UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C.
20549
___________________
FORM
10-KSB/A
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2006
COMMISSION
FILE NUMBER 000-51038
MEDASORB
TECHNOLOGIES CORPORATION
(Name
of
Small Business Issuer in Its Charter)
Nevada
(State
or Other Jurisdiction of Incorporation or Organization)
|
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)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock
$0.001
par value
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15
(d) of the Exchange Act. ¨
Check
whether the issuer: (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
þ
Yes
¨
No
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB. þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) ¨
Yes
þ
No
The
issuer had no revenues
for its fiscal year ended December 31, 2006.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 26, 2007 was approximately
$14,115,315. The number of shares outstanding of the registrant’s Common Stock
as of March 26, 2007 was 24,628,274.
___________________
Transitional
Small Business Disclosure Format: ¨
Yes þ
No
PART
III
Item
9. Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a)
of the Exchange Act.
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
|
|
|
|
William
R. Miller
|
78
|
Chairman
of the Board
|
|
|
|
James
Winchester, MD
|
62
|
Chief
Medical Officer
|
|
|
|
Vincent
Capponi
|
48
|
Chief
Operating Officer
|
|
|
|
David
Lamadrid
|
36
|
Chief
Financial Officer
|
|
|
|
Edward
R. Jones, MD, MBA
|
58
|
Director
|
|
|
|
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.
William
R. Miller.
Mr.
Miller has been the Chairman of the Board since January 1, 2007. Mr. Miller
served as Vice Chairman of the Board of Directors of the Bristol-Myers Squibb
Company from 1985 until 1991, at which time he retired. Mr. Miller has served
as
a director of ImClone Systems Incorporated since June 1996 and also serves
as
the Chairman of the Board of Vion Pharmaceuticals, Inc. Mr. Miller previously
served as Chairman of Cold Spring Harbor Laboratory, a non-profit institution,
and the Pharmaceutical Manufacturers Association. Mr. Miller is also a Trustee
of the Manhattan School of Music, a director of the Opera Orchestra of New
York
and a Managing Director of the Metropolitan Opera Association. Mr. Miller earned
his M.A. in Philosophy, Politics and Economics from St. Edmund Hall, Oxford
University, Oxford, England.
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.
Edward
R. Jones, MD, MBA. Dr.
Jones
has been a director of ours since April 2007. Dr. Jones is an attending
physician at the Albert Einstein Medical Center and Chestnut Hill Hospital
as
well as Clinical Professor of Medicine at Temple University Hospital. Dr. Jones
has published or contributed to the publishing of 30 chapters, articles, and
abstracts on the subject of treating kidney-related illnesses. He is a
sixteen-year member of the Renal Physicians Association, the Philadelphia County
Medical Society and a past board member of the National Kidney Foundation of
the
Delaware Valley. Dr. Jones has been elected to serve as the next President
of
the Renal Physicians Association starting in 2009.
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.
Section
16(a) Beneficial Ownership Reporting Compliance
The
members of our Board of Directors, our executive officers and persons who hold
more than 10% of our outstanding Common Stock are subject to the reporting
requirements of Section 16(a) of the Exchange Act, which requires them to file
reports with respect to their ownership of our Common Stock and their
transactions in such Common Stock. Based solely upon a review of Forms 3 and
4
and amendments filed with the SEC by persons subject to the reporting
requirements of Section 16(a) of the Exchange Act, we believe that, with the
exception of the late filing of one Form 4 by each of Kurt Katz and Joseph
Rubin, directors, and the late filing of a Form 3 by Guillermina Montiel, a
holder of more than 10% of our Common Stock, all reporting requirements under
Section 16(a) for the 2006 fiscal year were met in a timely manner by our
directors, executive officers and beneficial owners of more than 10% of our
Common Stock.
Code
of Conduct
We
maintain a Code of Business Conduct and Ethics that is applicable to all of
our
employees, including our Chief Executive Officer and Chief Financial Officer,
and our directors. The Code of Conduct, which satisfies the requirements of
a
“code of ethics” under applicable SEC rules, contains written standards that are
designed to deter wrongdoing and to promote honest and ethical conduct,
including the ethical handling of actual or apparent conflicts of interest;
full, fair, accurate, timely and understandable public disclosures and
communications, including financial reporting; compliance with applicable laws,
rules and regulations; prompt internal reporting of violations of the code;
and
accountability for adherence to the code.
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.
Item
10. Executive
Compensation.
Summary
Compensation Table
The
following table shows for the fiscal year ended December 31, 2006, compensation
awarded to or paid to, or earned by, our Chief Executive Officer, our Chief
Operating Officer, our Chief Financial Officer, and our Chief Medical Officer
(the “Named Executive Officers”).
