxic substances from blood
drops precipitously as the size of toxins increases. Our hemocompatible
adsorbent technology is expected to address this shortcoming by efficiently
removing toxins largely untouched by dialysis.
Our
products, CytoSorb™ and BetaSorb™ , are known in the medical field as
hemoperfusion devices. During hemoperfusion, blood is removed from the body
via
a catheter or other blood access device, perfused through a filter medium
where
toxic compounds are removed, and returned to the body.
We
believe that our polymer adsorbent technology represents an effective
therapeutic approach to severe health complications caused or complicated
by
middle molecular weight toxins, such as cytokines, circulating in the blood.
We
believe that our technology may have many applications in the treatment of
common, chronic and acute healthcare complications including the treatment
and/or prevention of sepsis; drug detoxification; the treatment of chronic
kidney failure; the treatment of liver failure; the prevention of post-operative
complications of cardiopulmonary bypass surgery; and the prevention of damage
to
organs donated by brain-dead donors prior to organ harvest. These applications
vary by cause and complexity as well as by severity but share a common
characteristic i.e. high concentrations of toxins in the circulating
blood.
Both
the
CytoSorb™ and BetaSorb™ device consist of a cylinder containing adsorbent
polymer beads, although the polymers used in the two devices are physically
different. The cylinders in both devices incorporate an industry standard
luer
fitting at either end of the device which connects directly to the
extracorporeal circuit (bloodlines) in series with a dialyser, in the case
of
the BetaSorb™ device, or as a stand alone device in the case of the CytoSorb™
device. Both devices will require no additional expensive equipment, and
will
require minimal training.
Markets
Sepsis
In
the
United States alone, there are more than one million new cases of sepsis
annually; extrapolated to a global population, the worldwide incidence is
several million cases per year. Severe trauma and community acquired pneumonia
are often associated with sepsis.
Sepsis
patients are critically ill and suffer a very high mortality rate of between
28%
and 60%. Because they are so expensive to treat, we believe that efficacy
rather
than cost will be the determining factor in the adoption of CytoSorb™ in the
treatment of sepsis. Based on current pricing of charcoal hemoperfusion devices
in the market today, we estimate that our CytoSorb™ device will sell for $500
per unit. Our current pricing model represents a fraction of what is currently
spent on the treatment of a sepsis patient.
Brain-Dead
Organ Donors
There
are
in excess of 6,000 brain dead organ donors each year in the United States;
worldwide, the number of these organ donors is estimated to be at least double
the U.S. brain dead organ donor population. There is a severe shortage of
donor
organs. Currently, there are more than 85,000 individuals on transplant waiting
lists in the United States. We expect that the use of our CytoSorb™ device in
brain dead organ donors will increase the number of viable organs harvested
from
the donor pool and improve the survival of transplanted organs.
Cardiopulmonary
Bypass Procedures
There
are
approximately 400,000 cardiopulmonary bypass (CPB) and cardiac surgery
procedures performed annually in the U.S. and more than 800,000 worldwide.
Some
patients, nearly one-third, suffer from post-operative complications of
cardiopulmonary bypass surgery, including complications from infection,
pneumonia, pulmonary, and neurological dysfunction. A common characteristic
of
these post operative complications is the presence of cytokines in the blood.
Extended surgery time leads to longer ICU recovery time and hospital stays,
both
leading to higher costs - approximately $32,000 per coronary artery bypass
graft
procedure. We believe that the use of CytoSorb™ during and after the surgical
procedure will prevent or mitigate post-operative complications for many
CPB
patients.
We
anticipate that the CytoSorb™ device, incorporated into the extracorporeal
circuit used with the by-pass equipment during surgery, and/or employed
post-operatively for a period of time, will mitigate inflammation and speed
recovery.
Chronic
Kidney Failure
The
National Kidney Foundation estimates that more than 20 million Americans
have
chronic kidney disease. Left untreated, chronic kidney disease can ultimately
lead to chronic kidney failure, which requires a kidney transplant or chronic
dialysis (generally three times per week) to sustain life. There are
approximately 300,000 patients in the United States currently receiving chronic
dialysis and more than 1.4 million worldwide. Approximately 89% of patients
with
chronic kidney disease are treated with hemodialysis.
Our
BetaSorb™ device has been designed for use in conjunction with standard
dialysis. Standard dialysis care typically involves three sessions per week,
averaging approximately 150 sessions per year. Assuming BetaSorb™ use in each
session, every 100,000 patients would require approximately 15 million devices
annually.
Products
The
CytoSorb™ Device (Critical Care)
APPLICATION:
Treatment and Prevention of Sepsis
Sepsis
is
defined by high levels of toxic compounds (“cytokines”) which are released into
the blood stream as part of the body’s auto-immune response to severe infection
or injury. These toxins cause severe inflammation and damage healthy tissues,
which can lead to organ dysfunction and failure. Sepsis is very expensive to
treat and has a high mortality rate.
Potential
Benefits:
By
preventing or reducing the accumulation of cytokines in the circulating blood,
we believe our adsorbent blood purification technology will prevent or mitigate
severe inflammation, organ dysfunction and failure in sepsis patients.
Therapeutic goals as an adjunctive therapy include reduced ICU and total
hospitalization time.
Background
and Rationale for Efficacy:
We
believe that the effective treatment of sepsis is the most valuable potential
application for our technology. Sepsis carries mortality rates of between
28%
and 60%. Death can occur within hours or days, depending on many variables,
including cause, severity, patient age and co-morbidities. Researchers estimate
that there are approximately one million new cases of sepsis in the U.S.
each
year; extrapolated to a global population, this equates to several million
new
cases annually. In the U.S. alone, treatment of sepsis costs nearly $18 billion
annually. According to the Centers for Disease Control, sepsis is the tenth
leading cause of death in the U.S., as reported by (CDC). More than 1,000
people
die each day from sepsis.
An
effective treatment for sepsis has been elusive. Pharmaceutical companies have
been trying to develop drug therapies to treat the condition. With the exception
of a single drug, Xigris® from Eli Lilly, which demonstrated a small improvement
in survival in a small segment of the patient population, to our knowledge,
all
other efforts to date have failed to significantly improve patient
survival.
We
believe that our technology presents a new therapeutic approach in the treatment
of sepsis. The potential benefits of blood purification in the treatment
of
sepsis patients are widely acknowledged by medical professionals and have
been
studied using dialysis and hemofiltration technology. These studies, while
encouraging, demonstrated that dialysis alone produced only limited benefit
to
sepsis patients. The reason for this appears to be rooted in a primary
limitation of dialysis technology itself: the inability of standard dialysis
to
effectively and efficiently remove larger toxins from circulating blood.
In
limited studies, our CytoSorb™ device efficiently removed these larger toxins.
CytoSorb’s™ toxin clearing ability and the ability to interact safely with blood
(hemocompatibility) has been demonstrated through ISO 10993 biocompatibility
testing and in limited studies on rats. Data collected during the “emergency and
compassionate use” treatment of a single sepsis patient has been encouraging to
us.
CytoSorb™
has been designed to achieve broad-spectrum removal of both pro- and
anti-inflammatory cytokines, preventing or reducing the accumulation of high
concentrations in the bloodstream. This approach is intended to modulate the
immune response without blocking or suppressing the function of any of its
mediators. For this reason, researchers have referred to the approach reflected
in our technology as ‘immunomodulatory’ therapy.
Projected
Timeline and Budget Requirements:
Previous
clinical studies using our BetaSorb™ device in patients with chronic kidney
failure have provided valuable data which underpin the development of the
critical care applications for our technology. The BetaSorb™ device has been in
used in three human pilot trials in the U.S. and Europe, with 347 treatments,
with some patients using the device for up to 24 weeks (in multiple treatment
sessions lasting up to four hours, three times per week) in connection with
the
application of our products to patients suffering from chronic kidney failure.
The BetaSorb™ device design was also tested on a single patient with bacterial
sepsis, producing results that our management has found encouraging and
consistent with our belief that our device design is appropriate for a more
extensive sepsis study. Our plans for the development of CytoSorb™ to treat
sepsis patients are summarized in the table below.
Task
|
|
Status/Estimated
Time Required
|
|
Estimated
Budget
Requirements
|
1.
Design pilot study
|
|
In
process; completion anticipated
end
2006 to first quarter of 2007
|
|
(nominal)
|
|
|
|
|
|
2.
Conduct pilot study
|
|
six
to nine months following design of pilot study and approval from
FDA to
commence the study
|
|
$1.2
million
|
|
|
|
|
|
3.
Design pivotal study
|
|
Concurrent
with item 2
|
|
(nominal)
|
|
|
|
|
|
4.
Conduct pivotal study
|
|
nine
to 12 months following completion of pilot study, submission of final
report of pilot study to FDA and FDA approval of pivotal study
design
|
|
$1.8
million
|
|
|
|
|
|
5.
Approval time following submission
|
|
six
to nine months
|
|
|
|
|
|
|
|
Total
|
|
Mid
to late 2009
|
|
$3.0
million
|
Because
our technology pertains to a medical device, the regulatory pathway and approval
process are faster and more straightforward than the process related to the
approval of a drug. However, even if we ultimately obtain FDA approval, because
we can not control the timing of FDA responses to our submissions, there
can be
no assurance as to when such approval will be obtained.
APPLICATION:
Prevention
and treatment of organ dysfunction in brain-dead organ donors to increase the
number and quality of viable organs harvested from donors
Potential
Benefits:
By
preventing or reducing high-levels of cytokines from accumulating in the
bloodstream of a brain-dead organ donor, CytoSorb™ aims to mitigate organ
dysfunction and failure which results from severe inflammation following
brain-death. The primary goals for this application are:
|
·
|
improving
the viability of organs which can be harvested from brain-dead organ
donors, and
|
|
·
|
increasing
the likelihood of organ survival following
transplant.
|
Background
and Rationale for Efficacy:
When
brain death occurs, the body responds by generating large quantities of
inflammatory cytokines. This process is similar to sepsis. A high percentage
of
donated organs are never transplanted due to this response, which damages
healthy organs and prevents transplant. In addition, inflammation in the donor
may damage organs that are harvested and reduce the probability of graft
survival following transplant.
There
is
a shortage of donated organs worldwide, with approximately 85,000 people
currently on the waiting list for organ transplants in the United States alone.
Because there are an insufficient number of organs donated to satisfy demand,
it
is vital to maximize the number of viable organs donated, and optimize the
probability of organ survival following transplant.
Projected
Timeline and Budget Requirements:
Studies
are currently being conducted under a $1 million grant from the Health Resources
and Services Administration (HRSA), an
agency
of the U.S. Department of Health and Human Services. Researchers at the
University of Pittsburgh Medical Center and the University of Texas, Houston
Medical Center completed the observational and dosing phases of the project
in
the third quarter of 2006. The observational and dosing phases of the study
involved 30 viable donors and eight non-viable donors, respectively. The
next
phase of this study, the treatment phase, will involve viable donors treated
with the CytoSorb™
device.
In this phase of the project, viable donors will be treated and the survival
and
function of organs in transplant recipients will be tracked and measured.
The
treatment phase will be contingent upon further discussion with the FDA and
HRSA
regarding trial design, as well as obtaining additional
funding.
APPLICATION:
Prevention and treatment of post-operative complications of cardiopulmonary
bypass surgery
Potential
Benefits:
By
preventing or reducing high levels of cytokines from accumulating in the blood
system during and following cardiac surgery, we anticipate that post-operative
complications of cardiopulmonary bypass surgery can be prevented or mitigated.
The primary goals for this application are to:
|
·
|
reduce
ventilator and oxygen therapy requirements;
|
|
·
|
reduce
length of stay in hospital intensive care units; and
|
|
·
|
reduce
the total cost of patient care.
|
Background
and Rationale for Efficacy:
Due to
the highly invasive nature of cardiopulmonary bypass surgery, high levels of
cytokines are produced by the body, triggering severe inflammation. By
preventing or reducing the accumulation of cytokines in a patient’s blood
stream, we expect to prevent or mitigate post-operative complications caused
by
an excessive or protracted inflammatory response to the surgery. While not
all
patients undergoing cardiac surgery suffer these complications, it is impossible
to predict before surgery which patients will be affected.
Projected
Timeline:
We
commissioned the University of Pittsburgh to conduct a study to characterize
the
production of cytokines as a function of the surgical timeline for
cardiopulmonary bypass surgery. An observational study of 32 patients was
completed, and information was obtained with respect to the onset and duration
of cytokine release. We expect that this information will aid us in defining
the
appropriate time to apply the CytoSorb™ device to maximize therapeutic impact.
We are not currently focusing our efforts on the commercialization of CytoSorb™
for application to cardiac surgery. Upon successful commercialization of
the
sepsis application, we will pursue the use of our polymer absorbent technology
for other critical care uses, such as cardiopulmonary bypass surgery.
The
BetaSorb™ Device (Chronic Care)
APPLICATION:
Prevention and treatment of health complications caused by the accumulation
of
metabolic toxins in patients with chronic renal failure
Potential
Benefits:
By
preventing or reducing high levels of metabolic waste products from accumulating
in the blood and tissues of long-term dialysis patients, we anticipate that
the
health complications characteristic to these patients can be prevented or
mitigated. The primary goals for this application are to
|
·
|
improve
and maintain the general health of dialysis patients;
|
|
·
|
improve
the quality of life of these
patients
|
|
·
|
reduce
the total cost of patient care; and
|
|
·
|
increase
life expectancy.
|
Background
and Rationale for Efficacy:
Our
BetaSorb™ device is intended for use on patients suffering from chronic kidney
failure who rely on long-term dialysis therapy to sustain life. Due to the
widely recognized inability of dialysis to remove larger proteins from blood,
metabolic waste products, such as Beta-2 microglobulin, accumulate to toxic
levels and are deposited in the joints and tissues of patients. Specific toxins
known to accumulate in these patients have been linked to their severe health
complications, increased healthcare costs, and reduced quality of life.
Researchers
also believe that the accumulation of toxins may play an important role in
the
significantly reduced life expectancy experienced by dialysis patients. In
the
U.S., the average life expectancy of a dialysis patient is five years. Industry
research has identified links between many of these toxins and poor patient
outcomes. By routinely removing these toxins during dialysis and preventing
or
reducing their accumulation, we expect our BetaSorb™ device to maintain or
improve patient health in the long-term. We believe that by reducing the
incidence of health complications, the annual cost of patient care will be
reduced and life expectancy increased.
The
poor
health experienced by chronic dialysis patients is illustrated by the fact
that
in the U.S. alone, more than $20 billion is spent annually caring for this
patient population. While the cost of providing dialysis therapy alone is
approximately $23,000 per patient per year, the total cost of caring for a
patient ranges from $60,000 to more than $120,000 annually due to various health
complications associated with dialysis.
Projected
Timeline:
We have
collected a significant amount of empirical data for the development of this
application. As the developer of this technology, we had to undertake extensive
research, as no comparable technology was available for reference purposes.
We
have completed several pilot studies, and most recently a clinical pilot
of six
patients in California for up to 24 weeks in which our BetaSorb™ device removed
the targeted toxin, beta2-microglobulin,
as expected. In total, we have sponsored clinical trials utilizing our BetaSorb™
device on 20 patients in 347 total treatments. Each trial was conducted by
a
clinic or hospital personnel with MedaSorb providing technical assistance
as
requested.
As
discussed above, due to practical and economic considerations, we are now
focusing our efforts and resources on commercializing our CytoSorb™ device for
critical care application. Following commercial introduction of the CytoSorb™
device, we expect to conduct additional clinical studies using the BetaSorb™
device in the treatment of end stage renal disease patients.
Commercial
and Research Partners
University
of Pittsburgh Medical Center
Pursuant
to a “SubAward Agreement” we entered into with the University of Pittsburgh in
September 2005, we are working with researchers at the University of Pittsburgh
- Critical Care Medicine Department in the development of the sepsis application
for our technology. Consisting of more than twenty physicians, as well as
numerous full-time scientists, educators and administrative assistants, the
Critical Care Medicine Department at the University of Pittsburgh is one
of the
largest organizations of its type in the world and has established an
international reputation for excellence in clinical care, education, and
research.
The
SubAward Agreement was entered into under the $7,000,000 grant from NIH entitled
“Systems Engineering of a Pheresis Intervention for Sepsis (SEPsIS)”
to study
the use of adsorbent polymer technology in the treatment of severe sepsis.
Under
the SubAward Agreement, we have been supplying UPMC with our
CytoSorbTM
polymer
for use by UPMC researchers in the study.
Researchers
at UPMC have participated in nearly every major clinical trial of potential
sepsis intervention during the past twenty years. Drs. Derek Angus and John
Kellum were investigators for Eli Lilly’s sepsis drug, Xigris®. Dr. Kellum, a
member of the UPMC faculty since 1994, is our principal investigator for
CytoSorb™. Dr. Kellum, together with several other researchers at UPMC, serve on
our Critical Care Advisory Board. Dr. Kellum’s research interests span various
aspects of Critical Care Medicine, but center on critical care nephrology
(including acid-base, and renal replacement therapy), sepsis and multi-organ
failure, and clinical epidemiology. He is Chairman of the Fellow Research
Committee at the University of Pittsburgh Medical Center and has
authored more than 70 publications and has received numerous research grants
from foundations and industry.
Fresenius
Medical Care
AG
In
1999,
we entered into an exclusive, long-term agreement with Fresenius Medical
Care
for the global marketing and distribution of our BetaSorb™ device and any
similar product we may develop for the treatment of renal disease. We currently
intend to pursue our BetaSorb™ product after the commercialization of the
CytoSorb™ product. At such time as we determine to proceed with our proposed
BetaSorb™ product, if ever, we will need to conduct additional clinical studies
using the BetaSorb™ device and obtain FDA approval.
Fresenius
Medical Care is the world's largest, integrated provider of products and
services for individuals with chronic kidney failure. Through its network
of
more than 1,600 dialysis clinics in North America, Europe, Latin America
and
Asia-Pacific, Fresenius Medical Care provides dialysis treatment to more
than
130,000 patients around the globe. Fresenius Medical Care is also the world's
largest provider of dialysis products, such as hemodialysis machines, dialyzers
and related disposable products.
Advisory
Boards
From
time
to time our management meets with scientific advisors who sit on our Scientific
Advisory Board, our Medical Advisory Board - Critical Care Medicine, and
our
Medical Advisory Board - Chronic Kidney Failure / Dialysis.
Our
Scientific Advisory Board consists of four physicians with expertise in
the
fields of fundamental chemical research, polymer research and development,
and
dialysis engineering technology.
Our
Medical Advisory Board - Critical Care Medicine consists of seven medical
doctors, three of whom are affiliated with UPMC, with expertise in critical
care
medicine, sepsis, multi-organ failure and related clinical study
design.
Our
Medical Advisory Board - Chronic Kidney Failure / Dialysis consists of
four
medical doctors with expertise in kidney function, kidney diseases and
their
treatment, and dialysis technology.
We
compensate members of our Advisory Boards at the rate of $2,000 for each
full-day meeting they attend in person; $1,200 if attendance is by telephone.
When we consult with members of our Advisory Board (whether in person or
by
telephone) for a period of less than one day, we compensate them at the
rate of
$150 per hour, except with respect to one of our advisors, who we compensate
at
the rate of $200 per hour. We also reimburse members of our Advisory Boards
for
their travel expenses for attending our meetings.
Royalty
Agreements
With
Principal Stockholder
In
August
2003, in order to induce Guillermina Vega Montiel, a principal stockholder
of
ours, to make a
$4
million investment in MedaSorb Delaware, we granted Ms. Montiel a perpetual
royalty equal to three percent of all gross revenues received by us from
sales
of CytoSorbTM
in
the
applications of sepsis, cardiopulmonary bypass surgery, organ donor,
chemotherapy and inflammation control. In addition, for her investment, Ms.
Montiel received 1,230,770 membership units of MedaSorb Delaware, which at
the
time was a limited liability company. Those membership units ultimately became
185,477 shares of our Common Stock following our June 30, 2006
merger.
With
Purolite
In
2003,
Purolite filed a lawsuit against us asserting, among other things, co-ownership
and co-inventorship of certain of our patents. On September 1, 2006, the
United
States District Court for the Eastern District of Pennsylvania approved a
Stipulated Order and Settlement Agreement under which we and Purolite agreed
to
the settlement of the action. The Settlement Agreement provides us with the
exclusive right to use our patented technology and proprietary know how relating
to adsorbent polymers for a period of 18 years. In particular, the Settlement
Agreement relates to twelve of our issued patents and five pending patent
applications covering our biocompatible polymeric resins, our methods of
producing these polymers, and the methods of using the polymers to remove
impurities from physiological fluids, such as blood.
Under
the
terms of the Settlement Agreement, we have agreed to pay Purolite royalties
of
2.5% to 5% on the sale of those of our products, if and when those products
are
sold commercially, that are used in direct contact with blood. However, if
the
first product we offer for commercial sale is a biocompatible polymer to
be used
in direct contact with a physiological fluid other than blood, royalties
will be
payable with respect to that product as well. The royalty payments provided
for
under the Settlement Agreement would apply to our currently envisioned CytoSorb™
and BetaSorb™ products.
Following
the expiration of the eighteen year term of the Settlement Agreement, the
patents and patent applications that are the subject of the Settlement Agreement
should have expired under current patent laws, and the technology claimed
in
them will be available to the public. However, following such time, we continue
to exclusively own any confidential and proprietary know how.
Product
Payment & Reimbursement
Critical
Care Applications
Payment
for our CytoSorb™ device in the treatment and prevention of sepsis and other
related acute care applications is anticipated to fall under the
“diagnosis-related group” (DRG) in-patient reimbursement system, which is
currently the predominant basis of hospital medical billing in the United
States.
Under
this system, predetermined payment amounts are assigned to categories of medical
patients with respect to their treatments at medical facilities based on the
DRG
that they fall within (which is a function of such characteristics as medical
condition, age, sex, etc.) and the length of time spent by the patient at the
facility. Reimbursement is not determined by the actual procedures used in
the
treatment of these patients, and a separate reimbursement decision would not
be
required to be made by Medicare, the HMO or other provider of medical benefits
in connection with the actual method used to treat the patient.
Critical
care applications such as those targeted by our CytoSorb™ device involve a high
mortality rate and extended hospitalization, coupled with extremely expensive
ICU time. In view of these high costs and high mortality rates, we believe
acceptance of our proprietary technology by critical care practitioners and
hospital administrators will primarily depend on safety and efficacy factors
rather than cost.
Chronic
Renal Failure
In
the
U.S., over 80% of chronic dialysis patients are Medicare-eligible, regardless
of
age.
Therefore, it is expected that Medicare will be the primary payer for the
BetaSorb™ device, either through the current “fee for service” mechanism or
managed care programs. The large majority of costs not covered by federal
programs are covered by the private insurance sector.
While
the
fee-for-service composite rate system is currently the dominant payment
mechanism, many industry participants believe that a managed care system will
become the dominant payment mechanism. We believe that movement to a full or
shared-risk managed care system would speed market acceptance of BetaSorb™
because, under such a system, providers will have a strong incentive to adopt
technologies that lower overall treatment costs. Fresenius is a leading
participant in the move to managed care and will play a leading role in the
demonstration and introduction of our product to Medicare.
Competition
Sepsis
We
believe that our products represent a unique approach to disease states and
health complications associated with sepsis, which is sometimes also referred
to
as systemic inflammatory response syndrome. Researchers have explored the
potential of using existing membrane-based dialysis technology to treat patients
suffering from sepsis. These techniques are unable to effectively remove
the
larger toxins (often referred to as middle molecular weight toxins) which
leading researchers have shown to cause and complicate sepsis. The same experts
believe that a blood purification technique that efficiently removes, or
significantly reduces, the circulating concentrations of such toxins might
represent a successful therapeutic option.
We
believe that the CytoSorb™ device is highly efficient in the removal of middle
molecular weight toxins from circulating blood. This concept has been tested
at
the University of Pittsburg using a septic rat model based on lipopolysaccharide
and the CytoSorb™ polymer. For both the CytoSorb™ and BetaSorb™ devices, as
blood passes over the beads, toxins are adsorbed directly from the blood.
Since
our adsorbent device does not rely on convection or osmosis of toxins across
a
membrane for blood purification (such as in dialysis), it does not necessitate
the use of replacement fluid or dialysate. This represents a major advantage
over traditional dialysis techniques.
Medical
research during the past two decades has focused on drug interventions aimed
at
chemically blocking or suppressing the function of one or two inflammatory
agents. In hindsight, some researchers now believe this approach has little
chance of significantly improving patient outcomes because of the complex
pathways and multiple chemical factors at play. Clinical studies of these drug
therapies have been largely unsuccessful. An Eli Lilly drug, Xigris®, cleared by
the FDA in November 2001, is the first and only drug to be approved for the
treatment of severe sepsis. Clinical studies demonstrated that use of Xigris®
resulted in a 6% reduction in the absolute risk of death, and a 13% risk
reduction in the most severe sepsis patients. The drug remains controversial
and
is considered extremely expensive when compared to the percentage of patients
who benefit.
While
studies of other potential sepsis drug therapies are in progress, we are not
aware of any other broad-spectrum blood detoxification therapy under development
for this application that could be considered directly competitive with our
approach.
Cardiopulmonary
Bypass Surgery
We
are
not aware of any practical competitive approaches for removing cytokines in
CPB
patients. Alternative therapies such as “off-pump” surgeries are available but
“post-bypass” syndrome has not been shown to be reduced in this less invasive
procedure. If successful, the CytoSorb™ is expected to be useful in both on-pump
and off-pump procedures.
Chronic
Dialysis
We
know
of no other device, medication or therapy considered directly competitive with
our technology. Research and development in the field has focused primarily
on
improving existing dialysis technologies. The introduction of the high-flux
dialyzer in the mid-1980s and the approval of Amgen’s Epogen™, a recombinant
protein used to treat anemia, are the two most significant developments in
the
field over the last two decades.
Efforts
to improve removal of middle molecular weight toxins with enhanced dialyzer
designs have achieved only marginal success. Many experts believe that dialyzer
technology has reached its limit in this respect. A variation of high-flux
hemodialysis, known as hemodiafiltration, has existed for many years. However,
due to the complexity, cost and increased risks, this dialysis technique
has not
gained significant acceptance worldwide. In addition, many larger toxins
are not
effectively filtered by hemodiafiltration, despite its more open pore structure.
As a result, hemodiafiltration does not approach the quantity of toxins removed
by the BetaSorb™ device.
Treatment
of Organ Dysfunction in Brain-Dead Organ Donors
We
are
not aware of any directly competitive products to address the application of
our
technology for the mitigation of organ dysfunction and failure resulting from
severe inflammation following brain-death.
Clinical
Testing
Our
first
clinical studies were conducted in patients with chronic renal failure. The
health of these patients is challenged by high levels of toxins circulating
in
their blood but, unlike sepsis patients, they are not at imminent risk of death.
The toxins involved in chronic renal failure are completely different from
those
involved in sepsis, eroding health gradually over time. The treatment of
patients with chronic renal failure is a significant target market for us,
although not the current focus of our efforts and resources. Our clinical
testing and product development work in this application functioned as a low
risk method of evaluating the safety of the technology in a clinical setting,
with direct benefit to development of the critical care applications on which
we
are now focusing our efforts.
We
believe that our device design, which has been tested in approximately 350
sessions, combined with hemodialysis, has been identified as a suitable
candidate to pilot in clinical studies in the treatment of sepsis. We used
this
design in our first clinical experience treating a septic patient, which
has
produced results that management has found encouraging and consistent with
our
belief as to the efficacy of our technology in the treatment of sepsis.
Government
Research Grants
Two
government research grants by the National Institutes of Health (NIH) and
Health
and Human Services (HHS) have been awarded to investigators at the University
of
Pittsburgh to explore the use of adsorbent polymers in the treatment of sepsis
and organ transplant preservation. Under “SubAward Agreements” with the
University of Pittsburgh, we have been supplying CytoSorb™ polymers to the
University of Pittsburgh for use under these studies.
A
grant
of $1 million
was awarded to the University of Pittsburgh Medical Center in 2003. The project
seeks to improve the quantity and viability of organs donated for transplant
by
using CytoSorb™ to detoxify the donor’s blood. The observational and dosing
phases of the study, involving 30 viable donors and eight non-viable donors,
respectively, have been completed. The next phase of this study, the treatment
phase, will involve viable donors. The treatment phase will be contingent upon
further discussion with the FDA and HRSA regarding trial design, as well as
obtaining additional funding.
In
addition, in September 2005, the University of Pittsburgh Medical Center
was
awarded a $7,000,000 grant from NIH entitled “Systems Engineering of a Pheresis
Intervention for Sepsis (SEPsIS)”
to study
the use of adsorbent polymer technology in the treatment of severe sepsis.
The
study, expected to last for a total of five years, commenced in September,
2005
and remains in progress. Under a SubAward Agreement, we have been supplying
UPMC
with our CytoSorbTM
polymer
for use in the study.
These
grants represent a substantial research cost savings to us and demonstrate
the
strong interest of the medical and scientific communities in our
technology.
Regulation
The
medical devices that we manufacture are subject to regulation by numerous
regulatory bodies, including the FDA and comparable international regulatory
agencies. These agencies require manufacturers of medical devices to comply
with
applicable laws and regulations governing the development, testing,
manufacturing, labeling, marketing and distribution of medical devices. Devices
are generally subject to varying levels of regulatory control, the most
comprehensive of which requires that a clinical evaluation program be conducted
before a device receives approval for commercial distribution.
In
the
U.S., permission to distribute a new device generally can be met in one of
two
ways. The first process requires that a pre-market notification (510(k)
Submission) be made to the FDA to demonstrate that the device is as safe and
effective as, or substantially equivalent to, a legally marketed device that
is
not subject to pre-market approval (PMA). A legally marketed device is a device
that (i) was legally marketed prior to May 28, 1976, (ii) has
been reclassified from Class III to Class II or I, or (iii) has been
found to be substantially equivalent to another legally marketed device
following a 510(k) Submission. The legally marketed device to which equivalence
is drawn is known as the “predicate” device. Applicants must submit descriptive
data and, when necessary, performance data to establish that the device is
substantially equivalent to a predicate device. In some instances, data from
human clinical trials must also be submitted in support of a 510(k) Submission.
If so, these data must be collected in a manner that conforms with specific
requirements in accordance with federal regulations. The FDA must issue an
order
finding substantial equivalence before commercial distribution can occur.
Changes to existing devices covered by a 510(k) Submission which do not
significantly affect safety or effectiveness can generally be made by us without
additional 510(k) Submissions.
The
second process requires that an application for PMA be made to the FDA to
demonstrate that the device is safe and effective for its intended use as
manufactured. This approval process applies to certain Class III devices.
In this case, two steps of FDA approval are generally required before marketing
in the U.S. can begin. First, investigational device exemption (IDE) regulations
must be complied with in connection with any human clinical investigation of
the
device in the U.S. Second, the FDA must review the PMA application which
contains, among other things, clinical information acquired under the IDE.
The
FDA will approve the PMA application if it finds that there is a reasonable
assurance that the device is safe and effective for its intended purpose.
In
the
European Union, distributors of medical devices are required to comply with
the
Medical Devices Directive and obtain CE Mark certification in order to market
medical devices. The CE Mark certification, granted following approval from
an
independent Notified Body, is an international symbol of adherence to quality
assurance standards and compliance with applicable European Medical Devices
Directives. Distributors of medical devices may also be required to comply
with
other foreign regulations such as Ministry of Health Labor and Welfare approval
in Japan. The time required to obtain these foreign approvals to market our
products may be longer or shorter than that required in the U.S., and
requirements for those approvals may differ from those required by the FDA.
In
the
United States, our CytoSorb™ and BetaSorb™ devices are classified as Class III
(CFR 876.5870—Sorbent Hemoperfusion System) and will require 501(k) Submissions
to the FDA. However, because the BetaSorb™ device is intended for chronic use,
the FDA may require pre-market approval (PMA), which we will submit if required.
In the case of CytoSorb™, because the application is for acute care (short term,
less than 30 days), management believes that FDA approval for this product
may
be obtained based solely on the 510(k) Submission accompanied with clinical
data. In Europe, our devices are expected to be classified as class IIb, and
will conform to the ISO 13485 Quality Standard in support of our planned
applications to obtain CE Mark certification in Europe, and applicable approvals
in Canada and Japan.
The
process of obtaining clearance to market products is costly and time-consuming
in virtually all of the major markets in which we expect to sell products and
may delay the marketing and sale of our products. Countries around the world
have recently adopted more stringent regulatory requirements which are expected
to add to the delays and uncertainties associated with new product releases,
as
well as the clinical and regulatory costs of supporting those releases. No
assurance can be given that any of our medical devices will be approved on
a
timely basis, if at all. In addition, regulations regarding the development,
manufacture and sale of medical devices are subject to future change. We cannot
predict what impact, if any, those changes might have on our business. Failure
to comply with regulatory requirements could have a material adverse effect
on
our business, financial condition and results of operations.
Provided
we have sufficient additional funding and FDA approval to proceed, we expect
to
begin the treatment phase of a pilot clinical study on the safety and efficacy
of our products in the treatment of sepsis in the third or fourth quarter of
2007. The pilot phase is expected to span six to nine months. If we successfully
complete the pilot study and obtain approval from the FDA to proceed to the
pivotal phase, we estimate that an additional one year period would be required
for the pivotal study, to the extent we have sufficient funding, for the purpose
of compiling sufficient data to support both the U.S. 510(k) Submission and
the
application to obtain CE Mark certification in Europe. In the U.S., another
six
to nine months is anticipated for FDA review and approval of the 510(k)
submission. Concurrent with these activities, we plan to pursue CE Mark
certification of our products. Upon successful completion of a “quality systems
audit” in combination with clinical data and the assembly of a technical file,
we anticipate that CytoSorb™ device will receive CE Mark certification,
allowing
it
to be sold in Europe.
The
FDA
can ban certain medical devices, detain or seize adulterated or misbranded
medical devices, order repair, replacement or refund of these devices and
require notification of health professionals and others with regard to medical
devices that present unreasonable risks of substantial harm to the public
health. The FDA may also enjoin and restrain certain violations of the Food,
Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical
devices, or initiate action for criminal prosecution of such violations.
International sales of medical devices manufactured in the U.S. that are not
approved by the FDA for use in the U.S., or are banned or deviate from lawful
performance standards, are subject to FDA export requirements. Exported devices
are subject to the regulatory requirements of each country to which the device
is exported. Some countries do not have medical device regulations, but in
most
foreign countries medical devices are regulated. Frequently, regulatory approval
may first be obtained in a foreign country prior to application in the U.S.
to
take advantage of differing regulatory requirements.
Sales
and Marketing
We
currently estimate, provided that we receive adequate funding to support
our
planned activities and that our products perform as expected in clinical
studies, that we will obtain FDA approval of our CytoSorb™ device in the
treatment of sepsis in mid to late 2009, assuming a successful pivotal trial.
As
we approach regulatory approval, we plan to initially build a sales organization
of approximately 15 representatives in the U.S. In addition, we plan on pursuing
localized distribution agreements in rural areas.
We
also
plan to initiate sales in several European countries which are known as early
adopters of new medical device technology. These countries primarily include
Italy, Germany and the United Kingdom. We plan to initially operate through
local distributors in each European country where we launch sales operations.
Only after establishment of a limited network of local distributors and actual
generation of sales, will we formulate a broader distribution strategy on a
global basis.
Intellectual
Property and Patent Litigation
The
medical device market in which we primarily participate is in large part
technology driven. As a result, intellectual property rights, particularly
patents and trade secrets, play a significant role in product development and
differentiation. However, intellectual property litigation to defend or create
market advantage is inherently complex, unpredictable and is expensive to
pursue. Litigation often is not ultimately resolved until an appeal process
is
completed and appellate courts frequently overturn lower court patent decisions.
Moreover,
competing parties frequently file multiple suits to leverage patent portfolios
across product lines, technologies and geographies and to balance risk and
exposure between the parties. In some cases, several competitors are parties
in
the same proceeding, or in a series of related proceedings, or litigate multiple
features of a single class of devices. These forces frequently drive settlement
not only of individual cases, but also of a series of pending and potentially
related and unrelated cases. In addition, although monetary and injunctive
relief is typically sought, remedies are generally not determined until the
conclusion of the proceedings, and are frequently modified on appeal.
Accordingly, the outcomes of individual cases are difficult to time, predict
or
quantify and are often dependent upon the outcomes of other cases in other
forums, both domestic and international.
We
rely
on a combination of patents, trademarks, trade secrets and non-disclosure
agreements to protect our intellectual property. We hold 21 U.S.
patents, some of which have foreign counterparts, and additional patent
applications pending worldwide that cover various aspects of our technology.
There can be no assurance that pending patent applications will result in
issued
patents, that patents issued to us will not be challenged or circumvented
by
competitors, or that such patents will be found to be valid or sufficiently
broad to protect our technology or to provide us with a competitive advantage.
Our portfolio of patents and patent applications include:
|
·
|
U.S.
Pat. No. 5,545,131, which expires on November 30, 2014. This patent
concerns an artificial kidney containing a polymeric resin to filter
impurities from blood.
|
|
·
|
U.S.
Pat. Nos. 5,773,384, 5,904,663, 6,127,311, 6,136,424, 6,159,377
and
6,582,811, which expire on or before February 6, 2018. These patents
concern the use of macronet polymeric resins that are subsequently
treated
to make them biocompatible for the removal of impurities from
physiological fluids.
|
|
·
|
U.S.
Pat. Nos. 6,087,300, 6,114,466, 6,133,393, 6,153,707, 6,156,851
and
6,303,702, which expire on or before February 6, 2018. These patents
concern the use of mesoporous polydivinylbenzene polymeric resins
that are
subsequently treated to make them biocompatible for the removal
of
impurities from physiological
fluids.
|
|
·
|
U.S.
Pat. No. 6,416,487, which expires on July 30, 2017. This patent
concerns a
method of removing Beta-2 microglobulin using polymers with
surface-exposed vinyl groups modified for
biocompatibility.
|
|
·
|
U.S.
Pat. No. 6,878,127, which expires on April 20, 2021. This patent
concerns
devices, systems and methods for reducing levels of pro-inflammatory
or
anti-inflammatory stimulators or mediators in the
blood.
|
|
·
|
U.S.
Pat. No. 6,884,829, which expires on January 4, 2023. This patent
concerns
a hemocompatible polymer and a one-step method of producing
it.
|
|
·
|
U.S.
Pat. App. Nos. 10/980,510, 10/981,055, 11/105,140 and 11/255,132.
These
applications concern biocompatible devices, systems, and methods
for
reducing levels of pro-inflammatory or anti-inflammatory stimulators
or
mediators in the blood.
|
|
·
|
U.S.
Pat. App. No. 11/601,931. This application concerns size-selective
polymeric adsorbents for use in
hemoperfusion.
|
We
also
rely on non-disclosure and non-competition agreements with employees,
consultants and other parties to protect, in part, trade secrets and other
proprietary technology. There can be no assurance that these agreements will
not
be breached, that we will have adequate remedies for any breach, that others
will not independently develop equivalent proprietary information or that
third
parties will not otherwise gain access to our trade secrets and proprietary
knowledge.
Several
years ago we engaged in discussions with the Dow Chemical Company, which
had
indicated a strong interest in being our polymer manufacturer. After a Dow
representative on our Advisory Board resigned, Dow filed and received five
patents naming our former Advisory Board member as an inventor. These patents,
two of which subsequently lapsed for failure to pay maintenance fees, concern
the area of coating high divinylbenzene-content polymers to render them
hemocompatible, and using such coated polymers to treat blood or plasma.
In
management’s view the Dow patents improperly incorporate our technology, are
based on our proprietary technology, and should not have been granted to
Dow.
While we believe that our own patents would prevent Dow from producing our
products as they are currently envisioned, Dow could attempt to assert its
patents against us. To date, to our knowledge, Dow has not utilized their
patents for the commercial manufacture of products that would be competitive
with us, and we currently have no plans to challenge Dow’s patents. However, the
existence of these Dow patents could result in a potential dispute with Dow
in
the future and additional expenses for us.
We
may
find it necessary to initiate litigation to enforce our patent rights, to
protect our trade secrets or know-how and to determine the scope and validity
of
the proprietary rights of others. Patent litigation can be costly and
time-consuming, and there can be no assurance that our litigation expenses
will
not be significant in the future or that the outcome of litigation will be
favorable to us. Accordingly, we may seek to settle some or all of our pending
litigation described below. Settlement may include cross-licensing of the
patents which are the subject of the litigation as well as our other
intellectual property and may involve monetary payments to or from third
parties.
Employees
and Properties
We
currently have eight employees
and operate a 6,575 sq. ft. facility near Princeton, New Jersey, housing
research laboratories, clinical manufacturing operations and administrative
offices, under a lease agreement which expires in February 2007. In the opinion
of management, the leased properties are adequately insured, are in good
condition and suitable for the conduct of our business. We also collaborate
with
numerous institutions, universities and commercial entities who conduct research
and testing of our products at their facilities.
Legal
Proceedings
We
are
not currently a party to any pending legal proceedings.
MANAGEMENT
Directors
and Executive Officers
The
following table sets forth our directors and executive officers, their ages
and
the positions they hold:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Al
Kraus
|
|
62
|
|
President
and Chief Executive Officer, Director
|
James
Winchester, MD
|
|
62
|
|
Chief
Medical Officer
|
Vincent
Capponi
|
|
48
|
|
Chief
Operating Officer
|
David
Lamadrid
|
|
35
|
|
Chief
Financial Officer
|
Joseph
Rubin, Esq.
|
|
68
|
|
Director
|
Kurt
Katz
|
|
74
|
|
Director
|
Al
Kraus. Mr.
Kraus
has more than twenty-five years’ experience managing companies in the dialysis,
medical device products, personal computer and custom software industries.
He
has been the President and Chief Executive Officer of MedaSorb since 2003.
Prior
to joining us, from 2001 to 2003, Mr. Kraus was President and CEO of
NovoVascular Inc., an early stage company developing coated stent technology.
From 1996 to 1998, Mr. Kraus was President and CEO of Althin Healthcare and
from
1998 to 2000, of Althin Medical Inc., a manufacturer of products for the
treatment of end stage renal disease. While CEO of Althin, he provided strategic
direction and management for operations throughout the Americas. From 1979
to
1985, Mr. Kraus was U.S. Subsidiary Manager and Chief Operating Officer of
Gambro Inc., a leading medical technology and healthcare company. Mr.
Kraus
was the Chief Operating Officer of Gambro when it went public in the United
States in an offering led by Morgan Stanley.
James
Winchester, M.D.
Prior to
joining MedaSorb in 2000, Dr. Winchester was Professor of Medicine and Director
of Dialysis Programs at Georgetown University School of Medicine for more
than
25 years. Dr. Winchester is also currently the Chief of the Nephrology Division
at Beth Israel Medical Center, a position he has held since July 2004. He
has
published more than 200 articles in scientific and medical journals, and
has
co-authored eight books in the fields of renal replacement therapy and clinical
poisoning management. Dr. Winchester is editor-in chief of Replacement
of Renal Function,
the
most widely used textbook for nephrology fellows. Dr. Winchester has published
more articles on hemoperfusion than any other nephrologist in the world.
He is
widely recognized as one of the world’s leading experts in hemoperfusion and
toxicology, and is a former member of the Scientific Advisory Board for Total
Renal Care (Davita). Dr. Winchester received his medical degree from the
University of Glasgow and is a Fellow of the Royal College of Physicians
and
Surgeons of Glasgow,
and a
Fellow of the American College of Physicians.
Vincent
Capponi.
Mr.
Capponi joined MedaSorb as Vice President of Operations in 2002 and became
its
Chief Operating Officer in July 2005. He has more than 20 years of management
experience in medical device, pharmaceutical and imaging equipment at companies
including Upjohn, Sims Deltec and Sabratek. Prior to joining MedaSorb in 2002,
Mr. Capponi held several senior management positions at Sabratek and its
diagnostics division GDS, and was interim president of GDS diagnostics in 2001.
From 1998 to 2000, Mr. Capponi was Senior Vice President and Chief Operating
Officer for Sabratek and Vice President Operations from 1996 to 1998. He
received his MS in Chemistry and his BS in Chemistry and Microbiology from
Bowling Green State University.
David
Lamadrid. Mr.
Lamadrid has been with MedaSorb since 2000 and has served as its Chief Financial
Officer since October 2002. He
has 15
years of business experience in finance and operations. Prior to joining
MedaSorb
in
2000,
Mr. Lamadrid was a financial analyst at Chase Manhattan Bank working in the
Middle Market Banking Group. Mr. Lamadrid received his MBA from New York
University, a BS in Finance from St. John’s University, and an AAS in Accounting
from S.U.N.Y. Rockland.
Joseph
Rubin, Esq. Mr.
Rubin
became a director of MedaSorb in 1997. Mr. Rubin is a founder and Senior Partner
of Rubin, Bailin, and Ortoli, LLP an international and domestic corporate and
commercial law firm in New York City, where he has practiced law since 1986.
Mr.
Rubin also teaches at the Columbia University School of International and Public
Affairs, where he is also Executive Director of the International Technical
Assistance Program for Public Affairs (ITAP). Mr. Rubin was Adjunct Professor
at
the Columbia University Graduate School of Business from 1973 to 1994, and
taught at Columbia Law School in 1996. Mr. Rubin received his law degree from
Harvard Law School, and his B.A., MIA, and M.Phil degrees in political science
and international relations from Columbia University.
Kurt
Katz, M.Ch.E. Mr.
Katz
became a director of MedaSorb in 1997. Since retiring from Peabody International
Corporation in 1986, Mr. Katz has pursued various business interests. He is
currently the Chairman of Polymeric Resources Corporation, a polymer company
engaged in the manufacture of nylon and compounding. Mr. Katz served as
President and Chief Operating Officer of Peabody, which specializes in energy
and environmental products. Mr. Katz served as Executive Vice President and
Chief Operating Officer of Peabody from 1981 to 1983, and was a Director from
1977 to 1985. Prior to joining Peabody in 1973, Mr. Katz held a variety of
management positions with Westinghouse Electric Corporation, where he served
for
18 years and was directly involved in the launching of new products, divisions
and subsidiaries. .Mr.
Katz
has a B.S. and M.S. in chemical engineering, and an MBA.
Audit
Committee Financial Expert
The
Board
of Directors does not have an Audit Committee, and therefor does not have an
“audit committee financial expert,” as such term is defined in Item 401(e) of
Regulation S-B.
Executive
Compensation
The
following table sets forth for the periods indicated the compensation MedaSorb
Delaware paid Al Kraus, our Chief Executive Officer, and each of its other
most
highly compensated executive officers during the years ended December 31, 2005,
2004 and 2003.
Summary
Compensation Table
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation
|
|
Name
and
Principal
Positions
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards*
|
|
Securities
Underlying
Options
|
|
Al
Kraus
|
|
|
2005
|
|
|
173,899
|
|
|
150
|
|
|
1,090,680
|
|
|
—
|
|
Chief
Executive
|
|
|
2004
|
|
|
152,301
|
|
|
|
|
|
164,665
|
|
|
—
|
|
Officer
|
|
|
2003
|
|
|
73,710
|
|
|
|
|
|
138,286
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincent
Capponi,
|
|
|
2005
|
|
|
152,504
|
|
|
150
|
|
|
374,383
|
|
|
|
|
Chief
Operating
|
|
|
2004
|
|
|
133,987
|
|
|
|
|
|
15,070
|
|
|
|
|
Officer
|
|
|
2003
|
|
|
195,501
|
|
|
|
|
|
7,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Lamadrid,
|
|
|
2005
|
|
|
119,257
|
|
|
150
|
|
|
450,155
|
|
|
|
|
Chief
Financial
|
|
|
2004
|
|
|
100,203
|
|
|
|
|
|
22,605
|
|
|
|
|
Officer
|
|
|
2003
|
|
|
115,742
|
|
|
|
|
|
15,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
James Winchester
|
|
|
2005
|
|
|
116,541
|
|
|
150
|
|
|
|
|
|
|
|
Chief
Medical
|
|
|
2004
|
|
|
143,319
|
|
|
|
|
|
16,954
|
|
|
|
|
Officer
|
|
|
2003
|
|
|
233,422
|
|
|
|
|
|
7,535
|
|
|
|
|
*
These
officers were originally issued “Management Units” of MedaSorb Delaware, a
limited liability company. The Management Units were ultimately converted into
the number of shares of our Common Stock indicated in the table above following
MedaSorb Delaware’s conversion to a corporation and reverse merger with
us.
During
the period of March 2004 to February 2005, Al Kraus, Vincent Capponi, David
Lamadrid and Dr. James Winchester agreed to forego salary in the amounts of
$66,667, $60,000, $45,000, and $32,772 respectively. These amounts were
subsequently paid to these individuals following the closing of the Series
A
Preferred Stock financing we completed on June 30, 2006.
Option
Grants in Last Fiscal Year
No
options were granted to any of the individuals named in the Summary Compensation
Table during 2005.
Aggregated
Option Exercises in Fiscal 2005 and FY-End Option Values
None
of
the individuals named in the Summary Compensation Table held any options to
purchase our Common Stock or the common stock of MedaSorb as of December 31,
2005.
Director
Compensation
Our
directors do not currently receive any cash compensation for their service
on
the Board of Directors, but from time to time are granted options for their
services. In January 2006, each non-employee director
of MedaSorb Delaware was granted an option to purchase 10,000 shares of MedaSorb
Delaware common stock at an exercise price of $1.25, and in June 2006, those
non-employee directors
were granted options to purchase an aggregate of 87,536 shares of MedaSorb
Delaware common stock at an exercise price of $1.25. These options became
options to purchase the same number of shares of our Common Stock at the same
exercise price following the merger. Our directors are reimbursed for actual
out-of-pocket expenses incurred by them in connection with their attendance
at
meetings of the Board of Directors.
Employment
Agreements with Named Executive Officers
Agreement
with Chief Executive Officer
MedaSorb
Delaware entered into an Employment Agreement, dated as of July 18, 2003,
with
Al Kraus, our Chief Executive Officer. The Employment Agreement provides
for an
initial five-year term of employment as our Chief Executive Officer. Under
the
terms of the Employment Agreement, Mr. Kraus receives an annual base salary
of
$200,000. Under the Employment Agreement, Mr. Kraus was also granted an option
to purchase 5% of the outstanding equity interests of MedaSorb Delaware (which
was then a limited liability company) on a fully-diluted basis, and will
be
issued additional options so that the combined total of Common Stock owned
by
Mr. Kraus, including upon exercise of options, equals 5% of our outstanding
Common Stock on a fully diluted basis. Mr. Kraus has such right until such
time
as an aggregate of $20 million of financing has been received by MedaSorb
Delaware (including us following the merger) following the commencement of
his
employment. These options are exercisable at a price of $6.64 per share of
Common Stock, and based on the number of currently outstanding shares of
Common
Stock, Series A Preferred Stock, warrants and options, entitle Mr. Kraus
to
purchase 367,483 shares of Common Stock. In 2005, MedaSorb Delaware’s board
approved the issuance to Mr. Kraus of “Management Units” of the limited
liability company in lieu of the options he was then entitled to under the
Employment Agreement. As a result of the conversion of MedaSorb Delaware
to a
corporation and the merger, the Management Units issued under the Employment
Agreement were exchanged for 1,393,631 shares of Common Stock.
In
the
event that Mr. Kraus’s employment is terminated as a result of his death, his
heirs will be entitled to 120-days of salary. In the event Mr. Kraus is
terminated for “justifiable cause” we will pay him his accrued and unpaid base
salary through the date of termination. If Mr. Kraus’s employment is terminated
without cause or in the event of a Change of Control, he will be entitled to
one-year’s base salary payable monthly over a period of one year.
Mr.
Kraus
is prohibited under the Employment Agreement from disclosing any of our
confidential information (as defined in the agreement) during the term of his
employment and any time thereafter and, following the termination of the
agreement with us, from competing with us and directly or indirectly soliciting
any of our customers or suppliers for a period of one year, and from soliciting
our employees for a period of three years.
Agreement
with Chief Operating Officer
MedaSorb
Delaware entered into an Employment Agreement, dated as of July 1, 2005,
with
Vincent Capponi, our Chief Operating Officer. The Employment Agreement provides
for an initial term of one-year, with automatic annual renewal unless either
party provides notice to the other within 120 days prior to the end of the
year
of its intention not to renew. Under the terms of the Employment Agreement,
Mr.
Capponi receives an annual base salary of $181,886. Under the Employment
Agreement, Mr. Capponi was also granted Management Units equal to 1.5% of
the
outstanding equity interests of MedaSorb Delaware (which was then a limited
liability company) on a fully-diluted basis, and was entitled to receive
additional Management Units so that Mr. Capponi continued to hold Management
Units equal to 1.5% of the outstanding equity of MedaSorb Delaware on a fully
diluted basis until December 31, 2005. This right has expired. As a result
of
the conversion of MedaSorb Delaware to a corporation and the merger, these
Management Units were exchanged for 418,086 shares of our Common
Stock.
In
the
event that Mr. Capponi’s employment is terminated as a result of his death, his
heirs will be entitled to 120-days of salary. In the event Mr. Capponi is
terminated for “justifiable cause” we will pay him his accrued and unpaid base
salary through the date of termination. If Mr. Capponi’s employment is
terminated without cause or in the event of Change of Control, he will be
entitled to one-year’s base salary payable monthly for a period of one year.
Mr.
Capponi is prohibited under the Employment Agreement from disclosing any of
our
confidential information (as defined in the agreement) during the term of his
employment and any time thereafter, and following the termination of the
agreement with us, from competing with us and directly or indirectly soliciting
any of our customers or suppliers for a period of one year, and from soliciting
our employees for a period of three years.
Agreement
with Chief Financial Officer
MedaSorb
Delaware entered into an Employment Agreement, dated as of July 1, 2005,
with
David Lamadrid, our Chief Financial Officer. The Employment Agreement provides
for an initial term of one-year, with automatic annual renewal unless either
party provides notice to the other within 120 days prior to the end of the
year
of its intention not to renew. Under the terms of the Employment Agreement,
Mr.
Lamadrid receives an annual base salary of $135,629. Under the Employment
Agreement, Mr. Lamadrid was also granted Management Units equal to 1.8% of
the
outstanding equity interests of MedaSorb Delaware (which was then a limited
liability company) on a fully-diluted basis, and was entitled to receive
additional Management Units so that Mr. Lamadrid continued to hold Management
Units equal to 1.8% of the outstanding equity of MedaSorb Delaware on a fully
diluted basis until December 31, 2005. This right has expired. As a result
of
the conversion of MedaSorb Delaware to a corporation and the merger, these
Management Units were exchanged for 501,704 shares of our Common
Stock.
In
the
event that Mr. Lamadrid’s employment is terminated as a result of his death, his
heirs will be entitled to 120-days of salary. In the event Mr. Lamadrid is
terminated for “justifiable cause” we will pay him his accrued and unpaid base
salary through the date of termination. If Mr. Lamadrid’s employment is
terminated without cause or in the event of Change of Control, he will be
entitled to one-year’s base salary payable monthly for a period of one year.
Mr.
Lamadrid is prohibited under the Employment Agreement from disclosing any of
our
confidential information (as defined in the agreement) during the term of his
employment and any time thereafter, and following the termination of the
agreement with us, from competing with us and directly or indirectly soliciting
any of our customers or suppliers for a period of one year, and from soliciting
our employees for a period of three years.
Agreement
with Chief Medical Officer
MedaSorb
Delaware entered into an Employment Agreement, dated as of July 1, 2004,
with
Dr. James Winchester, our Chief Medical Officer. The Employment Agreement
provides for an initial term of one-year, with automatic annual renewal unless
either party provides notice to the other within 90 days prior to the end
of the
year of its intention not to renew. Under the terms of the Employment Agreement,
Dr. Winchester receives an annual base salary of $120,000. Dr. Winchester’s
primary employment is with Beth Israel Medical Center, as the Chief of its
Nephrology division. Although the time Mr. Winchester provides to us varies
from
time to time, it is generally in the range of one-half day to one full day
per
week.
Dr.
Winchester is prohibited under his Employment Agreement from disclosing any
of
our confidential information (as defined in the agreement) during the term
of
his employment and any time thereafter, and following the termination of this
agreement with us, from competing with us and directly or indirectly soliciting
any of our customers, suppliers or employees for a period of one year.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
In
October 2005, MedaSorb Delaware entered into an Investment Agreement with
Margie
Chassman pursuant to which she advanced us $1,000,000.
At the
time of the advance, Ms. Chassman was not a stockholder of, or otherwise
affiliated with, MedaSorb Delaware. The advance bore interest at the rate
of 6%
per annum. Pursuant to the terms of the Investment Agreement, on October
28,
2006, the $1,000,000 advance was converted into 1,000,000 shares of Series
A
Preferred Stock (convertible into 800,000 shares of Common Stock) and warrants
to purchase 400,000 shares of Common Stock at a price of $2.00 per share.
On the
date of conversion, the last reported sales price of our Common Stock was
$1.44,
so that the aggregate market value of the 800,000 shares of Common Stock
underlying the Series A Preferred Stock issued on October 28, 2006 was
$1,152,000, and the aggregate market value of the 400,000 shares of Common
Stock
underlying the Warrants issued on October 28, 2006, which had an aggregate
exercise price of $800,000, was $576,000.
The
Investment Agreement provided that Ms. Chassman would be issued 10 million
shares of common stock in consideration for funding the loan, and further
provided that she would assist in arranging a “Qualified Merger” and that she
would “invest or arrange for others to invest” between $3 to $11.5 million. This
assistance consisted primarily of consultations between MedaSorb Delaware
and
Ms. Chassman’s husband, David Blech. Mr. Blech introduced MedaSorb Delaware to
potential placement agents, investors and merger partners including the company
(Gilder Enterprises, Inc.) that MedaSorb Delaware ultimately merged with.
Mr.
Blech also introduced us to the four institutional investors that purchased
$5.25 million of our securities on June 30, 2006. Mr. Blech also assisted
us in
structuring these transactions. Of the four investors, two had co-invested
with
Ms. Chassman in other transactions, and the other two were introduced by
the
investors that had previously invested with Ms. Chassman. A description of
Mr.
Blech and his background can be found in footnote 2 to the Principal
Stockholders table. We have been informed that Ms. Chassman has operated
a small
graphic design business for at least fifteen years and, for at least the
last
seven years, has invested in numerous early stage biotechnology and information
technology companies. Ms. Chassman has also informed us that her portfolio
of
investments, exclusive of her investment in MedaSorb, is currently worth
in
excess $25,000,000.
In
consideration for funding the $1 million advance, in addition to the securities
into which such loan was converted on October 28, 2006 as described above,
Ms.
Chassman and her designees were issued
an
aggregate of 10 million shares of Common Stock prior to the merger; such
shares
are included in the 20,340,929 shares of common stock of MedaSorb Delaware
outstanding immediately prior to the June 30, 2006 merger. Upon issuance,
the
shares were valued at $12,500,000 based on the conversion price of the 5,250,000
shares of Series A Preferred Stock sold on that date. These shares of Common
Stock are subject to a 12-month lock-up agreement expiring June 30, 2007
and a
voting agreement entitling us to voting rights with respect to such shares
until
the earlier to occur of a transfer of those shares to an unrelated third
party
or June 30, 2008.
Following
transfers effected by Ms. Chassman, the 10,000,000 shares of Common Stock
are
currently held as follows:
Stockholder
|
|
Shares
of Common Stock
|
|
Margie
Chassman
|
|
|
4,795,000
|
|
|
|
|
|
|
Margery
Germain
|
|
|
2,000,000
|
|
|
|
|
|
|
Central
Yeshiva Beth Joseph
|
|
|
1,000,000
|
|
|
|
|
|
|
Wood
River Trust
|
|
|
1,050,000
|
|
|
|
|
|
|
Spring
Charitable Remainder Trust
|
|
|
1,150,000
|
|
|
|
|
|
|
Miriam
Fisher
|
|
|
5,000
|
|
The
share
held by Ms. Germain include 300,000 shares held directly by her minor children.
Wood
River Trust is a trust formed for the benefit of Evan Blech, the son of Ms.
Chassman and Mr. Blech. The trustees of Wood River Trust are Harvey Kesner
and
Michael C. Doyle. Ms. Chassman and Mr. Blech are the income beneficiaries
of
Spring Charitable Remainder Trust, and its remainder beneficiary is a charitable
organization yet to be designated. Andrew Levinson is the trustee of the
Spring
Charitable Remainder Trust.
In
connection with our June 30, 2006 sale of Series A Preferred Stock and warrants
to four institutional investors which generated gross proceeds of $5.25 million,
to induce those investors to make the investment, Margie Chassman pledged
to
those investors securities of other publicly traded companies. The pledged
securities consist of a $400,000 promissory note of Xechem International,
Inc.
convertible into Xechem common stock at $.005 per share, and 250,000 shares
of
the common stock of Novelos Therapeutics, Inc. Based on the market value
of the
Xechem common stock ($.07 per share) and the Novelos common stock ($1.03)
per
share, on June 30, 2006, the aggregate fair market value of the pledged
securities at the date of pledge was approximately
$5,857,500.
In
the
event those investors have suffered a loss on their investment in our securities
as of June 30, 2007 (as determined by actual sales by those investors or
the
market price of our Common Stock on such date), the investors may sell all
or a
portion of the pledged securities so that the investors receive proceeds
from
such sale in an amount equal to their loss on their investment in our
securities. In consideration of her pledge to these investors, we paid Ms.
Chassman (i) $525,000 in cash (representing 10% of the cash amount raised
from
the institutional investors), and (ii) five-year warrants to
purchase
|
·
|
525,000
shares of Series A Preferred Stock (representing 10% of the Series
A
Preferred Stock purchased by those investors), and
|
|
·
|
warrants
to purchase 210,000 shares of Common Stock at an exercise price
of $2.00
per share (representing 10% of the Series A Preferred Stock purchased
by
those investors),
|
for
an
aggregate exercise price of $525,000.
In
August
2003, in order to induce Guillermina Vega Montiel, a principal stockholder
of
ours, to make a
$4
million investment in MedaSorb Delaware, we granted Ms. Montiel a perpetual
royalty equal to three percent of all gross revenues received by us from
sales
of CytoSorbTM
in
the
applications of sepsis, cardiopulmonary bypass surgery, organ donor,
chemotherapy and inflammation control. In addition, for her investment, Ms.
Montiel received 1,230,770 membership units of MedaSorb Delaware, which at
the
time was a limited liability company. Those membership units ultimately became
185,477 shares of our Common Stock following our June 30, 2006
merger.
Separate
from the $1 million advance provided by Ms. Chassman, from time to time
beginning in 2003 through June 30, 2006, MedaSorb Delaware issued convertible
notes to various investors in the aggregate principal amount of $6,549,900.
The
notes bore interest at a rate of 12 percent per annum and were convertible
into
common stock at prices ranging from $3.32 per share to $6.64 per share (as
adjusted for the merger and conversion of MedaSorb Delaware from a limited
liability company to a corporation). Some of the convertible notes were issued
together with warrants. On June 30, 2006, these convertible notes, in the
aggregate principal amount of $6,549,900, together with $1,480,249 in accrued
interest, were converted into 5,170,880 shares of Common Stock and five-year
warrants to purchase a total of 816,691 shares of Common Stock at a price
of
$4.98 per share. The 5,170,880 shares of Common Stock issued upon conversion
includes 3,058,141 shares issued to the note holders as an inducement for
them
to convert the convertible notes. The inducement shares were valued at
$3,351,961, and such amount is included as a charge to interest expense in
our
Consolidated Statements of Operations for the nine months ended September
30,
2006. Guillermina Vega Montiel, a principal stockholder of ours, held
approximately $4,120,000 in principal amount of the convertible notes, which
together with $679,800 of accrued interest, converted into 4,354,189 of the
shares of Common Stock issued as a result of the conversion.
Joseph
Rubin is a director of ours and performs legal services from time to time.
At
December 31, 2005, MedaSorb Delaware owed Mr. Rubin’s firm approximately
$173,000 in respect of legal services provided by his firm to MedaSorb
Delaware.
PRINCIPAL
STOCKHOLDERS
The
following table sets forth information known to us with respect to the
beneficial ownership of Common Stock held of record as of December 11, 2006,
by
(1) all persons who are owners of 5% or more of our Common Stock, (2) each
of
our named executive officers (see “Summary Compensation Table”), (3) each
director, and (4) all of our executive officers and directors as a
group.
Each
of
the stockholders can be reached at our principal executive offices located
at 7
Deer Park Drive, Suite K, Monmouth Junction, New Jersey 08852.
|
|
SHARES
BENEFICIALLY OWNED1
|
|
|
|
Number
|
|
Percent
(%)
|
|
Beneficial
Owners of more than 5% of Common Stock (other than directors and
executive
officers)
|
|
|
|
|
|
Margie
Chassman(2)
|
|
|
6,625,000
|
(2)
|
|
25.2
|
%
|
Guillermina
Montiel(3)
|
|
|
5,052,456
|
|
|
20.6
|
%
|
Margery
Germain(4)
|
|
|
2,000,000
|
|
|
8.2
|
%
|
Robert
Shipley (5)
|
|
|
1,487,700
|
|
|
5.8
|
%
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
Al
Kraus(6)
|
|
|
1,761,114
|
|
|
7.1
|
%
|
David
Lamadrid
|
|
|
508,734
|
|
|
2.1
|
%
|
Vince
Capponi
|
|
|
418,086
|
|
|
1.7
|
%
|
Joseph
Rubin(7)
|
|
|
388,234
|
|
|
1.6
|
%
|
James
Winchester
|
|
|
52,519
|
|
|
*
|
|
Kurt
Katz(8)
|
|
|
59,077
|
|
|
*
|
|
All
directors and executive officers as a group (six persons)(9)
|
|
|
3,187,764
|
|
|
12.5
|
%
|
*
Less
than
1%.
1
|
Gives
effect to the shares of Common Stock issuable upon the exercise
of all
options exercisable within 60 days of December 11, 2006 and other
rights
beneficially owned by the indicated stockholders on that date.
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission and includes voting and investment power with
respect
to shares. Unless otherwise indicated, the persons named in the
table have
sole voting and sole investment control with respect to all shares
beneficially owned. Percentage ownership is calculated based on
24,465,696
shares of Common Stock outstanding as of December 11, 2006.
|
2
|
Based
on information reflected in a Schedule 13G filed by Ms. Chassman
with the
SEC on November 20, 2006, and includes 630,000 shares of Common
Stock
ultimately issuable upon exercise and conversion of the Series
A Preferred
Stock and warrants underlying the warrant we issued Ms. Chassman
upon the
closing of our Series A Preferred Stock private placement, 800,000
shares
of Common Stock issuable upon conversion of Series A Preferred
Stock and
400,000 shares of Common Stock issuable upon exercise of warrants.
Ms.
Chassman has waived her registration rights with respect to the
Series A
Preferred Stock and warrants. Margie Chassman is married to David
Blech.
Mr. Blech disclaims beneficial ownership of these shares. Since
1980 Mr.
Blech has been a founder of companies and venture capital investor
in the
biotechnology sector. His initial venture investment, Genetic Systems
Corporation, which he helped found and served as treasurer and
a member of
the board of directors, was sold to Bristol Myers in 1986 for $294
million
of Bristol Myers stock. Other companies he helped found include
DNA Plant
Technology, Celgene Corporation, Neurogen Corporation, Icos Corporation,
Incyte Pharmaceuticals, Alexion Pharmaceuticals and Neurocrine
Biosciences. He was also instrumental in the turnaround of Liposome
Technology, Inc. and Biotech General Corporation. In 1990 Mr. Blech
founded D. Blech & Company, which, until it ceased doing business in
September 1994, was a registered broker-dealer involved in underwriting
biotechnology issues. In May 1998, David Blech pled guilty to two
counts
of criminal securities fraud, and, in September 1999, he was sentenced
by
the U.S. District Court for the Southern District of New York to
five
years’ probation, which was completed in September 2004. Mr. Blech also
settled administrative charges by the Commission in December 2000
arising
out of the collapse in 1994 of D. Blech & Co., of which Mr. Blech was
President and sole stockholder. The settlement prohibits Mr. Blech
from
engaging in future violations of the federal securities laws and
from
association with any broker-dealer. In addition, the District Business
Conduct Committee for District No.10 of NASD Regulation, Inc. reached
a
decision, dated December 3, 1996, in a matter styled District Business
Conduct Committee for District No. 10 v. David Blech, regarding
the
alleged failure of Mr. Blech to respond to requests by the staff
of the
National Association of Securities Dealers, Inc. (“NASD”) for documents
and information in connection with seven customer complaints against
various registered representatives of D. Blech & Co. The decision
found that Mr. Blech failed to respond to such requests in violation
of
NASD rules and that Mr. Blech should, therefore, be censured, fined
$20,000 and barred from associating with any member firm in any
capacity.
Furthermore, Mr. Blech was discharged in bankruptcy in the United
States
Bankruptcy Court for the Southern District of New York in March
2000.
|
3
|
Includes
58,472 shares issuable upon exercise of stock options.
|
4
|
Includes
1,700,000 shares of Common Stock held directly by Ms. Germain and
300,000
shares of Common Stock held by her minor
children.
|
5
|
Includes
320,392 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock and 661,293 shares of Common Stock issuable upon
exercise
of warrants and options.
|
6
|
Includes
367,483 shares of Common Stock issuable upon exercise of stock
options
pursuant to Mr. Kraus’s Employment Agreement described
above.
|
7
|
Includes
2,000 shares of Common Stock issuable upon conversion of Series A
Preferred Stock and 303,970 shares of Common Stock issuable upon
exercise
of warrants and stock options. Does not include shares of Common
Stock
beneficially owned by Mr. Rubin’s spouse, as to which he disclaims
beneficial ownership.
|
8
|
Includes
56,817 shares of Common Stock issuable upon exercise of stock options
and
warrants.
|
9
|
Includes
an aggregate of 694,881 shares of Common Stock issuable upon exercise
of
stock options and warrants and conversion of Series A Preferred Stock.
|
SELLING
STOCKHOLDERS
Below
is
a list of the selling stockholders who have the right to acquire the 14,173,181
shares of Common Stock covered by this prospectus upon the conversion of
Series
A Convertible Preferred Stock and exercise of warrants to purchase shares
of our
Common Stock at a price of $2.00 per share. Other than as set forth below,
none
of these selling stockholders hold or within the past three years have held,
a
position, office or other material relationship with us or our predecessors
or
affiliates. Pursuant to the terms of the warrants and the Certificate of
Designation designating the Series A Preferred Stock, the selling stockholders
may not convert the Series A Preferred Stock or exercise the warrants if
as a
result thereof they would own in excess of 4.99% of our Common Stock. Both
the
Certificate of Designation and warrants provide each selling stockholder
with
the ability to waive this restriction upon 61-days’ prior notice to us, and to
increase the 4.99% limitation to up to 9.99%.
Of
the
shares of Common Stock we are registering for the selling stockholders,
12,232,894 shares are being registered on behalf of the four institutional
investors (the first four stockholders named in the table below). These
investors purchased from us on June 30, 2006 in a private offering generating
gross proceeds of $5.25 million, an aggregate of 5,250,000 shares of our
Series
A 10% Cumulative Convertible Preferred Stock initially convertible into
4,200,000 shares of Common Stock, and five-year warrants to purchase an
aggregate of 2,100,000 shares of our Common Stock. On September 30, 2006,
we
issued as a dividend to these investors 131,250 additional shares of Series
A
Preferred Stock, convertible into 105,000 shares of Common Stock. In accordance
with the Subscription Agreement we entered into with these investors, we
are
registering for resale by these investors 175% of the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock sold to them and
the
dividends thereon, and 100% of the shares of Common Stock issuable under
the
warrants we sold to them. The additional shares of Common Stock that we are
registering due to the 175% requirement could be issued to the stockholders
|
·
|
upon
conversion of the Series A Preferred Stock in the event the conversion
price of the Series A Preferred Stock is decreased from $1.25 as
a result
of future issuances by us of Common Stock (or Common Stock equivalents)
in
future financings at a price of less than $1.25, in which case
the
conversion price of the Series A Preferred Stock would be decreased
to
that lower price; or
|
|
·
|
in
lieu of cash amounts owing to the selling stockholders in connection
with
the Series A Preferred Stock; including, without limitation, as
a result
of our failure to timely cause the registration statement of which
this
prospectus is a part to be filed with the SEC, declared effective
by the
SEC or to remain effective; or as a result of our failure to timely
deliver certificates representing the Common Stock following the
conversion by a stockholder of Series A Preferred
Stock.
|
We
are
registering an additional 114,150 shares of Common Stock on behalf of an
accredited investor who on September 30, 2006 purchased from us, for an
aggregate purchase price of $50,000, and on substantially the same terms
as the
purchasers in our June 30, 2006 Series A Preferred Stock financing, 50,000
shares of Series A Preferred Stock convertible into 40,000 shares of Common
Stock and five-year warrants to purchase 20,000 shares of Common Stock at
a
price of $2.00 per share.
The
remaining 1,826,137 shares of Common Stock we are registering are issuable
to
selling stockholders who on September 30, 2006 exchanged an aggregate of
240,929
shares of our Common Stock and warrants to purchase an additional 240,929
shares
of Common Stock held by them at a price of $4.98 per share, for 799,885 shares
of Series A Preferred Stock and warrants to purchase 319,954 shares of Common
Stock at a price of $2.00 per share. These stockholders had invested an
aggregate of $799,885 in MedaSorb Delaware during 2005 upon terms which provided
them with anti-dilution price protection with respect to financings completed
in
the next 12 months. In March 2006, consistent with these anti-dilution terms,
and in anticipation of the merger and financing we completed on June 30,
2006,
MedaSorb Delaware notified each of these stockholders that they would be
permitted to exchange the shares of Common Stock and warrants purchased by
them
in 2005 for the securities to be sold in the private placement to be completed
in the next six months concurrent with a reverse merger, at the same price
paid
by investors in that private placement. On September 30, 2006, the last reported
sales price of the Common Stock was $1.70.
The
following table sets forth information concerning the selling stockholders,
including the number of shares currently held and the number of shares offered
by each selling shareholder. We have no knowledge of the intentions of any
selling shareholder to actually sell any of the securities listed under the
columns "Shares Offered."
|
|
Before
Offering
|
|
After
Offering(3)
|
|
Name
of Selling Stockholder
|
|
Number
of Shares
Owned(1)
|
|
Percentage
Owned(2)
|
|
Number
of Shares
Offered
|
|
Number
of Shares
Owned(1)
|
|
Percentage
Owned(2)
|
|
Alpha
Capital Aktiengesellschaft
|
|
|
2,330,075
|
(4)
|
|
4.99
|
%
|
|
2,330,075
|
(4)
|
|
0
|
|
|
*
|
|
Longview
Fund, LP
|
|
|
6,990,225
|
(5)
|
|
4.99
|
%
|
|
6,990,225
|
(5)
|
|
0
|
|
|
*
|
|
Platinum
Partners Long Term Growth II, LLC
|
|
|
2,330,075
|
(6)
|
|
4.99
|
%
|
|
2,330,075
|
(6)
|
|
0
|
|
|
*
|
|
Ellis
International Ltd
|
|
|
582,519
|
(7)
|
|
2.3
|
%
|
|
582,519
|
(7)
|
|
0
|
|
|
*
|
|
Paul
and Susan Ambrose
|
|
|
20,555
|
(8)
|
|
*
|
|
|
18,264
|
(8)
|
|
2,291
|
|
|
*
|
|
Henry
A.
Berkowitz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revocable
Trust
|
|
|
115,861
|
(9)
|
|
*
|
|
|
111,867
|
(9)
|
|
3,994
|
|
|
*
|
|
Bongert
and Mueller
|
|
|
12,621
|
(10)
|
|
*
|
|
|
11,415
|
(10)
|
|
1,206
|
|
|
*
|
|
Berkeley
Bottjer 1999 Trust
|
|
|
33,993
|
(11)
|
|
*
|
|
|
28,538
|
(11)
|
|
5,455
|
|
|
*
|
|
David
and Constance Clapp
|
|
|
93,960
|
(12)
|
|
*
|
|
|
22,830
|
(12)
|
|
71,130
|
|
|
*
|
|
Janet
W. Devereux
|
|
|
40,468
|
(13)
|
|
*
|
|
|
34,245
|
(13)
|
|
6,223
|
|
|
*
|
|
Karl
Eigsti 1999 Trust
|
|
|
33,993
|
(14)
|
|
*
|
|
|
28,538
|
(14)
|
|
5,455
|
|
|
*
|
|
Lisa
Firenze
|
|
|
10,459
|
(15)
|
|
*
|
|
|
9,121
|
(15)
|
|
1,338
|
|
|
*
|
|
Edward
B. Grier lll
|
|
|
126,523
|
(16)
|
|
*
|
|
|
114,150
|
(16)
|
|
12,373
|
|
|
*
|
|
Jo-Bar
Enterprises, LLC
|
|
|
25,241
|
(17)
|
|
*
|
|
|
22,830
|
(17)
|
|
2,411
|
|
|
*
|
|
Rajinder
Khullar
|
|
|
14,064
|
(18)
|
|
*
|
|
|
12,557
|
(18)
|
|
1,507
|
|
|
*
|
|
Harry
Klaristenfeld
|
|
|
32,383
|
(19)
|
|
*
|
|
|
28,766
|
(19)
|
|
3,617
|
|
|
*
|
|
Michael
Klausmeyer
|
|
|
187,623
|
(20)
|
|
*
|
|
|
102,735
|
(20)
|
|
84,888
|
|
|
*
|
|
Galba
Anstalt
|
|
|
140,790
|
(21)
|
|
*
|
|
|
114,150
|
(21)
|
|
26,640
|
|
|
*
|
|
Patrick
McNamara
|
|
|
75,460
|
(22)
|
|
*
|
|
|
57,075
|
(22)
|
|
18,385
|
|
|
*
|
|
Howard
and Ellen Miller
|
|
|
98,434
|
(23)
|
|
*
|
|
|
91,320
|
(23)
|
|
7,114
|
|
|
*
|
|
Keith
Mithoefer
|
|
|
32,465
|
(24)
|
|
*
|
|
|
7,991
|
(24)
|
|
24,474
|
|
|
*
|
|
Margaret
Mithoefer
|
|
|
23,190
|
(25)
|
|
*
|
|
|
5,708
|
(25)
|
|
17,482
|
|
|
*
|
|
Peter
Mithoefer
|
|
|
23,190
|
(26)
|
|
*
|
|
|
5,708
|
(26)
|
|
17,482
|
|
|
*
|
|
Newbridge
International Pension Plan & Trust FBO John A. Jones
|
|
|
12,922
|
(27)
|
|
*
|
|
|
11,415
|
(27)
|
|
1,507
|
|
|
*
|
|
Patrick
O'Leary
|
|
|
3,425
|
(28)
|
|
*
|
|
|
3,425
|
(28)
|
|
0
|
|
|
*
|
|
Vivek
M Prabhaker
|
|
|
14,064
|
(29)
|
|
*
|
|
|
12,557
|
(29)
|
|
1,507
|
|
|
*
|
|
Barry
D Romeril
|
|
|
48,399
|
(30)
|
|
*
|
|
|
28,538
|
(30)
|
|
19,861
|
|
|
*
|
|
Asher
Rubin
|
|
|
5,013
|
(31)
|
|
*
|
|
|
4,109
|
(31)
|
|
904
|
|
|
*
|
|
Joseph
Rubin
(37)
|
|
|
390,942
|
(32)
|
|
1.6
|
%
|
|
5,708
|
(32)
|
|
385,234
|
|
|
1.6
|
%
|
Michael
Seely
|
|
|
39,175
|
(33)
|
|
*
|
|
|
11,415
|
(33)
|
|
27,760
|
|
|
*
|
|
Robert
Shipley
(38)
|
|
|
1,921,431
|
(34)
|
|
7.7
|
%
|
|
914,319
|
(34)
|
|
1,007,112
|
|
|
4.1
|
%
|
James
Stoner
|
|
|
8,356
|
(35)
|
|
*
|
|
|
6,849
|
(35)
|
|
1,507
|
|
|
*
|
|
Arnaldo
Barros
|
|
|
129,150
|
(36)
|
|
*
|
|
|
114,150
|
(36)
|
|
15,000
|
|
|
*
|
|
*
Less
than 1%.
(1)
|
Includes
shares of Common Stock that the selling stockholder has the right
to
acquire beneficial ownership of within 60
days.
|
(2) |
Based
on 24,465,696 shares of Common Stock issued and outstanding on
December
11, 2006.
|
(3)
|
This
table assumes that each selling stockholder will sell all shares
offered
for sale by it under this prospectus. Stockholders are not required
to
sell their shares.
|
(4)
|
Includes
400,000 shares of Common Stock issuable upon exercise of warrants,
820,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
282,900, shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 827,125 shares representing
our good faith estimate of additional shares of Common Stock potentially
issuable to the selling stockholder in the event of adjustments
to the
conversion price of the Series A Preferred Stock and/or upon conversion
of
fees or penalties payable under the Series A Preferred Stock
(collectively, “Adjustment Shares”). We are registering the Adjustment
Shares consistent with our obligations under the Subscription Agreements
we entered into with investors requiring us to register for resale
by
these investors 175% of the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock sold to them and the
dividends
thereon. Adjustment Shares may be issued (i) upon conversion of
the Series
A Preferred Stock in the event the conversion price of the Series
A
Preferred Stock is decreased from $1.25 as a result of future issuances
by
us of Common Stock (or Common Stock equivalents) in future financings
at a
price of less than $1.25, in which case the conversion price of
the Series
A Preferred Stock would be decreased to that lower price; and (ii)
in lieu
of cash amounts owing to the selling stockholders in connection
with the
Series A Preferred Stock; including as a result of our failure
to timely
cause the registration statement of which this prospectus is a
part to be
filed with the SEC, declared effective by the SEC or to remain
effective,
or as a result of our failure to timely deliver certificates representing
the Common Stock following the conversion by a stockholder of Series
A
Preferred Stock. Konrad Ackermann, as Director of the selling stockholder,
exercises voting and dispositive control over these shares. Absent
the
restriction on beneficially owning in excess of 4.99% of our Common
Stock
applicable to the Series A Preferred Stock and warrants, and consistent
with Rule 13d-3 under the Securities Exchange Act of 1934, as of
December
11, 2006 (i) Alpha Capital Aktiengesellschaft is
the beneficial owner of 1,220,000 shares of Common Stock, representing
4.8% of our outstanding shares of Common Stock, and (ii) the 2,330,075
shares being registered on behalf of Alpha Capital
Aktiengesellschaft represents
8.7% of our outstanding shares of Common
Stock.
|
(5)
|
Includes
1,200,000 shares of Common Stock issuable upon exercise of warrants,
2,460,000 shares of Common Stock issuable upon conversion Series
A
Preferred Stock, 848,700 shares of Common Stock issuable upon conversion
of Series A Preferred Stock dividends paid in kind, and 2,481,525
Adjustment Shares. Peter T. Benz, as Chairman of the selling stockholder,
exercises voting and dispositive control over these shares. Absent
the
restriction on beneficially owning in excess of 4.99% of our Common
Stock
applicable to the Series A Preferred Stock and warrants, and consistent
with Rule 13d-3 under the Securities Exchange Act of 1934, as of
December
11, 2006 (i) Longview Fund is the beneficial owner of 3,660,000
shares of
Common Stock, representing 13.0% of our outstanding shares of Common
Stock, and (ii) the 6,990,225 shares being registered on behalf
of
Longview Fund represents 22.2% of our outstanding shares of Common
Stock.
|
(6)
|
Includes
400,000 shares of Common Stock issuable upon exercise of warrants,
820,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
282,900 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 827,125 Adjustment
Shares.
Mark Nordlicht, as General Manager of the selling stockholder,
exercises
voting and dispositive control over these shares. Absent the restriction
on beneficially owning in excess of 4.99% of our Common Stock applicable
to the Series A Preferred Stock and warrants, and consistent with
Rule
13d-3 under the Securities Exchange Act of 1934, as of December
11, 2006
(i) Platinum Partners Long Term Growth II is the beneficial owner
of
1,220,000 shares of Common Stock, representing 4.8% of our outstanding
shares of Common Stock, and (ii) the 2,330,075 shares being registered
on
behalf of Platinum Partners Long Term Growth II represents 8.7%
of our
outstanding shares of Common
Stock.
|
(7)
|
Includes
100,000 shares of Common Stock issuable upon exercise of warrants,
205,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
70,725 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 206,794 Adjustment
Shares.
Wilhelm Ungar, as Director of the selling stockholder, exercises
voting
and dispositive control over these
shares.
|
(8)
|
Includes
3,200 shares of Common Stock issuable upon exercise of warrants,
6,400
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
2,208 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 6,456 Adjustment Shares.
|
(9)
|
Includes
19,600 shares of Common Stock issuable upon exercise of warrants,
39,200
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
13,524 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 39,543 Adjustment Shares.
Henry Berkowitz, Trustee, exercises voting and dispositive control
over
these shares.
|
(10)
|
Includes
2,000 shares of Common Stock issuable upon exercise of warrants,
4,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
1,380 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 4,035 Adjustment Shares.
Heinz
A. Bongart, Partner, exercises voting and dispositive control over
these
shares.
|
(11)
|
Includes
5,000 shares of Common Stock issuable upon exercise of warrants,
10,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
3,450 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 10,088 Adjustment
Shares. Karl
Eigsti, Trustee, exercises voting and dispositive control over
these
shares.
|
(12)
|
Includes
4,000 shares of Common Stock issuable upon exercise of warrants,
8,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
2,760 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 8,070 Adjustment
Shares.
|
(13)
|
Includes
6,000 shares of Common Stock issuable upon exercise of warrants,
12,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
4,140 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 12,105 Adjustment
Shares.
|
(14)
|
Includes
5,000 shares of Common Stock issuable upon exercise of warrants,
10,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
3,450 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 10,088 Adjustment Shares.
Karl
Eigsti, Trustee, exercises voting and dispositive control over
these
shares.
|
(15)
|
Includes
1,598 shares of Common Stock issuable upon exercise of warrants,
3,196
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
1,103 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 3,224 Adjustment Shares.
|
(16)
|
Includes
20,000 shares of Common Stock issuable upon exercise of warrants,
40,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
13,800 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 40,350 Adjustment
Shares.
|
(17)
|
Includes
4,000 shares of Common Stock issuable upon exercise of warrants,
8,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
2,760 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 8,070 Adjustment Shares.
Joel
Stone, Managing Member, exercises voting and dispositive control
over
these shares.
|
(18)
|
Includes
2,200 shares of Common Stock issuable upon exercise of warrants,
4,400
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
1,518 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 4,439 Adjustment
Shares.
|
(19)
|
Includes
5,040 shares of Common Stock issuable upon exercise of warrants,
10,080
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
3,478 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 10,168 Adjustment
Shares.
|
(20)
|
Includes
18,000 shares of Common Stock issuable upon exercise of warrants,
36,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
12,420 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 36,315 Adjustment
Shares.
|
(21)
|
Includes
20,000 shares of Common Stock issuable upon exercise of warrants,
40,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
13,800 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 40,350 Adjustment Shares.
Thierry de Marignac exercises voting and dispositive control over
these
shares.
|
(22)
|
Includes
10,000 shares of Common Stock issuable upon exercise of warrants,
20,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
6,900 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 20,175 Adjustment
Shares.
|
(23)
|
Includes
16,000 shares of Common Stock issuable upon exercise of warrants,
32,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
11,040 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 32,280 Adjustment
Shares.
|
(24)
|
Includes
1,400 shares of Common Stock issuable upon exercise of warrants,
2,800
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
966 shares of Common Stock issuable upon conversion of Series A
Preferred
Stock dividends paid in kind, and 2,825 Adjustment
Shares.
|
(25)
|
Includes
1,000 shares of Common Stock issuable upon exercise of warrants,
2,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
690 shares of Common Stock issuable upon conversion of Series A
Preferred
Stock dividends paid in kind, and 2,018 Adjustment
Shares.
|
(26)
|
Includes
1,000 shares of Common Stock issuable upon exercise of warrants,
2,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
690 shares of Common Stock issuable upon conversion of Series A
Preferred
Stock dividends paid in kind, and 2,018 Adjustment
Shares.
|
(27)
|
Includes
2,000 shares of Common Stock issuable upon exercise of warrants,
4,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
1,380 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 4,035 Adjustment Shares.
John
A. Jones, Trustee, exercises voting and dispositive control over
these
shares.
|
(28)
|
Includes
600 shares of Common Stock issuable upon exercise of warrants,
1,200
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
414 shares of Common Stock issuable upon conversion of Series A
Preferred
Stock dividends paid in kind, and 1,211 Adjustment
Shares.
|
(29)
|
Includes
2,200 shares of Common Stock issuable upon exercise of warrants,
4,400
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
1,518 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 4,439 Adjustment
Shares.
|
(30)
|
Includes
5,000 shares of Common Stock issuable upon exercise of warrants,
10,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
3,450 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 10,088 Adjustment
Shares.
|
(31)
|
Includes
720 shares of Common Stock issuable upon exercise of warrants,
1,440
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
497 shares of Common Stock issuable upon conversion of Series A
Preferred
Stock dividends paid in kind, and 1,453 Adjustment
Shares.
|
(32)
|
Includes
1,000 shares of Common Stock issuable upon exercise of warrants,
2,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
690 shares of Common Stock issuable upon conversion of Series A
Preferred
Stock dividends paid in kind, and 2,018 Adjustment
Shares.
|
(33)
|
Includes
2,000 shares of Common Stock issuable upon exercise of warrants,
4,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
1,380 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 4,035 Adjustment
Shares.
|
(34)
|
Includes
160,196 shares of Common Stock issuable upon exercise of warrants,
320,392
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
110,535 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 323,195 Adjustment
Shares.
|
(35)
|
Includes
1,200 shares of Common Stock issuable upon exercise of warrants,
2,400
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
828 shares of Common Stock issuable upon conversion of Series A
Preferred
Stock dividends paid in kind, and 2,421 Adjustment Shares.
|
(36)
|
Includes
20,000 shares of Common Stock issuable upon exercise of warrants,
40,000
shares of Common Stock issuable upon conversion Series A Preferred
Stock,
13,800 shares of Common Stock issuable upon conversion of Series
A
Preferred Stock dividends paid in kind, and 40,350 Adjustment
Shares.
|
(37)
|
Joe
Rubin a director of ours and from time to time renders legal services
to
us.
|
(38)
|
Robert
Shipley was a director of MedaSorb Delaware prior to its merger
with us on
June 30, 2006.
|
PLAN
OF DISTRIBUTION
We
are
registering the shares of Common Stock on behalf of the selling stockholders.
As
used in this prospectus, “selling stockholders” includes the pledges, donees,
transferees or others who may later hold the selling stockholders’ interests. We
have agreed to pay the costs and fees of registering the shares, but the selling
stockholders will pay any brokerage commissions, discounts or other expenses
relating to the sale of the shares, including attorneys’ fees.
The
stockholders and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of Common Stock on
any
stock exchange, market or trading facility on which the shares are traded or
in
private transactions. These sales may be at fixed or negotiated prices. The
stockholders may use any one or more of the following methods when selling
shares:
|
|
ordinary
brokerage transactions and transactions in which the broker dealer
solicits purchasers;
|
|
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
purchases
by a broker-dealer as principal and resale by the broker dealer for
its
account;
|
|
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
privately
negotiated transactions;
|
|
|
settlement
of short sales;
|
|
|
broker-dealers
may agree with the stockholders to sell a specified number of such
shares
at a stipulated price per share;
|
|
|
a
combination of any such methods of sale;
and
|
|
|
any
other method permitted pursuant to applicable
law.
|
The
stockholders may also sell shares under Rule 144 under the Securities Act,
if
available, rather than under this prospectus.
Broker-dealers
engaged by the stockholders may arrange for other brokers dealers to participate
in sales. Broker-dealers may receive commissions or discounts from the
stockholders (or, if any broker-dealer acts as agent for the purchaser of
shares, from the purchaser) in amounts to be negotiated. The stockholders do
not
expect these commissions and discounts to exceed what is customary in the types
of transactions involved.
The
stockholders may from time to time pledge or grant a security interest in some
or all of the shares of Common Stock owned by them and, if they default in
the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of Common Stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list
of
stockholders to include the pledgee, transferee or other successors in interest
as stockholders under this prospectus.
The
stockholders and any broker-dealers or agents that are involved in selling
the
shares may be deemed to be “underwriters” within the meaning of the Securities
Act in connection with such sales. In such event, any commissions received
by
such broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
We
are
required to pay all fees and expenses incident to the registration of the shares
and have agreed to indemnify the stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities
Act.
DESCRIPTION
OF SECURITIES
Our
total
authorized capital stock consists of 100,000,000 shares of Common Stock,
par
value $.001 per share and 100,000,000 shares of preferred stock, par value
$.001
per share. We have designated 12,000,000 shares of our preferred stock as
Series
A 10% Cumulative Convertible Preferred Stock. As of December 11, 2006, there
were issued and outstanding 24,465,696 shares of our Common Stock and 7,231,135
shares of our Series A Preferred Stock. The following description of our
capital
stock does not purport to be complete and is subject to and qualified by
our
Articles of Incorporation and By-laws, and by the provisions of applicable
Nevada law.
Common
Stock
Holders
of our Common Stock are entitled to receive dividends out of assets legally
available therefore at such times and in such amounts as the Board of Directors
from time to time may determine. Holders of our Common Stock are entitled to
one
vote for each share held on all matters submitted to a vote of the stockholders.
Cumulative voting with respect to the election of directors is not permitted
by
our Articles of Incorporation. Our Common Stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Upon our liquidation,
dissolution or winding-up, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the Common Stock
after payment of liquidation preferences, if any, on any outstanding stock
having prior rights on such distributions and payment of other claims of
creditors.
Preferred
Stock
Our
Articles of Incorporation authorizes the issuance of shares of preferred stock
in one or more series. Our Board of Directors has the authority, without any
vote or action by the stockholders, to create one or more series of preferred
stock up to the limit of our authorized but unissued shares of preferred stock
and to fix the number of shares constituting such series and the designation
of
such series, the voting powers (if any) of the shares of such series and the
relative participating, option or other special rights (if any), and any
qualifications, preferences, limitations or restrictions pertaining to such
series which may be fixed by the Board of Directors pursuant to a resolution
or
resolutions providing for the issuance of such series adopted by the Board
of
Directors.
Series
A 10% Cumulative Convertible Preferred Stock
We
have
designated 12,000,000 shares of our preferred stock as Series A 10% Cumulative
Convertible Preferred Stock (“Series A Preferred Stock”), of which 7,231,135
shares were issued and outstanding as of December 11, 2006. Each share of
Series
A Preferred Stock has a stated value of $1.00, and is convertible at the
holder’s option into that number of shares of our Common Stock equal to the
stated value of such share of Series A Preferred Stock divided by an initial
conversion price of $1.25. Upon the occurrence of a stock split, stock dividend,
combination of our Common Stock into a smaller number of shares, issuance
of any
of our shares or other securities by reclassification of our Common Stock,
merger or sale of substantially all of our assets, the conversion rate will
be
adjusted so that the conversion rights of the Series A Preferred Stock
stockholders will be equivalent to the conversion rights of the Series A
Preferred Stock stockholders prior to such event. In addition, in the event
we
sell shares of our Common Stock (or the equivalent thereof) following the
issuance of shares of Series A Preferred Stock at a price of less than $1.25
per
share, the conversion price of the shares of Series A Preferred Stock will
be
reduced to such lower price.
The
Series A Preferred Stock bears a dividend of 10% per annum payable quarterly,
at
our election in cash or additional shares of our Series A Preferred Stock valued
at the stated value thereof; provided, however, that we must pay the dividend
in
cash if an “Event of Default” as defined in the Certificate of Designation
designating the Series A Preferred Stock has occurred and is then continuing.
In
addition, upon an Event of Default, the dividend rate increases to 20% per
annum. An Event of Default includes, but is not limited to, the
following:
|
·
|
the
occurrence of “Non-Registration Events” including, the failure to cause a
registration statement registering the shares of Common Stock underlying
the Series A Preferred Stock and Warrants issued in connection therewith
to be effective within 240 days following the closing of the private
placement;
|
|
·
|
an
uncured breach by us of any material covenant, term or condition
in the
Certificate of Designation or any of the related transaction documents;
and
|
|
·
|
any
money judgment or similar final process being filed against us for
more
than $100,000.
|
In
the
event of our dissolution, liquidation or winding up, the holders of the Series
A
Preferred Stock will receive, in priority over the holders of Common Stock,
a
liquidation preference equal to the stated value of such shares plus accrued
dividends thereon.
The
Series A Preferred Stock is not redeemable at the option of the holder but
may
be redeemed by us at our option following the third anniversary of the issuance
of the Series A Preferred Stock for 120% of the stated value thereof plus any
accrued but unpaid dividends upon 30 days' prior written notice, during which
time the Series A Preferred Stock may be converted, provided a registration
statement is effective under the Securities Act with respect to the Common
Stock
into which such Preferred is convertible and an Event of Default is not then
continuing.
Holders
of Series A Preferred Stock do not have the right to vote on matters submitted
to the holders of our Common Stock.
The
registration rights provided for in the subscription agreement we entered into
with the purchasers of the Series A Preferred Stock:
|
·
|
require
that we file a registration statement with the SEC on or before 120
days
from the closing to register the shares of Common Stock issuable
upon
conversion of the Series A Preferred Stock and exercise of the Warrants,
and cause such registration statement to be effective within 240
days
following the closing; and
|
|
·
|
entitles
each of these investors to liquidated damages in an amount equal
to two
percent (2%) of the purchase price of the Series A Preferred Stock
if we
fail to timely file that registration statement with, or have it
declared
effective by, the SEC.
|
The
transaction documents we entered into with the purchasers of the Series A
Preferred Stock also provide for various penalties and fees for breaches or
failures to comply with provisions of those documents, such as the timely
payment of dividends, delivery of stock certificates, and obtaining and
maintaining an effective registration statement with respect to the shares
of
Common Stock underlying the Series A Preferred Stock and warrants sold in the
offering.
In
addition, the purchasers of our securities in our June 30, 2006 private
placement have been provided with “full-ratchet” anti-dilution price protection,
so that upon future issuances of our 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,
further diluting holders of our Common Stock.
Anti-Takeover
Provisions
Certain
anti-takeover provisions in our Certificate of Incorporation may make a change
in control of the Company more difficult, even if a change in control would
be
beneficial to our stockholders. In particular, our board of directors will
be
able to issue up to 88,000,000 shares of preferred stock with rights and
privileges that might be senior to our Common Stock, without the consent of
the
holders of our Common Stock, and has the authority to determine the price,
rights, preferences, privileges and restrictions of the preferred stock.
Although the ability to issue preferred stock may provide us with flexibility
in
connection with possible acquisitions and other corporate purposes, this
issuance may make it more difficult for a third party to acquire a majority
of
our outstanding voting stock.
TRANSFER
AGENT
The
transfer agent for our Common Stock is American Stock Transfer & Trust
Company, located at 6201 15th Avenue, Brooklyn, New York 11219. American Stock
Transfer & Trust Company’s telephone number is 718-921-8143.
COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our
directors and officers are indemnified as provided by the Nevada Revised
Statutes and our bylaws. We have been advised that in the opinion of the
Securities and Exchange Commission indemnification for liabilities arising
under
the Securities Act of 1933 is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the event that
a
claim for indemnification against such liabilities is asserted by one of our
directors, officers, or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our legal counsel the matter
has been settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court's decision.
LEGAL
MATTERS
The
validity of the shares of Common Stock being offered hereby will be passed
upon
for us by Cane Clark, LLP, Las Vegas, Nevada.
EXPERTS
The
audited financial statements of MedaSorb Delaware (formerly MedaSorb
Technologies, LLC) for the fiscal years ended December 31, 2004 and 2005
included in and made a part of this document have been audited by
WithumSmith+Brown, A Professional Corporation, independent auditors, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
file
annual, quarterly and current reports and other information with the SEC. You
may read and copy any reports, statements or other information we file at the
SEC’s public reference rooms in Washington D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on
the
public reference rooms. Our filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
SEC
at http://www.sec.gov.
We
have
filed a registration statement on Form SB-2 under the Securities Act with the
SEC covering the Common Stock to be offered by the selling stockholders. As
permitted by the rules and regulations of the SEC, this document does not
contain all information set forth in the registration statement and exhibits
thereto, all of which are available for inspection as set forth above. For
further information, please refer to the registration statement, including
the
exhibits thereto. Statements contained in this document relating to the contents
of any contract or other document referred to herein are not necessarily
complete, and reference is made to the copy of that contract or other document
filed as an exhibit to the registration statement or other document, and each
statement of this type is qualified in all respects by that reference.
No
person
is authorized to give any information or make any representation not contained
in this document. You should not rely on any information provided to you that
is
not contained in this document. This prospectus does not constitute an offer
to
sell or a solicitation of an offer to purchase the securities described herein
in any jurisdiction in which, or to any person to whom, it is unlawful to make
the offer or solicitation. Neither the delivery of this document nor any
distribution of shares of Common Stock made hereunder shall, under any
circumstances, create any implication that there has not been any change in
our
affairs as of any time subsequent to the date hereof.
FINANCIAL
STATEMENTS
|
Page
|
|
|
Consolidated
Balance Sheets at September 30, 2006 (Unaudited) and December 31,
2005
|
F-2
|
|
|
Consolidated
Statements of Operations for the three and nine month periods ended
|
|
September
30, 2006 and 2005, and from inception to September 30, 2006 (Unaudited)
|
F-3
|
|
|
Consolidated
Statements of Cash Flows in Stockholders’ Equity
(Deficiency)
|
|
period
from December 31, 2005 to September 30, 2006 (Unaudited)
|
F-4
|
|
|
Consolidated
Statements of Cash Flows for the nine month periods ended
|
|
September
30, 2006 and 2005, and from inception to September 30, 2006 (unaudited)
|
F-6
|
|
|
Notes
to Financial Statements (unaudited)
|
F-7
|
|
|
Report
of Independent Accounting Firms
|
F-16
|
|
|
Consolidated
Balance Sheets at December 31, 2005
|
|
and
December 31, 2004
|
F-18
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2005
|
|
and
2004, and from inception to December 31, 2005
|
F-19
|
|
|
Consolidated
Statements of Cash Flows in Stockholders’ Equity
(Deficiency)
|
|
period
from inception to December 31, 2005
|
F-20
|
|
|
Consolidated
Statements of Cash Flows for the for the years ended
|
|
December
31, 2005 and 2004, and from inception to December 31, 2005
|
F-25
|
|
|
Notes
to Financial Statements
|
F-27
|
MEDASORB
TECHNOLOGIES CORPORATION
|
|
(a
development stage company)
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,576,869
|
|
$
|
707,256
|
|
Prepaid
expenses and other current assets
|
|
|
41,803
|
|
|
19,261
|
|
Total
current assets
|
|
|
3,618,672
|
|
|
726,517
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
366,085
|
|
|
553,657
|
|
Other
assets
|
|
|
187,765
|
|
|
181,307
|
|
Total
long-term assets
|
|
|
553,850
|
|
|
734,964
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
4,172,522
|
|
$
|
1,461,481
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,258,520
|
|
$
|
1,802,788
|
|
Accrued
expenses and other current liabilities
|
|
|
73,933
|
|
|
412,646
|
|
Accrued
interest
|
|
|
65,000
|
|
|
1,056,960
|
|
Stock
subscribed
|
|
|
—
|
|
|
399,395
|
|
Convertible
notes payable
|
|
|
1,000,000
|
|
|
3,429,899
|
|
Total
current liabilities
|
|
|
2,397,453
|
|
|
7,101,688
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
—
|
|
|
4,120,000
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
—
|
|
|
4,120,000
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,397,453
|
|
|
11,221,688
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity/(Deficiency):
|
|
|
|
|
|
|
|
Common
Stock, Par Value $0.001, 100,000,000 and 300,000,000
|
|
|
|
|
|
|
|
authorized
at September 30, 2006 and December 31, 2005,
|
|
|
|
|
|
|
|
shares
respectively, 24,465,696 and 4,829,120 shares
|
|
|
|
|
|
|
|
issued
and outstanding, respectively
|
|
|
24,466
|
|
|
4,829
|
|
10%
Series A Preferred Stock, Par Value $0.001, 100,000,000 and
-0-
|
|
|
|
|
|
|
|
shares
authorized at September 30, 2006 and December 31,
|
|
|
|
|
|
|
|
2005,
respectively, 6,231,135 and -0- shares issued
|
|
|
|
|
|
|
|
and
outstanding, respectively
|
|
|
6,231
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
67,972,899
|
|
|
49,214,431
|
|
Deficit
accumulated during the development stage
|
|
|
(66,228,527
|
)
|
|
(58,979,467
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity (deficiency)
|
|
|
1,775,069
|
|
|
(9,760,207
|
)
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficiency)
|
|
$
|
4,172,522
|
|
$
|
1,461,481
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
MEDASORB
TECHNOLOGIES CORPORATION
|
|
|
|
|
|
|
|
|
|
(a
development stage company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
Period
from January 22, 1997 (date of inception) to
September
30,
|
|
Nine
months ended September 30,
|
|
Three
months ended September 30,
|
|
|
|
2006
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
40,531,710
|
|
|
750,411
|
|
|
1,021,039
|
|
|
262,217
|
|
|
253,650
|
|
Legal,
financial and other consulting
|
|
|
5,969,057
|
|
|
621,923
|
|
|
766,960
|
|
|
18,920
|
|
|
391,118
|
|
General
and administrative
|
|
|
19,898,682
|
|
|
688,951
|
|
|
470,511
|
|
|
387,408
|
|
|
118,542
|
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
60,343,966
|
|
|
2,061,285
|
|
|
2,258,510
|
|
|
668,545
|
|
|
763,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
—
|
|
|
(1,000
|
)
|
|
—
|
|
|
—
|
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
—
|
|
|
(175,000
|
)
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
Interest
expense, net
|
|
|
5,683,778
|
|
|
4,790,329
|
|
|
551,945
|
|
|
(22,842
|
)
|
|
199,502
|
|
Net
loss
|
|
|
(65,831,081
|
)
|
|
(6,851,614
|
)
|
|
(2,634,455
|
)
|
|
(645,703
|
)
|
|
(962,812
|
)
|
Series
A Preferred Stock Dividend
|
|
|
397,446
|
|
|
397,446
|
|
|
—
|
|
|
397,446
|
|
|
—
|
|
Net
Loss available to common shareholders
|
|
$
|
(66,228,527
|
)
|
$
|
(7,249,060
|
)
|
$
|
(2,634,455
|
)
|
$
|
(1,043,149
|
)
|
$
|
(962,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
$
|
(0.62
|
)
|
$
|
(0.55
|
)
|
$
|
(0.04
|
)
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock outstanding
|
|
|
|
|
|
11,599,016
|
|
|
4,770,455
|
|
|
24,095,093
|
|
|
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 September 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
|
|
|
5,446,597
|
|
|
(201,847
|
)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for accounts payable
|
|
|
615,696
|
|
|
616
|
|
|
—
|
|
|
—
|
|
|
420,104
|
|
|
—
|
|
|
420,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of common stock issued prior to merger for 10% Series A Preferred
Stock
|
|
|
(240,929
|
)
|
|
(241
|
)
|
|
799,885
|
|
|
800
|
|
|
30,194
|
|
|
(30,753
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock dividend on 10% Series A Preferred Stock
|
|
|
—
|
|
|
—
|
|
|
131,250
|
|
|
131
|
|
|
131,119
|
|
|
(131,250
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options to employee
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57,819
|
|
|
—
|
|
|
57,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 10% Series A Preferred Stock
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
|
50
|
|
|
83,546
|
|
|
(33,596
|
)
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,851,614
|
)
|
|
(6,851,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2006 (Unaudited)
|
|
|
24,465,696
|
|
$
|
24,466
|
|
|
6,231,135
|
|
$
|
6,231
|
|
$
|
67,972,899
|
|
$
|
(66,228,527
|
)
|
$
|
1,775,069
|
|
See
accompanying notes to consolidated financial statements.
|
|
MEDASORB
TECHNOLOGIES CORPORATION
|
|
|
|
(a
development stage company)
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
Period
from
January
22, 1997
(date
of inception) to
|
|
|
|
|
|
|
|
September
30, 2006
|
|
September
30, 2006
|
|
September
30, 2005
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(65,831,081
|
)
|
$
|
(6,851,614
|
)
|
$
|
(2,634,455
|
)
|
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
|
|
|
104,738
|
|
|
104,738
|
|
|
—
|
|
Depreciation
and amortization
|
|
|
1,982,743
|
|
|
191,644
|
|
|
200,588
|
|
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
|
|
|
(313,351
|
)
|
|
(22,542
|
)
|
|
14,575
|
|
Other
assets
|
|
|
(53,893
|
)
|
|
(2,730
|
)
|
|
—
|
|
Accounts
payable and accrued expenses
|
|
|
2,757,640
|
|
|
(462,281
|
)
|
|
725,609
|
|
Accrued
interest expense
|
|
|
1,888,103
|
|
|
488,310
|
|
|
552,129
|
|
Net
cash used in operating activities
|
|
|
(47,955,808
|
)
|
|
(2,201,167
|
)
|
|
(1,317,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(337,703
|
)
|
|
(9,147
|
)
|
|
(18,183
|
)
|
Loan
receivable
|
|
|
(1,632,168
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(4,136,474
|
)
|
|
(9,147
|
)
|
|
14,308
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
400,490
|
|
|
400,490
|
|
|
—
|
|
Proceeds
from issuance of preferred stock
|
|
|
4,679,437
|
|
|
4,679,437
|
|
|
—
|
|
Equity
contributions - net of fees incurred
|
|
|
41,711,198
|
|
|
—
|
|
|
—
|
|
Proceeds
from borrowings
|
|
|
8,378,631
|
|
|
—
|
|
|
2,129,658
|
|
Proceeds
from subscription receivables
|
|
|
499,395
|
|
|
—
|
|
|
385,395
|
|
Net
cash provided by financing activities
|
|
|
55,669,151
|
|
|
5,079,927
|
|
|
2,515,053
|
|
See
accompanying notes to consolidated financial statements.
Net
increase in cash and cash equivalents
|
|
|
3,576,869
|
|
|
2,869,613
|
|
|
1,211,807
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of period
|
|
|
—
|
|
|
707,256
|
|
|
16,749
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
$
|
3,576,869
|
|
$
|
3,576,869
|
|
$
|
1,228,556
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,257,039
|
|
$
|
420,720
|
|
$
|
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
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
$
|
397,446
|
|
$
|
397,446
|
|
$
|
—
|
|
Net
effect of conversion of common stock issued prior
|
|
|
|
|
|
|
|
|
|
|
to
merger to Series A 10% preferred stock
|
|
$
|
559
|
|
$
|
559
|
|
$
|
—
|
|
See
accompanying notes to consolidated financial statements.
Notes
to Consolidated Financial Statements
(UNAUDITED)
September
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 accounting principles generally
accepted in the United States of America 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 September 30, 2006 and
the
results of its operations and cash flows for the nine and three month periods
ended September 30, 2006 and 2005. Results for the nine 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. MedaSorb
Delaware prior to the Merger had 300,000,000 authorized shares of common
stock.
Following the Merger, the Parent has authorized 100,000,000 shares of common
stock and 100,000,000 shares of preferred 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. 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 September 30, 2006 of $66,228,527.
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 historically been successful in raising
additional capital through equity and debt financings, 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 September 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 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:
|
|
Nine
Months
|
|
Three
Months
|
|
|
|
Ended
|
|
Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2005
|
|
2005
|
|
Net
Loss
|
|
|
|
|
|
As
reported
|
|
$
|
2,634,455
|
|
$
|
962,812
|
|
Pro
forma
|
|
$
|
2,634,455
|
|
$
|
962,812
|
|
|
|
|
|
|
|
|
|
Net
Loss per Share:
|
|
|
|
|
|
|
|
Basic
and diluted, as reported
|
|
$
|
0.55
|
|
$
|
0.20
|
|
Basic
and diluted, proforma
|
|
$
|
0.55
|
|
$
|
0.20
|
|
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(R), “Accounting
for Stock-Based Compensation”,
for
employees and directors. The adoption of SFAS No. 123(R) has not had a
significant effect on these 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 Company’s
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 Company’s
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
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets”, to simplify accounting for separately recognized servicing assets and
servicing liabilities. SFAS No. 156 amends SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
Additionally, SFAS No. 156 permits, but does not require, an entity to choose
either the amortization method or the fair value measurement method for
measuring each class of separately recognized servicing assets and servicing
liabilities. SFAS No. 156 applies to all separately recognized servicing
assets
and servicing liabilities acquired or issued after the beginning of an entity’s
fiscal year that begins after September 15, 2006, although early adoption
is
permitted. The Company does not expect that the adoption of SFAS No. 156
will
have a significant impact on the consolidated 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 non-comparability 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.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” to
eliminate the diversity in practice that exists due to the different definitions
of fair value and the limited guidance for applying those definitions in
GAAP
that are dispersed among the many accounting pronouncements that require
fair
value measurements. SFAS No. 157 retains the exchange price notion in earlier
definitions of fair value, but clarifies that the exchange price is the price
in
an orderly transaction between market participants to sell an asset or liability
in the principal or most advantageous market for the asset or liability.
Moreover, the SFAS states that the transaction is hypothetical at the
measurement date, considered from the perspective of the market participant
who
holds the asset or liability. Consequently, fair value is defined as the
price
that would be received to sell an asset or paid to transfer a liability in
an
orderly transaction between market participants at the measurement date (an
exit
price), as opposed to the price that would be paid to acquire the asset or
received to assume the liability at the measurement date (an entry
price).
SFAS
No.
157 also stipulates that, as a market-based measurement, fair value measurement
should be determined based on the assumptions that market participants would
use
in pricing the asset or liability, and establishes a fair value hierarchy
that
distinguishes between (a) market participant assumptions developed based
on
market data obtained from sources independent of the reporting entity
(observable inputs) and (b) the reporting entity's own assumptions about
market
participant assumptions developed based on the best information available
in the
circumstances (unobservable inputs). Finally, SFAS No. 157 expands disclosures
about the use of fair value to measure assets and liabilities in interim
and
annual periods subsequent to initial recognition. Entities are encouraged
to
combine the fair value information disclosed under SFAS No. 157 with the
fair
value information disclosed under other accounting pronouncements, including
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” where
practicable. The guidance in this Statement applies for derivatives and other
financial instruments measured at fair value under SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” at initial recognition and in
all subsequent periods.
SFAS
No.
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years, although
earlier application is encouraged. Additionally, prospective application
of the
provisions of SFAS No. 157 is required as of the beginning of the fiscal
year in
which it is initially applied, except when certain circumstances require
retrospective application. The Company is currently evaluating the impact
of
this statement on its results of operations or financial position of the
Company.
In
September 2006, the FASB issued “Statement of Financial Accounting Standards No.
158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans (an amendment of FASB Statements No. 87, 88, 106, and 132R)”, which will
require employers to fully recognize the obligations associated with
single-employer defined benefit pension, retiree healthcare and other
postretirement plans in their financial statements. Under past accounting
standards, the funded status of an employer’s postretirement benefit plan (i.e.,
the difference between the plan assets and obligations) was not always
completely reported in the balance sheet. Past standards only required an
employer to disclose the complete funded status of its plans in the notes
to the
financial statements. SFAS No. 158 applies to plan sponsors that are public
and
private companies and nongovernmental not-for-profit organizations. The
requirement to recognize the funded status of a benefit plan and the disclosure
requirements are effective as of the end of the fiscal year ending after
December 15, 2006, for entities with publicly traded equity securities, and
at
the end of the fiscal year ending after June 15, 2007, for all other entities.
The requirement to measure plan assets and benefit obligations as of the
date of
the employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. The Company does not expect
that
the adoption of SFAS No. 158 will have a significant impact on the consolidated
results of operations or financial position of the Company.
3.
CONVERTIBLE NOTES PAYABLE
From
time
to time beginning in 2003 through June 30, 2006, the Company issued convertible
notes to various investors in the aggregate principal amount of $6,549,900.
The
notes bore interest at a rate of 12 percent per annum and were convertible
into
common stock at prices ranging from $3.32 per share to $6.64 per share (as
adjusted for the Merger and conversion of MedaSorb Delaware from a limited
liability company to a corporation). Some of the convertible notes were issued
together with warrants. All of these convertible notes, in the aggregate
principal amount of $6,549,900, together with $1,480,249 in accrued interest,
were converted into equity on June 30, 2006 upon the closing of the Merger
(see
Note 1). In connection with this conversion, the Parent issued 5,170,880
shares
of Common Stock and five-year warrants to purchase a total of 816,691 shares
of
Common Stock at a price of $4.98 per share. The 5,170,880 shares of Common
Stock
issued upon conversion includes 3,058,141 shares (“inducement shares”) issued to
the note holders as an inducement for them to convert the convertible notes.
The
inducement shares were valued at $3,351,961, and such amount is included
as a
charge to interest expense in the consolidated statements of operations for
the
nine months ended September 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 2006. The loan
bears interest at 6% per annum, repayable in cash or, at the option of the
noteholder, converted into the Series A Preferred Stock and Warrants which
were
sold in connection with the Merger (see Note 4). The loan and accrued interest
is due and payable on December 31, 2006, subject to earlier repayment in
the
event the Company completes an offering of securities generating gross proceeds
of $5.5 million or more. In addition, in the event that less than $6.5 million
of gross proceeds are raised in such an offering within 120 days from the
date
subscription materials were first circulated to potential investors, the
balance
of the bridge loan then outstanding, at the Company’s option, is convertible
into the securities sold in that offering. In consideration for funding the
loan
and 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 nine months ended September 30, 2006 in
the
amount of $1,000,000.
4. STOCKHOLDERS'
EQUITY
Each
share of Series A Preferred Stock has a stated value of $1.00, and is
convertible at the holder’s option into that number of shares of Common Stock
equal to the stated value of such share of Series A Preferred Stock divided
by
an initial conversion price of $1.25. Upon the occurrence of a stock split,
stock dividend, combination of the Common Stock into a smaller number of
shares,
issuance of any of shares of Common Stock or other securities by
reclassification of the Common Stock, merger or sale of substantially all
of the
Company’s assets, the conversion rate will be adjusted so that the conversion
rights of the Series A Preferred Stock stockholders will be equivalent to
the
conversion rights of the Series A Preferred Stock stockholders prior to such
event. In addition, in the event the Company sells shares of Common Stock
(or
the equivalent thereof) at a price of less than $1.25 per share, the conversion
price of the shares of Series A Preferred Stock will be reduced to such lower
price. In addition, in the event the Company sells shares of Common Stock
(or
the equivalent thereof) at a price of less than $2.00 per share, the exercise
price of the warrants will be reduced to such lower price.
The
Series A Preferred Stock bears a dividend of 10% per annum payable quarterly,
at
the Company’s election in cash or additional shares of Series A Preferred Stock
valued at the stated value thereof; provided, however, that the Company must
pay
the dividend in cash if an “Event of Default” as defined in the Certificate of
Designation designating the Series A Preferred Stock has occurred and is
then
continuing. In addition, upon an Event of Default, the dividend rate increases
to 20% per annum. An Event of Default includes, but is not limited to, the
following:
the
occurrence of “Non-Registration Events” including, the failure to cause a
registration statement registering the shares of Common Stock underlying
the
Series A Preferred Stock and Warrants issued in connection therewith to be
effective within 240 days following the closing of the private
placement;
an
uncured breach by the Company of any material covenant, term or condition
in the
Certificate of Designation or any of the related transaction documents;
and
any
money
judgment or similar final process being filed against the Company for more
than
$100,000.
In
the
event of the Company’s dissolution, liquidation or winding up, the holders of
the Series A Preferred Stock will receive, in priority over the holders of
Common Stock, a liquidation preference equal to the stated value of such
shares
plus accrued dividends thereon.
The
Series A Preferred Stock is not redeemable at the option of the holder but
may
be redeemed by the Company at its option following the third anniversary
of the
issuance of the Series A Preferred Stock for 120% of the stated value thereof
plus any accrued but unpaid dividends upon 30 days' prior written notice,
during
which time the Series A Preferred Stock may be converted, provided a
registration statement is effective under the Securities Act with respect
to the
Common Stock into which such Preferred is convertible and an Event of Default
is
not then continuing.
Holders
of Series A Preferred Stock do not have the right to vote on matters submitted
to the holders of Common Stock.
The
registration rights provided for in the subscription agreements entered into
with the purchasers of the Series A Preferred Stock:
requires
that the Company file a registration statement with the SEC on or before
120
days from the closing to register the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock and exercise of the warrants,
and
cause such registration statement to be effective within 240 days following
the
closing; and
entitles
each of these investors to liquidated damages in an amount equal to two percent
(2%) of the purchase price of the Series A Preferred Stock if the Company
fails
to timely file that registration statement with, or have it declared effective
by, the SEC.
The
transaction documents entered into with the purchasers of the Series A Preferred
Stock also provide for various penalties and fees for breaches or failures
to
comply with provisions of those documents, such as the timely payment of
dividends, delivery of stock certificates upon conversion of the Series A
Preferred Stock or exercise of the warrants, and obtaining and maintaining
an
effective registration statement with respect to the shares of Common Stock
underlying the Series A Preferred Stock and warrants sold in the
offering.
Transactions
During
the nine months ended September 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 240,929 shares
of
common stock at an exercise price of $4.98. The investors who participated
in
this offering had the option to exchange their shares and warrants for the
equivalent dollar amount of preferred stock sold in the private placement
described below. All of these investors exercised this option and the Company
cancelled their 240,929 shares of common stock and warrants and issued 799,885
shares of 10% Series A Preferred Stock and five-year warrants to purchase
319,954 shares of common stock at an initial exercise price of $2.00 per
share.
These investors have registration rights with respect to the Common Stock
underlying the Series A Preferred Stock and warrants. The shares of Series
A
Preferred Stock are initially convertible into common stock at a rate of
$1.25
per share subject to certain adjustments. In accordance with Emerging Issues
Task Force (EITF) 00-27, the Company allocated the $799,885 of proceeds based
on
the relative fair value to the preferred stock as follows: $769,132 was
allocated to the preferred stock and $30,753 to the warrants. Additionally,
the
Company evaluated if the embedded conversion option resulted in a beneficial
conversion feature, however, the proceeds allocated to the preferred stock
exceeded the market value of the common stock subject to conversion, resulting
in no beneficial conversion feature. In accordance with EITF 98-5, the value
assigned to the warrants resulting from the relative fair value calculation
as
well as the value of the beneficial conversion feature totaling $30,753,
has
been recorded as a preferred stock dividend and is presented in the consolidated
statements of operations for the nine months ended September 30,
2006.
During
the nine months ended September 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 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. These investors have registration rights with respect to
the
Common Stock underlying the Series A Preferred Stock and warrants. The shares
of
Series A Preferred Stock 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. In accordance with Emerging Issues Task Force (EITF) 00-27,
the Company allocated the $5,250,000 of proceeds based on the relative fair
value to the preferred stock as follows: $5,048,153 was allocated to the
preferred stock and $201,847 to the warrants. Additionally, the Company
evaluated if the embedded conversion option resulted in a beneficial conversion
feature, however, the proceeds allocated to the preferred stock exceeded
the
market value of the common stock subject to conversion, resulting in no
beneficial conversion feature. In accordance with EITF 98-5, the value assigned
to the warrants resulting from the relative fair value calculation as well
as
the value of the beneficial conversion feature totaling $201,847, has been
recorded as a preferred stock dividend and is presented in the consolidated
statements of operations for the nine months ended September 30,
2006.
Subsequent
to closing the Merger, the Company closed on an additional $50,000 and issued
50,000 shares of 10% Series A Preferred Stock and five year warrants to purchase
20,000 shares of common stock at an initial price of $2.00 per share. This
investor has registration rights with respect to the Common Stock underlying
the
Series A Preferred Stock and warrants. In accordance with Emerging Issues
Task
Force (EITF) 00-27, the Company allocated the $50,000 of proceeds based on
the
relative fair value to the preferred stock as follows: $42,202 was allocated
to
the preferred stock and $7,798 to the warrants. Additionally, the Company
evaluated if the embedded conversion option resulted in a beneficial conversion
feature, however, the proceeds allocated to the preferred stock exceeded
the
market value of the common stock subject to conversion, resulting in a
beneficial conversion feature in the amount of $25,798. In accordance with
EITF
98-5, the value assigned to the warrants resulting from the relative fair
value
calculation as well as the value of the beneficial conversion feature totaling
$33,596, has been recorded as a preferred stock dividend and is included
in the
consolidated statements of operations for the nine months ended September
30,
2006.
On
September 30, 2006 the Company issued 131,250 shares of 10 % Series A Preferred
Stock as a quarterly dividend payment.
During
the nine months ended September 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 $8,030,149. 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 nine months ended September 30, 2006, the Company issued 10,000,000 shares
of common stock to an existing bridge loan holder and her designees in
consideration for funding a $1,000,000 loan, and assisting in arranging the
Merger and concurrent offering.
During
the nine months ended September 30, 2006, the Company issued 615,696 shares
of
common stock to a provider of legal services as settlement of accounts payable
in the amount of $420,720 (See Note 1).
During
the nine months ended September 30, 2006, the Company granted options to
purchase 438,850 shares of common stock to employees and directors resulting
in
compensation expense of $104,738.
The
summary of the stock option activity for the nine months ended September
30,
2006 is as follows:
|
|
Shares
|
|
Weighted
Average
Exercise
per Share
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Outstanding,
January 1, 2006
|
|
|
512,247
|
|
$
|
27.49
|
|
|
5.5
|
|
Granted
|
|
|
438,850
|
|
|
5.33
|
|
|
9.9
|
|
Cancelled
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding,
September 30, 2006
|
|
|
951,097
|
|
$
|
17.26
|
|
|
7.5
|
|
The
summary of the status of the Company’s non-vested options for the nine months
ended September 30, 2006 is as follows:
|
|
Shares
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
Non-vested,
January 1, 2006
|
|
|
1,105
|
|
$
|
0.00
|
|
Granted
|
|
|
438,850
|
|
$
|
0.25
|
|
Cancelled
|
|
|
—
|
|
|
—
|
|
Vested
|
|
|
(428,851
|
)
|
$
|
0.24
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Non-vested,
September 30, 2006
|
|
|
11,104
|
|
$
|
0.43
|
|
As
of
September 30, 2006, approximately $4,800 of total unrecognized compensation
cost
related to stock options is expected to be recognized over a weighted average
period of 1.11 years.
As
of
September 30, 2006, the Company has the following warrants to purchase common
stock outstanding:
|
Number
of Shares
To
be Purchased
|
|
Warrant
Exercise
Price
per Share
|
|
Warrant
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
|
|
|
|
816,691
|
|
$
|
4.98
|
|
|
June
30, 2011
|
|
|
|
2,100,000
|
|
$
|
2.00
|
|
|
June
30, 2011
|
|
|
|
339,954
|
|
$
|
2.00
|
|
|
September
30, 2011
|
|
As
of
September 30, 2006, the Company has the following warrant to purchase preferred
stock outstanding:
|
|
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
Pending
Litigation
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.
On
September 1, 2006, MedaSorb and Purolite International Ltd. and its affiliates
(“Purolite”) agreed to the settlement of the action that had been commenced by
Purolite in which Purolite claimed ownership rights in certain of MedaSorb’s
patents. The Settlement Agreement provides MedaSorb with the exclusive right
to
use its patented technology and proprietary know how relating to adsorbent
polymers for a period of 18 years. Under the terms of the Settlement Agreement,
MedaSorb has agreed to pay Purolite royalties of 2.5% to 5% on the sale of
certain of its products if and when those products are sold commercially
for a
term not greater than 18 years commencing with the first sale of such
product.
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.
Employment
Agreements
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. For the nine months ended September 30, 2006, the Company’s
financial statements reflect the issuance of options to purchase 332,094
shares
of common stock to this employee consistent with his employment agreement.
The
options were valued at $57,819 and have been included as a charge in the
consolidated statements of operations for the nine months ended September
30,
2006.
Royalty
Agreements
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 September 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.
License
Agreements
In
an
agreement dated September 1, 2006, the Company entered into a license agreement
which provides the Company the exclusive right to use its patented technology
and proprietary know how relating to adsorbent polymers for a period of 18
years. Under the terms of the Settlement Agreement, MedaSorb has agreed to
pay
Purolite royalties of 2.5% to 5% on the sale of certain of its products if
and
when those products are sold commercially for a term not greater than 18
years
commencing with the first sale of such product (see Pending
Litigation).
6.
NET LOSS PER SHARE
Basic
earnings per share and diluted earnings per share for the nine and three
months
ended September 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 September 30,
2006
and 2005, respectively, have been excluded from the computation of diluted
EPS
as they are anti-dilutive.
7. SUBSEQUENT
EVENTS
In
October 2006, the Company issued 10 year warrants to purchase 240,125 shares
of
common stock at an exercise price of $1.25 per share to a provider of legal
services toward payment of accrued legal fees (See Note 1).
The
former employee of the Company who had initiated a legal action against the
Company seeking reimbursement of certain claimed expenses has withdrawn the
action without prejudice.
In
October 2006, the Company entered into an agreement with a scientific consultant
under which the Company is entitled to receive a new patent.
In
October 2006, the bridge loan (See Note 3) was converted into preferred stock
and warrants under the same terms of the June 30, 2006 private placement
(See
Note 4).
WithumSmith+Brown
A
Professional Corporation
Certified
Public Accountants and Consultants
120
Albany Street
Suite
201
New
Brunswick, New Jersey 08901 USA
732
828
1614 . fax 732 828 5156
www.withum.com
Additional
Offices in New Jersey
and
Pennsylvania
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders,
Medasorb
Corporation:
We
have
audited the accompanying balance sheets of Medasorb Corporation (a development
stage company), as of December 31, 2005 and 2004, and the related statements
of
operations, stockholders’ equity and cash flows for the years then ended and the
cumulative period from January 1, 2001 to December 31, 2005. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Medasorb Corporation as of December
31, 2005 and 2004 and the results of its operations and cash flows for the
years
then ended and the cumulative period from January 1, 2001 to December 31, 2005
in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring net losses and negative cash
flows from operations and has a working capital deficiency. These matters raise
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
/s/
WithumSmith+Brown, A Professional Corporation
New
Brunswick, New Jersey
March
30,
2006
Report
of Independent Public Accountants
To
the
Board of Directors and Stockholders,
Medasorb
Corporation:
We
have
audited the accompanying balance sheets of Medasorb Corporation (a development
stage company), as of December 31, 2000 and 1999, and the related statements
of
operations, changes in members’ equity and cash flows for the period from
inception (January 22, 1997) through December 31, 2000. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States. Those standards require that we plan and perform the audit
to
obtain reasonable assurance about whether the financial statements are free
of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Medasorb Corporation as of December
31, 2000 and 1999, and the results of its operations and its cash flows for
the
period from inception (January 22, 1997) to December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
Arthur
Andersen, LLP
New
York,
New York
December
27, 2001
MEDASORB
CORPORATION
(a
development stage company)
December
31,
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
707,256
|
|
$
|
16,749
|
|
Prepaid
expenses and other current assets
|
|
|
19,261
|
|
|
61,159
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
726,517
|
|
|
77,908
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
553,657
|
|
|
820,321
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
181,307
|
|
|
349,898
|
|
Total
long-term assets
|
|
|
734,964
|
|
|
1,170,219
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,461,481
|
|
$
|
1,248,127
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS'/MEMBERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,802,788
|
|
$
|
2,284,050
|
|
Accrued
expenses and other current liabilities
|
|
|
412,646
|
|
|
167,038
|
|
Accrued
interest
|
|
|
1,056,960
|
|
|
298,933
|
|
Stock
subscribed
|
|
|
399,395
|
|
|
—
|
|
Convertible
notes payable
|
|
|
3,429,899
|
|
|
1,346,050
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
7,101,688
|
|
|
4,096,071
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
4,120,000
|
|
|
4,120,000
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
11,221,688
|
|
|
8,216,071
|
|
|
|
|
|
|
|
|
|
Stockholders'
Deficiency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, Par Value $0.001, 300,000,000 shares
|
|
|
|
|
|
|
|
authorized,
4,829,120 shares issued and outstanding
|
|
|
4,829
|
|
|
—
|
|
Additional
paid-in capital
|
|
|
49,214,431
|
|
|
—
|
|
Contributions
by members
|
|
|
—
|
|
|
48,345,927
|
|
Deficit
accumulated during the development stage
|
|
|
(58,979,467
|
)
|
|
(55,313,871
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' deficiency
|
|
|
(9,760,207
|
)
|
|
(6,967,944
|
)
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$
|
1,461,481
|
|
$
|
1,248,127
|
|
See
accompanying notes to consolidated financial statements
(a
development stage company)
STATEMENTS
OF OPERATIONS
|
|
Period
from
|
|
|
|
|
|
|
|
January
22,
1997
|
|
|
|
|
|
|
|
(date
of inception) to
|
|
Year
ended
|
|
Year
ended
|
|
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
39,779,967
|
|
|
1,526,743
|
|
|
2,367,407
|
|
Legal,
financial and other consulting
|
|
|
5,347,134
|
|
|
948,209
|
|
|
948,079
|
|
General
and administrative
|
|
|
19,198,981
|
|
|
635,960
|
|
|
705,372
|
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
)
|
|
(14,551
|
)
|
|
(3,488,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
58,270,599
|
|
|
3,096,361
|
|
|
531,865
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income) expenses:
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
(21,663
|
)
|
|
—
|
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
(175,000
|
)
|
|
—
|
|
Interest
expense, net
|
|
|
905,531
|
|
|
765,898
|
|
|
564,818
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other (income) expense
|
|
|
708,868
|
|
|
569,235
|
|
|
564,818
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(58,979,467
|
)
|
$
|
(3,665,596
|
)
|
$
|
(1,096,683
|
)
|
See
accompanying notes to consolidated financial statements
(a
development stage company)
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
Period
from January 22, 1997 (date of inception) to December 31,
2005
|
|
|
|
|
|
Deferred
|
|
|
Common
Stock
|
|
|
|
|
|
Deficit
Accumulated
During
the
Development
|
|
|
Total
Stockholders'
Equity
|
|
|
|
|
(Deficiency)
|
|
|
Compensation
|
|
|
Shares
|
|
|
Par
value
|
|
|
Capital
|
|
|
Stage
|
|
|
(Deficit)
|
|
Balance
at January 22, 1997 (date of inception)
|
|
$
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
1,143,487
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,143,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
440,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
440,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
contribution
|
|
|
4,550,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,256,012
|
)
|
|
(5,256,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1997
|
|
|
6,133,487
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,256,012
|
)
|
|
877,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
2,518,236
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,518,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultants
|
|
|
1,671
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
50,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,867,348
|
)
|
|
(1,867,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1998
|
|
|
8,703,394
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,123,360
|
)
|
|
1,580,034
|
|
See
accompanying notes to consolidated financial statements
(a
development stage company)
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Period
from January 22, 1997 (date of inception) to December 31, 2005
|
|
|
|
|
|
Deferred
|
|
|
Common
Stock
|
|
|
|
|
|
Deficit
Accumulated
During
the
Development
|
|
|
Total Stockholders'
Equity
|
|
|
|
|
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage
|
|
|
|
|
Equity
contributions
|
|
|
1,382,872
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
1,382,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
88,363
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of deferred compensation
|
|
|
47,001
|
|
|
(47,001
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
—
|
|
|
15,667
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
100,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,066,388
|
)
|
|
(3,066,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1999
|
|
|
10,321,630
|
|
|
(31,334
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,189,748
|
)
|
|
100,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
14,407,916
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,407,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
1,070,740
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,070,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued to consultants
|
|
|
468,526
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
468,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of deferred compensation
|
|
|
27,937
|
|
|
(27,937
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
—
|
|
|
46,772
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,753,871
|
)
|
|
(10,753,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2000
|
|
|
26,296,749
|
|
|
(12,499
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,943,619
|
)
|
|
5,340,631
|
|
See
accompanying notes to consolidated financial statements
MEDASORB
CORPORATION
(a
development stage company)
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
Period
from January 22, 1997 (date of inception)
to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Members'
|
|
|
|
|
|
|
|
Additional
|
|
During
the
|
|
Stockholders'
|
|
|
|
Equity
|
|
Deferred
|
|
Common
Stock
|
|
Paid-In
|
|
Development
|
|
Equity
|
|
|
|
(Deficiency)
|
|
Compensation
|
|
Shares
|
|
Par
value
|
|
Capital
|
|
Stage
|
|
(Deficit)
|
|
Equity
contributions
|
|
|
13,411,506
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,411,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
161,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
161,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to employee
|
|
|
2,847
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(1,206,730
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,206,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
—
|
|
|
12,499
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,392,618
|
)
|
|
(15,392,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2001
|
|
|
38,665,445
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36,336,237
|
)
|
|
2,329,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
6,739,189
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,739,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
156,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
156,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultant
|
|
|
176,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
176,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to employee
|
|
|
2,847
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(556,047
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(556,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of loan receivable in exchange for equity
|
|
|
(1,350,828
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,350,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,871,668
|
)
|
|
(11,871,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
43,832,929
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48,207,905
|
)
|
|
(4,374,976
|
)
|
See
accompanying notes to consolidated financial statements
MEDASORB
CORPORATION
(a
development stage company)
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
Period
from January 22, 1997 (date of inception)
to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Total
|
|
|
|
Members'
|
|
|
|
|
|
|
|
Additional
|
|
During
the
|
|
Stockholders'
|
|
|
|
Equity
|
|
Deferred
|
|
Common
Stock
|
|
Paid-In
|
|
Development
|
|
Equity
|
|
|
|
(Deficiency)
|
|
Compensation
|
|
Shares
|
|
Par
value
|
|
Capital
|
|
Stage
|
|
(Deficit)
|
|
Equity
contributions
|
|
|
4,067,250
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,067,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
16,624
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
2,952,474
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,952,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultant
|
|
|
65,681
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(343,737
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(343,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of loan receivable in exchange for equity
|
|
|
(281,340
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(281,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,009,283
|
)
|
|
(6,009,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
50,309,881
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(54,217,188
|
)
|
|
(3,907,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
512,555
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
512,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
(2,396,291
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,396,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(80,218
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,096,683
|
)
|
|
(1,096,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
48,345,927
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55,313,871
|
)
|
|
(6,967,944
|
)
|
See
accompanying notes to consolidated financial statements
MEDASORB
CORPORATION
(a
development stage company)
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Period
from January 22, 1997 (date of inception)
to December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Total
|
|
|
|
Members'
|
|
|
|
|
|
|
|
Additional
|
|
During
the
|
|
Stockholders'
|
|
|
|
Equity
|
|
Deferred
|
|
Common
Stock
|
|
Paid-In
|
|
Development
|
|
Equity
|
|
|
|
(Deficiency)
|
|
Compensation
|
|
Shares
|
|
Par
value
|
|
Capital
|
|
Stage
|
|
(Deficit)
|
|
Equity
contributions
|
|
|
92,287
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
92,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
of accounts payable in exchange for equity
|
|
|
836,319
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
836,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes payable and accrued interest for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
member
units
|
|
|
51,565
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
(14,551
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(92,287
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(92,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
from LLC to "C" Corporation
|
|
|
(49,219,260
|
)
|
|
—
|
|
|
4,829,120
|
|
|
4,829
|
|
|
49,214,431
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,665,596
|
)
|
|
(3,665,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
$
|
—
|
|
$
|
—
|
|
|
4,829,120
|
|
$
|
4,829
|
|
$
|
49,214,431
|
|
$
|
(58,979,467
|
)
|
$
|
(9,760,207
|
)
|
See
accompanying notes to consolidated financial statements
(a
development stage company)
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
January
22, 1997
|
|
|
|
|
|
|
|
(date
of inception) to
|
|
Year
ended
|
|
Year
ended
|
|
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(58,979,467
|
)
|
$
|
(3,665,596
|
)
|
$
|
(1,096,683
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,791,099
|
|
|
265,264
|
|
|
312,221
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
(21,663
|
)
|
|
—
|
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
(175,000
|
)
|
|
—
|
|
Abandoned
patents
|
|
|
183,556
|
|
|
183,556
|
|
|
—
|
|
Bad
debts - employee advances
|
|
|
255,882
|
|
|
—
|
|
|
—
|
|
Contributed
technology expense
|
|
|
4,550,000
|
|
|
—
|
|
|
—
|
|
Consulting
expense
|
|
|
237,836
|
|
|
—
|
|
|
—
|
|
Management
unit expense
|
|
|
1,334,285
|
|
|
(14,551
|
)
|
|
(2,438,754
|
)
|
Incentive
units expense
|
|
|
—
|
|
|
—
|
|
|
(1,050,239
|
)
|
Expense
for issuance of warrants
|
|
|
468,526
|
|
|
—
|
|
|
—
|
|
Expense
for issuance of options
|
|
|
247,625
|
|
|
—
|
|
|
—
|
|
Accrued
interest expense
|
|
|
1,399,793
|
|
|
760,860
|
|
|
418,933
|
|
Amortization
of deferred compensation
|
|
|
74,938
|
|
|
—
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(290,809
|
)
|
|
41,898
|
|
|
86,487
|
|
Other
assets
|
|
|
(51,163
|
)
|
|
—
|
|
|
(26,276
|
)
|
Accounts
payable and accrued expenses
|
|
|
3,219,921
|
|
|
775,665
|
|
|
1,011,392
|
|
Net
cash used in operating activities
|
|
|
(45,754,641
|
)
|
|
(1,849,567
|
)
|
|
(2,782,919
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
32,491
|
|
|
32,491
|
|
|
—
|
|
Purchase
of property and equipment
|
|
|
(2,199,094
|
)
|
|
(4,000
|
)
|
|
—
|
|
Patent
costs
|
|
|
(328,556
|
)
|
|
(20,393
|
)
|
|
—
|
|
Loan
Receivable
|
|
|
(1,632,168
|
)
|
|
—
|
|
|
—
|
|
Net
cash provided by (used in) financing
|
|
|
|
|
|
|
|
|
|
|
activities
|
|
|
(4,127,327
|
)
|
|
8,098
|
|
|
—
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions - net of fees incurred
|
|
|
41,711,198
|
|
|
—
|
|
|
474,800
|
|
Proceeds
from borrowing
|
|
|
8,378,631
|
|
|
2,132,581
|
|
|
1,346,050
|
|
Proceeds
from subscription receivables
|
|
|
499,395
|
|
|
399,395
|
|
|
—
|
|
Net
cash provided by financing activities
|
|
|
50,589,224
|
|
|
2,531,976
|
|
|
1,820,850
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
707,256
|
|
|
690,507
|
|
|
(962,069
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
—
|
|
|
16,749
|
|
|
978,818
|
|
Cash
and cash equivalents at end of period
|
|
$
|
707,256
|
|
$
|
707,256
|
|
$
|
16,749
|
|
See
accompanying notes to consolidated financial statements
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
511,780
|
|
$
|
7,871
|
|
$
|
149,080
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable principal and interest conversion to equity
|
|
$
|
1,171,565
|
|
$
|
51,565
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of member units for leasehold improvements
|
|
$
|
141,635
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of management units in settlement of cost of
|
|
|
|
|
|
|
|
|
|
|
raising
capital
|
|
$
|
437,206
|
|
$
|
92,287
|
|
$
|
42,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units for cost of
|
|
|
|
|
|
|
|
|
|
|
raising
capital
|
|
$
|
278,087
|
|
$
|
—
|
|
$
|
42,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of loan receivable for member units
|
|
$
|
1,632,168
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of equity in settlement of accounts payable
|
|
$
|
836,319
|
|
$
|
836,319
|
|
$
|
—
|
|
See
accompanying notes to consolidated financial statements
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
PRINCIPAL
BUSINESS
ACTIVITY
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES:
|
|
Nature
of Business
MedaSorb
Corporation, fka MedaSorb Technologies, LLC, ("MedaSorb" or the
"Company"), a Delaware Corporation, was formed on January 22, 1997.
The
Company is engaged in the research, development and commercialization
of
medical devices with its platform blood purification technology
incorporating a proprietary absorbent 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. In December 2005, the Company reorganized its capital structure
and converted from an LLC to a Corporation. This reorganization had
no
effect on the carrying value of the Company’s net assets. As of December
31, 2005, 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.
|
|
|
|
|
|
|
|
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
accompanying 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 and has a deficit accumulated
during
the development stage at December 31, 2005 of $58,979,467. 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 capital, there can be no assurance that the
amount
will be sufficient to complete the Company's 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.
|
|
|
|
|
|
|
|
Development
Stage Corporation
The
accompanying 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
operations in the year of disposal. Repairs and maintenance expenditures
are expenses 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. No provision for income
taxes
has been reflected in the accompanying financial statements since
the
Company was organized as a LLC through December 15, 2005 and the
income or
loss was included on the members individual income tax
returns.
|
|
|
|
|
|
|
|
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 approximates its 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 is generally recognized for fixed stock options in which the
exercise
price is greater than or equal to the market price on the grant date.
The
Company has 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 has 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:
|
|
|
Period
from January 22, 1997 (date of inception) to December 31,
2005
|
|
Year
ended
December
31,
2005
|
|
Year
ended
December
31,
2004
|
|
Net
Loss
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
58,979,467
|
|
$
|
3,665,596
|
|
$
|
1,096,683
|
|
Pro
forma
|
|
$
|
59,053,461
|
|
$
|
3,692,026
|
|
$
|
1,096,683
|
|
|
|
|
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%.
|
|
|
|
|
|
|
|
Reverse
Unit Split and Conversion to Corporation
In
December 2005, MedaSorb effected an approximate 1 for 6.64 reverse
unit
split to unit holders. Immediately subsequent to the split, the Company
converted to a corporation (see Note 4). All share and per share
information has been retroactively adjusted to reflect the
split.
|
|
|
|
|
|
|
|
Effects
of Recent Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 123R “Share Based Payment.” This statement is a revision to SFAS
123 and supersedes Accounting Principles Board (APB) Opinion No.
25,
“Accounting for Stock Issued to Employees.” This statement requires a
public entity to expense the cost of employee services received in
exchange for an award of equity instruments using the fair-value-based
method. This statement also provides guidance on valuing and expensing
these awards, as well as disclosure requirements of these equity
arrangements. This statement is effective for all reporting periods
beginning after December 15, 2005. Management is currently evaluating
the
effect of this pronouncement.
|
|
|
|
|
|
|
|
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - an amendment of APB Opinion No. 29." The
statement addresses the measurement of exchanges of nonmonetary assets
and
eliminates the exception from fair value measurement for nonmonetary
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 nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of this statement is not
anticipated to have a significant impact on the results of operations
or
financial position of the Company.
|
|
|
|
|
|
|
|
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 Company does not expect that the adoption of SFAS No. 154
will
have a significant impact on the results of operations or financial
position of the Company.
|
|
|
|
|
|
|
|
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 does not expect
that
the adoption of SFAS No. 155 will have a significant impact on the
results
of operations or financial position of the
Company.
|
2.
|
PROPERTY
AND
EQUIPMENT,
NET:
|
|
Property
and equipment - net, consists of the
following:
|
December
31,
|
|
2005
|
|
2004
|
|
Depreciation/
Amortization
Period
|
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
130,015
|
|
$
|
131,509
|
|
|
7
years
|
|
Equipment
and computers
|
|
|
1,709,815
|
|
|
1,742,239
|
|
|
3
to 7 years
|
|
Leasehold
improvements
|
|
|
462,980
|
|
|
462,980
|
|
|
Term
of lease
|
|
|
|
|
2,302,810
|
|
|
2,336,728
|
|
|
|
|
Less
accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
|
1,749,153
|
|
|
1,516,407
|
|
|
|
|
Property
and Equipment, Net
|
|
$
|
553,657
|
|
$
|
820,321
|
|
|
|
|
|
|
|
Depreciation
expense for the years ended December 31, 2005 and 2004 amounted to
$259,836 and $307,126, respectively. Depreciation expense from inception
to December 31, 2005 amounted to $1,776,242.
|
|
|
|
|
3.
|
OTHER
ASSETS:
|
|
Other
assets consist of the following:
|
December
31,
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
$
|
130,143
|
|
$
|
298,734
|
|
Security
deposits
|
|
|
51,164
|
|
|
51,164
|
|
Total
|
|
$
|
181,307
|
|
$
|
349,898
|
|
|
|
|
Intangible
assets consist of the following:
|
December
31,
|
|
2005
|
|
2004
|
|
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
145,000
|
|
$
|
14,857
|
|
$
|
308,163
|
|
$
|
9,429
|
|
|
|
|
The
issued patents that are capitalized are being amortized over a
period of
17.5 years. All pending patents are not being
amortized.
|
|
|
|
|
|
|
|
Amortization
expense amounted to $5,428 and $5,095 for the years ended December
31,
2005 and 2004, respectively. Amortization expense from inception
to
December 31, 2005 amounted to
$14,857.
|
|
|
|
Estimated
amortization expense for the next five years is as
follows:
|
|
|
|
|
|
|
|
Year
ending December 31,
|
2006
|
|
$
|
5,500
|
|
2007
|
|
|
5,500
|
|
2008
|
|
|
5,500
|
|
2009
|
|
|
5,500
|
|
2010
|
|
|
5,500
|
|
|
COMMITMENTS
AND
CONTINGENCIES:
|
|
The
Company is obligated under non-cancelable operating leases for office
space and equipment expiring at various dates through September 2009.
The
aggregate minimum future payments under these leases are approximately
as
follows:
|
|
|
|
|
|
|
|
Year
ending December 31,
|
2006
|
|
$
|
173,000
|
|
2007
|
|
|
42,000
|
|
2008
|
|
|
5,000
|
|
2009
|
|
|
4,000
|
|
Total
|
|
$
|
224,000
|
|
|
|
|
The
preceding data reflects existing leases and does not include replacements
upon their expiration. In the normal course of business, operating
leases
are normally renewed or replaced by other leases.
|
|
|
|
|
|
|
|
Rent
expense for the years ended December 31, 2005 and 2004 amounted to
approximately $259,000 and $462,000, respectively.
|
|
|
|
|
|
|
|
The
Company has employment agreements with certain key executives through
July
2008. The agreements provide for annual base salaries of varying
amounts.
Future minimum annual salaries are approximately as
follows:
|
Year
ending December 31,
|
|
|
|
|
2006
|
|
$
|
418,758
|
|
2007
|
|
|
200,000
|
|
2008
|
|
|
108,333
|
|
Total
|
|
$
|
727,091
|
|
|
|
|
In
addition, 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, three of the agreements include anti-dilution provisions
whereby certain employees are granted options and management units
for the
right to obtain 5%, 1.8% and 1.5%, respectively, of the outstanding
stock
of the Company (see Note 7).
|
|
|
|
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 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 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. 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 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.
|
|
|
|
|
|
|
|
Upon
the Company’s successful merger with a public company, an existing
Noteholder is entitled to be issued 10 million shares of common stock
of
the Company. These shares will not be issued until the Company meets
a
minimum capital raise amount and recapitalization of the Company
prior to
such a merger.
|
|
|
|
|
|
|
|
In
an agreement dated August 11, 2003 the Company entered into an equity
agreement with one of its current investors whereby the investor
agreed to
purchase $4 million of membership units. 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 their CytoSorb Device. The Company has not
generated any revenue from this product and has not incurred any
royalty
costs through December 31, 2005. 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 financial statements.
|
|
|
|
|
5.
|
CONTRIBUTED
TECHNOLOGY:
|
|
On
February 1, 1997, the Company exchanged 88.5% of its ownership rights
for
proprietary technology in the form of patents. The value of the technology
was determined to be $4,550,000 by an independent asset valuation
firm
using the income and market value method. This amount has been expensed
and was included in "research and development expenses" in the statements
of operations for the period from January 22, 1997 (date of inception)
to
December 31, 2005.
|
|
|
|
|
6.
|
CONVERTIBLE
NOTES
PAYABLE:
|
|
In
2003, MedaSorb received $3,900,000 and issued a 12% callable convertible
note with a conversion price of $33.18 per share due in 2008 to an
existing investor. During 2004 and 2003, respectively, $120,000 and
$100,000 of interest was incurred and added to the principal balance,
thereby increasing the note to $4,120,000 at December 31, 2005 and
2004.
During 2004 the terms of this note were revised to provide for conversion
at $6.64 per share. During 2005 the terms of this note were further
revised to provide for conversion at $3.32 per share. These revisions
yielded no significant change in fair
value.
|
|
|
|
During
2004, MedaSorb raised approximately $904,000 and issued one year
12%
Convertible Notes with a conversion price of $6.64 per share. For
each
dollar of principal and accrued interest that the Noteholder converts
into
shares, the Noteholder will then receive a warrant to purchase two
shares
at a price of $6.64 each. In 2004, the Company also raised approximately
$442,000 and issued one year 12% Convertible Notes with a conversion
price
of $3.32 per share. For each dollar of principal and accrued interest
that
the Noteholder converts into shares, the Noteholder will receive
a warrant
to purchase two shares at a price of $4.98 each. The Company has
not
repaid any of these Convertible Notes as of December 31, 2005 and
is
continuing to accrue interest on the principal
balances.
|
|
|
|
|
|
|
|
During
2005, MedaSorb received $1,132,582 from an existing Noteholder and
issued
a one year 12% secured convertible note with a conversion price of
$3.32
per share. For each dollar of principal and accrued interest that
the
Noteholder converts into shares, the Noteholder will then receive
a
warrant to purchase two shares at a price of $4.98 each. The Company
has
not repaid any of these Convertible Notes as of December 31, 2005
and is
continuing to accrue interest on the principal
balances.
|
|
|
|
|
|
|
|
Separately
in 2005 the Company received a $1 million bridge loan as part of
a
proposed reverse merger transaction into a public shell company.
The loan
bears interest at 6% per annum, repayable in cash or, at the option
of the
Noteholder, converted into shares of the Company at a conversion
price
equal to the price per share offered in a future private placement
of the
Company. In consideration for funding the loan, the Noteholder is
entitled
to be issued 10 million shares of common stock of the Company, subject
to
certain adjustments, to be issued upon the occurrence of certain
events
(see Note 4).
|
|
|
|
The
terms of the outstanding notes provide that the $4,120,000 Note is
Senior
Debt and is secured by all assets of the Company. Additional notes
aggregating approximately $904,000 are subordinated to the Senior
Note.
They are secured by all assets of the Company. Notes amounting to
$442,000
are subordinated to all other notes but are secured by all assets
of the
Company. Notes amounting to $1,132,582 are subordinated to all other
notes
but are secured by all assets of the Company.
|
|
|
|
|
|
|
|
The
Company’s Senior Note in the amount of $4,120,000 is held by the largest
shareholder (see Note 8).
|
|
|
|
|
7.
|
STOCKHOLDERS'
EQUITY:
|
|
In
December 2005, the Company effected an approximate 1 for 6.64 reverse
unit
split to Unit holders of MedaSorb Technologies, LLC. Immediately
subsequent to the split, the Company converted to a Corporation (“MedaSorb
Corporation”). All share and per share information has been retroactively
adjusted to reflect the split. Member and Management Units of the
LLC were
converted into shares of the corporation. Incentive Units and Options
of
the LLC were converted into options of the corporation. Warrants
of the
LLC were converted into warrants of the corporation. The Company
is
authorized to issue up to 300,000,000 Shares.
|
|
|
|
|
|
|
|
In
2005 legal fees and rent approximating $952,000 and $59,000, respectively,
were converted to equity. As a result of these conversions, the Company
recognized a gain on extinguishment of debt of approximately $175,000.
In
addition, a Convertible Note in the principal amount of approximately
$49,000 and accrued interest in the amount of approximately $2,900
was
converted to equity.
|
|
|
|
|
|
|
|
Net
losses of the Company for the 2005 fiscal year up until the conversion
from an LLC to a corporation were allocated to the capital accounts
of the
members as described in the limited liability company agreement in
proportion to their respective ownership interests.
|
|
|
|
|
|
|
|
In
2005 the Company sought to raise $6.5 million in an equity offering.
As of
December 31, 2005 approximately $399,000 was received from investors
and
booked as Stock Subscribed pending receipt of a dollar for dollar
matching
investment pledged by an existing investor (see Note
9).
|
|
|
|
|
|
|
|
Interest
Option Plan
|
|
|
|
|
|
|
|
During
1998, the Company formally adopted its Interest Option Plan (the
"Option
Plan"), authorizing the distribution of stock options. This Option
Plan
provides for the award to certain members of management, employees,
board
of managers and consultants. These awards are 10-year incentive
options/units to purchase Shares within the meaning of Section 422A
of the
Internal Revenue Code, stock appreciation rights, restricted stock
subject
to forfeiture and restrictions on transfer, and performance awards
entitling the recipient to receive common stock in the future following
the attainment of performance goals determined by the board of
managers.
|
|
|
|
|
|
|
|
The
following is a summary of the interest options granted, canceled
or
exercised under the Plan:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
Exercise
Price
|
|
|
|
Shares
|
|
Per
Share
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2002
|
|
|
3,014
|
|
$
|
19.91
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Outstanding
- December 31, 2003
|
|
|
3,014
|
|
$
|
19.91
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Outstanding
- December 31, 2004
|
|
|
3,014
|
|
$
|
19.91
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Converted
to Stock Options
|
|
|
3,014
|
|
|
19.91
|
|
Outstanding
- December 31, 2005
|
|
|
—
|
|
$
|
—
|
|
|
|
|
Incentive
Options
|
|
|
|
|
|
|
|
The
following is a summary of the incentive options granted, canceled
or
exercised under the Plan:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
Exercise
Price
|
|
|
|
Shares
|
|
Per
Share
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2002
|
|
|
94,863
|
|
$
|
30.58
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2003
|
|
|
94,863
|
|
$
|
30.58
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2004
|
|
|
94,863
|
|
$
|
30.58
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Cancelled
|
|
|
(2,780
|
)
|
|
28.72
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Converted
to Stock Options
|
|
|
92,083
|
|
|
30.64
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2005
|
|
|
—
|
|
$
|
—
|
|
|
|
|
As
of December 31, 2005 all outstanding options of the LLC had been
exchanged
for options of the new corporation. There was no effect on the statements
of operations or proforma statements of operations as a result of
this
exchange.
|
|
|
|
|
|
|
|
Incentive
Units
|
|
|
|
|
|
|
|
The
following is a summary of the incentive units granted, canceled or
exercised under the Plan:
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2002
|
|
|
428,908
|
|
$
|
31.66
|
|
Granted
|
|
|
20,872
|
|
|
10.79
|
|
Cancelled
|
|
|
(3,893
|
)
|
|
41.47
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2003
|
|
|
445,887
|
|
$
|
30.59
|
|
Granted
|
|
|
11,604
|
|
|
6.64
|
|
Cancelled
|
|
|
(99,613
|
)
|
|
25.96
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2004
|
|
|
357,878
|
|
$
|
31.11
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Cancelled
|
|
|
(728
|
)
|
|
11.27
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Converted
to Stock Options
|
|
|
357,150
|
|
|
31.15
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2005
|
|
|
—
|
|
$
|
—
|
|
|
|
|
As
of December 31, 2005 all outstanding Incentive Units had been exchanged
for options of the new corporation. There was no effect on the
statements
of operations or proforma statements of operations as a result
of this
exchange.
|
|
|
|
|
|
|
|
Management
Units
|
|
|
|
|
|
|
|
The
following is a summary of the management units granted or canceled
under
the Plan:
|
|
|
Shares
|
|
|
|
|
|
Outstanding
- December 31, 2002
|
|
|
3,014
|
|
Granted
|
|
|
183,496
|
|
Cancelled
|
|
|
—
|
|
|
|
|
|
|
Outstanding
- December 31, 2003
|
|
|
186,510
|
|
Granted
|
|
|
361,769
|
|
Cancelled
|
|
|
—
|
|
|
|
|
|
|
Outstanding
- December 31, 2004
|
|
|
548,279
|
|
Granted
|
|
|
1,995,778
|
|
Cancelled
|
|
|
(22,856
|
) |
Converted
to Common Stock
|
|
|
2,521,201
|
|
|
|
|
|
|
Outstanding
- December 31, 2005
|
|
|
—
|
|
|
|
|
Upon
adoption of the Incentive Unit (“IU”) Plan, the Company is authorized to
issue Management Units ("MU"). MUs are granted with no participation
in
the past appreciation (past accumulated value) of the Company as
of the
date of the MU grant and can appreciate only from future performance
(future appreciation) of the Company.
|
|
|
|
|
|
|
|
MUs
possess a "catch-up" feature which allocates future appreciation
of the
Company's assets in the following manner: 90% to MUs and 10% to regular
Units until the value of the MU equals the value of a regular Unit
on the
date of the MU grant. Any additional appreciation of the Company
is
allocated to both MUs and regular Units equally. These MUs are required
to
be accounted for under variable accounting and changes in the valuation
are included in the statements of operations.
|
|
|
|
|
|
|
|
Per
an employment agreement’s anti dilution provision, a member of management
holds 5% of the outstanding Units (on a fully diluted basis) in the
form
of Management Units. During 2005 the Board awarded two members of
Management, Management Units sufficient to provide them with 1.8%
and 1.5%
respectively of the Company on a fully diluted basis to be determined
on
December 31, 2005.
|
|
|
|
|
|
|
|
As
of December 31, 2005 all outstanding Management Units had been exchanged
for shares of the new corporation. There was no effect on the statements
of operations or proforma statements of operations as a result of
this
exchange.
|
|
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
The
following is a summary of the stock options granted, canceled or
exercised
under the Plan:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
Exercise
Price
|
|
|
|
Shares
|
|
Per
Share
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2004
|
|
|
—
|
|
$
|
—
|
|
Granted
|
|
|
60,000
|
|
|
1.25
|
|
Cancelled
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Conversions:
|
|
|
|
|
|
|
|
Interest
Options
|
|
|
3,014
|
|
|
19.91
|
|
Incentive
Options
|
|
|
92,083
|
|
|
30.64
|
|
Incentive
Units
|
|
|
357,150
|
|
|
31.15
|
|
Outstanding
- December 31, 2005
|
|
|
512,247
|
|
$
|
27.49
|
|
|
|
|
The
following table summarizes information on stock options outstanding
at
December 31, 2005:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
Range
of
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
Price
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.25
- $41.47
|
|
512,247
|
|
|
6.2
|
|
$
|
27.49
|
|
511,142
|
|
$
|
27.47
|
|
|
|
|
Options
typically vest over a period of 3 years and have a contractual life
of 10
years.
|
|
|
|
|
|
|
|
The
fair value of each option granted is estimated on grant date using
the
Black-Scholes option pricing model which takes into account as of
the
grant date the exercise price and expected life of the option, the
current
price of the underlying stock and its expected volatility, expected
dividends on the stock and the risk-free interest rate for the term
of the
option. The following is the average of the data used to calculate
the
fair value at December 31:
|
|
|
Risk-Free
|
|
Expected
|
|
|
|
|
|
|
|
Interest
|
|
Life
|
|
Expected
|
|
Expected
|
|
|
|
Rate
|
|
(Years)
|
|
Volatility
|
|
Dividends
|
|
2005
|
|
|
4.39
|
%
|
|
10
|
|
|
0.01
|
%
|
|
0.00
|
%
|
2004
|
|
|
4.39
|
%
|
|
10
|
|
|
0.01
|
%
|
|
0.00
|
%
|
|
|
|
The
weighted average fair value of the Company’s stock options calculated
using the black-scholes option-pricing model for options granted
during
the years ended December 31, 2005 and 2004 was $0.44 and $-0- per
share,
respectively.
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
As
of December 31, 2005, the Company has the following warrants to purchase
common stock outstanding:
|
Number
of Shares
|
|
Warrant
Exercise Price
|
|
Warrant
|
|
To
be Purchased
|
|
|
per
Share
|
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
25,995
|
|
$
|
19.91
|
|
|
February
8, 2007
|
|
15,569
|
|
$
|
6.64
|
|
|
March
31, 2010
|
|
2,652
|
|
$
|
41.47
|
|
|
May
30, 2007
|
|
603
|
|
$
|
41.47
|
|
|
February
24, 2007
|
|
1,206
|
|
$
|
41.47
|
|
|
January
9, 2007
|
|
8.
|
AFFILIATED
PARTIES:
|
|
The
Company’s largest shareholder is also the holder of the Company’s senior
note payable (see Note 6).
|
|
|
|
|
|
SUBSEQUENT
EVENTS:
|
|
During
2005 the Company began a new $6.5 million capital raise (see Note
7). By
March 2006, the Company had received approximately an additional
$400,000
under this raise from an existing investor to match funds received
during
2005. The Company is working on completing the capital raise through
an
anticipated private placement to close concurrently with the planned
reverse merger.
|
|
|
|
|
|
|
|
Subsequent
to December 31, 2005 the Company issued 100,000 shares of common
stock to
settle a dispute regarding a price protection provision with an existing
investor group.
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24 - Indemnification of Directors and Officers.
Our
directors and officers are indemnified as provided by the Nevada Revised
Statutes and our bylaws. We have been advised that in the opinion of the
Securities and Exchange Commission indemnification for liabilities arising
under
the Securities Act of 1933 is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the event that
a
claim for indemnification against such liabilities is asserted by one of our
directors, officers, or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our legal counsel the matter
has been settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court's decision.
Item
25 - Other Expenses of Issuance and Distribution.
The
following table sets forth the estimated costs and expenses of the Company
in
connection with the offering described in this registration statement. None
of
these costs and expenses will be paid by any of the selling
stockholders.
Securities
and Exchange Commission Registration Fee
|
|
$
|
2,522.95
|
|
Legal
Fees and Expenses
|
|
$
|
50,000
|
|
Accounting
Fees and Expenses
|
|
$
|
10,000
|
|
Other
Expenses
|
|
$
|
15,000
|
|
|
|
|
|
|
Total
Costs and Expenses
|
|
$
|
77,522.95
|
|
Item
26 - Recent Sales of Unregistered Securities.
Pursuant
to an Agreement and Plan of Merger among us, MedaSorb Acquisition Inc. and
MedaSorb Corporation (“MedaSorb Delaware”), on June 30, 2006, we issued the
former stockholders of MedaSorb Delaware (i) an aggregate of 20,340,929 shares
of our Common Stock in exchange for the same number of shares of MedaSorb
Delaware common stock previously held by such stockholders, and (ii) outstanding
warrants and options to purchase a total of 1,697,648 shares of our Common
Stock
in exchange for warrants and stock options to purchase the same number of shares
of common stock of MedaSorb Delaware. The option and warrants issued in the
merger have the same exercise prices and are otherwise on the same general
terms
as the options and warrants that were cancelled. In addition, pursuant to the
terms of the Agreement and Plan of Merger, 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 our Common Stock
as
payment toward such services. The securities issued in connection with the
merger were issued in a transaction that was exempt from registration pursuant
to Regulation D (Rule 506) under the Securities Act of 1933, as amended (the
“Securities Act”).
On
June
30, 2006, immediately following the merger, for aggregate gross consideration
of
$5,250,000, we sold 5,250,000 shares of our Series A 10% Cumulative Convertible
Preferred Stock to four institutional investors in a private offering exempt
from registration pursuant to Section 4(2) and Regulation D (Rule 506) under
the
Securities Act. The 5,250,000 shares of Series A Preferred Stock are initially
convertible into 4,200,000 shares our Common Stock. In conjunction with the
issuance of the Series A Preferred Stock to the investors, we issued to them,
for no additional consideration, five-year warrants to purchase an aggregate
of
2,100,000 shares of Common Stock at an exercise price of $2.00 per share. In
connection with the sale of the Series A Preferred Stock and Warrants to these
investors, Margie Chassman, pledged certain securities held by her to the
investors to ensure they do not suffer a loss on their investment in the first
year following the date of their investment. In consideration of this pledge,
we
issued Ms. Chassman five-year warrants to purchase 10% of the shares of Series
A
Preferred Stock and 10% of the warrants sold to these investors for an exercise
price equal to the price paid by the investors in the private placement for
the
Series A Preferred Stock and warrants. The issuance to Ms. Chassman was exempt
from registration pursuant to Section 4(2) and Regulation D (Rule 506) under
the
Securities Act.
On
August
1, 2006, we issued ten-year options to purchase an aggregate of 25,000 shares
of
Common Stock to five persons consisting of our directors and two former
directors of MedaSorb Delaware, exercisable at $1.25 per share. This issuance
was exempt from registration pursuant to Section 4(2) and Regulation D under
the
Securities Act.
On
September 30, 2006, we issued to an additional “accredited investor” under the
Securities Act, for aggregate gross consideration of $50,000, 50,000 shares
of
Series A Preferred Stock and warrants to purchase 20,000 shares of Common Stock
at a price of $2.00 per share in a transaction exempt from registration pursuant
to Section 4(2) and Regulation D under the Securities Act.
On
September 30, 2006, pursuant to agreements previously entered into with existing
stockholders of ours, those stockholders exchanged an aggregate of 240,929
shares of our Common Stock and warrants to purchase an additional 240,929
shares
of Common Stock at a price of $4.98 per share, for 799,885 shares of Series
A
Preferred Stock and warrants to purchase 319,954 shares of Common Stock at
a
price of $2.00 per share in a transaction exempt from registration pursuant
to
Sections 4(2) and 3(a)(9) and Regulation D under the Securities Act. These
stockholders had invested an aggregate of $799,885 in MedaSorb Delaware during
2005 upon terms which provided them with anti-dilution price protection with
respect to financings completed in the next 12 months. In March 2006, consistent
with these anti-dilution terms, and in anticipation of the merger and financing
we completed on June 30, 2006, MedaSorb Delaware notified each of these
stockholders that they would be permitted to exchange the shares of Common
Stock
and warrants purchased by them in 2005 for the securities to be sold in the
private placement to be completed in the next six months concurrent with
a
reverse merger, at the same price paid by investors in that private placement.
On September 30, 2006, the last reported sales price of the Common Stock
was
$1.70.
On
September 30, 2006, we issued 615,696 shares of our Common Stock to one of
our
attorneys as payment for accrued legal fees in a transaction exempt from
registration pursuant to Section 4(2) and Regulation D under the Securities
Act.
On
October 25, 2006, we issued a warrant to purchaser 240,125 shares of our Common
Stock to one of our attorneys, who is also a director of ours, as payment for
accrued legal fees in a transaction exempt from registration pursuant to Section
4(2) and Regulation D under the Securities Act.
On
October 28, 2006, pursuant to the terms of the Investment Agreement with
Ms.
Chassman, the $1,000,000 advance she had made to us thereunder was converted
into 1,000,000 shares of Series A Preferred Stock and warrants to purchase
400,000 shares of Common Stock at a price of $2.00 per share in a transaction
exempt from registration pursuant to Section 4(2) and 3(a)(9) and Regulation
D
under the Securities Act.
Item
27 - Exhibits.
The
following exhibits are filed with this document:
2.1
|
|
Agreement
and Plan of Merger, dated as of June 29, 2006, by and among Gilder
Enterprises, Inc., MedaSorb Corporation and MedaSorb Acquisition
Inc.
(filed herewith)
|
|
|
|
3.1
|
|
Articles
of Incorporation of Gilder Enterprises, Inc. (filed as Exhibit
3.1 to
Registrant’s Registration Statement on Form SB-2 filed on March 29, 2004,
and incorporated herein by reference).
|
|
|
|
3.2
|
|
Amendment
to Registrant’s Articles of Incorporation effected August 1, 2006 (filed
as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on August
7, 2006, and incorporated herein by reference).
|
|
|
|
3.3
|
|
By-Laws
of Gilder Enterprises, Inc. (filed as Exhibit 3.2 to Registrant’s
Registration Statement on Form SB-2 filed on March 29, 2004, and
incorporated herein by reference).
|
|
|
|
4.1
|
|
Certificate
To Set Forth Designations, Voting Powers, Preferences, Limitations,
Restrictions, And Relative Rights Of Series A 10% Cumulative Convertible
Preferred Stock, $.001 Par Value Per Share*
|
|
|
|
4.2
|
|
Form
of Warrant issued to purchasers of Series A Preferred Stock.
*
|
|
|
|
4.3
|
|
Form
of Subscription Agreement, dated as of June 29, 2006, by and
among Gilder
Enterprises, Inc. and the purchasers party thereto.
*
|
|
|
|
5.1
|
|
Opinion
of Cane Clark, LLP (to be filed by
amendment)
|
|
|
|
10.1‡
|
|
Employment
Agreement, dated as of July 18, 2003, between Al Kraus and MedaSorb
Technologies, LLC. (filed herewith)
|
|
|
|
10.2‡
|
|
Employment
Agreement, dated as of July 1, 2005, between Vincent Capponi
and MedaSorb
Technologies, LLC. (filed herewith)
|
|
|
|
10.3‡
|
|
Employment
Agreement, dated as of July 1, 2005, between David Lamadrid and
MedaSorb
Technologies, LLC. (filed herewith)
|
|
|
|
10.4‡
|
|
Employment
Agreement, dated as of July 1, 2004, between Dr. James Winchester
and
MedaSorb Technologies, LLC. (filed herewith)
|
|
|
|
10.5‡
|
|
Gilder
Enterprises, Inc. 2006 Long Term Incentive Plan. *
|
|
|
|
10.6
|
|
Stipulated
Order and Settlement Agreement by and Between Bro-Tech Corporation
and
Purolite International Ltd. and MedaSorb Corporation. (filed
herewith)
|
|
|
|
10.7
|
|
Subaward
Agreement, dated May 2006, between MedaSorb Technologies and
University of
Pittsburgh. (filed herewith)
|
|
|
|
10.8
|
|
Letter
Agreement, dated August 11, 2003, between RenalTech International
and
Guillermina Vega Montiel (filed herewith)
|
|
|
|
10.9
|
|
Term
Sheet For An Investment In MedaSorb Technologies, LLC, dated
October 26,
2005, between MedaSorb and Margie Chassman (filed
herewith)
|
|
|
|
10.10
|
|
Form
of Voting Agreement entered into by Margie Chassman and her transferees
in
connection with 10,000,000 shares of Common Stock. (filed
herewith)
|
|
|
|
21
|
|
Subsidiaries
of the Registrant (previously filed)
|
|
|
|
23.1
|
|
Consent
of Cane Clark, LLP (to be included in Exhibit 5.1).
|
|
|
|
23.2
|
|
Consent
of WithumSmith+Brown, A Professional Corporation (filed
herewith).
|
|
|
|
* |
|
Incorporated
by
reference to the similarly described exhibit previously filed as
an
exhibit to Registrant’s Current Report on Form 8-K, as filed with the SEC
on July 6, 2006. |
|
|
|
‡ |
|
Indicates
a management
contract or compensatory plan or
arrangement. |
Item
28 - Undertakings.
The
undersigned registrant hereby undertakes:
(1)
To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii)
Reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of the securities offered (if
the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement;
(iii)
Include any additional or changed material information on the plan of
distribution;
(2)
That,
for
the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.
(3)
To
file a
post-effective amendment to remove from registration any of the securities
that
remain unsold at the end of the offering.
Insofar
as indemnification arising under the Securities Act may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in
the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of
the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned in Monmouth Junction, State
of New
Jersey, on December 13, 2006.
|
|
|
|
MEDASORB
TECHNOLOGIES CORPORATION
(Registrant)
|
|
|
|
|
By: |
/s/ Al
Kraus
|
|
Al
Kraus
Chief
Executive Officer
|
|
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Al Kraus
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
December
13, 2006
|
Al
Kraus
|
|
and
Director
|
|
|
|
|
|
|
|
/s/
David Lamadrid
|
|
Chief
Financial Officer (Principal Accounting
and |
|
December
13, 2006
|
David
Lamadrid
|
|
Financial
Officer)
|
|
|
|
|
|
|
|
/s/
Joseph Rubin, Esq.
|
|
Director
|
|
December
13, 2006
|
Joseph
Rubin, Esq.
|
|
|
|
|
|
|
|
|
|
/s/
Kurt Katz
|
|
Director
|
|
December
13, 2006
|
Kurt
Katz
|
|
|
|
|