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Option
Awards (1)
($)
|
|
Total
($)
|
|
Al
Kraus
Chief
Executive Officer
|
|
|
2006
|
|
|
201,257
|
|
|
-0-
|
|
|
69,555
(2
|
)
|
|
270,812
|
|
Vincent
Capponi,
Chief
Operating Officer
|
|
|
2006
|
|
|
178,441
|
|
|
200
|
|
|
40,297(3
|
)
|
|
218,939
|
|
David
Lamadrid,
Chief
Financial Officer
|
|
|
2006
|
|
|
135,629
|
|
|
200
|
|
|
-0-
|
|
|
135,829
|
|
Dr.
James Winchester Chief
Medical Officer
|
|
|
2006
|
|
|
120,000
|
|
|
-0-
|
|
|
40,297(4
|
)
|
|
160,297
|
|
(1) |
The
value of option awards granted to the Named Executive Officers has
been
estimated pursuant to SFAS No. 123(R) for the options described in
the
footnotes below, except that for purposes of this table, we have
assumed
that none of the options will be forfeited. The Named Executive Officers
will not realize the estimated value of these awards in cash until
these
awards are vested and exercised or sold. For information regarding
our
valuation of option awards, see “Stock-Based Compensation” in Note 2 of
our financial statements for the period ended December 31, 2006.
|
(2)
|
Reflects
options to purchase 413,920 shares
of Common Stock, all of which are currently exercisable at an exercise
price of $6.64 per share. Options to purchase 332,094 of these shares
were
granted on September 30, 2006 and expire on September 30, 2016, and
options to purchase 81,826 of these shares were granted on December
31,
2006 and expire on December 31,
2016.
|
(3)
|
Reflects
options to purchase 50,000 shares of Common Stock at an exercise
price of
$1.65 per share, which options were granted on December 31, 2006
and
expire on December 31, 2016. This option vested and became exercisable
as
to 16,667 shares on the date of grant, and will vest and become
exercisable as to 16,667 shares on December 31, 2007; and as to 16,666
shares on December 31, 2008.
|
(4)
|
Reflects
options to purchase 50,000 shares of Common Stock at an exercise
price of
$1.65 per share, which were granted on December 31, 2006 and expire
on
December 31, 2016. This option vested and became exercisable as to
16,667
shares on the date of grant, and will vest and become exercisable
as to
16,667 shares on December 31, 2007; and as to 16,666 shares on December
31, 2008.
|
Outstanding
Equity Awards at Fiscal Year End
The
following table shows for the fiscal year ended December 31, 2006, certain
information regarding outstanding equity awards at fiscal year end for the
Named
Executive Officers.
Outstanding
Equity Awards At December 31, 2006
|
|
Option
Awards
|
|
Name
|
|
Number
of
Securities
Underlying Unexercised Options
(#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
|
Option
Exercise Price
($)
|
|
Option
Expiration Date
|
|
Al
Kraus
|
|
|
332,094
81,826
|
|
|
--
--
|
|
|
6.64
(1
6.64
(1
|
)
)
|
|
9/30/16
12/31/16
|
|
Vincent
Capponi
|
|
|
16,667
|
|
|
33,333
|
|
|
1.65
(2
|
)
|
|
12/31/16
|
|
David
Lamadrid
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Dr.
James Winchester
|
|
|
16,667
|
|
|
33,333
|
|
|
1.65
(3
|
)
|
|
12/31/16
|
|
|
(2)
|
Vests
and becomes exercisable as to (i) 16,667 shares on December 31, 2006;
(ii)
16,667 shares on December 31, 2007; and (iii) 16,666 shares on December
31, 2008.
|
|
(3)
|
Vests
and becomes exercisable as to (i) 16,667 shares on December 31, 2006;
(ii)
16,667 shares on December 31, 2007; and (iii) 16,666 shares on December
31, 2008.
|
Director
Compensation
The
following table shows for the fiscal year ended December 31, 2006 certain
information with respect to the compensation of all non-employee directors
of
the Company.
Director
Compensation for Fiscal 2006
Name
|
|
Fees
Earned or
Paid
in
Cash
($)
|
|
Option
Awards
($)
(1)
|
|
Total
($)
|
|
Joseph
Rubin (2)
|
|
|
-0-
|
|
|
9,732
(2
|
)
|
|
9,732
|
|
Kurt
Katz (3)
|
|
|
-0-
|
|
|
9,732
(2
|
)
|
|
9,732
|
|
|
(1) |
The
value of option awards granted to directors has been estimated pursuant
to
SFAS No. 123(R) for the options described in the footnotes below,
except
that for purposes of this table, we have assumed that none of the
options
will be forfeited. The directors will not realize the estimated value
of
these awards in cash until these awards are vested and exercised
or sold.
For information regarding our valuation of option awards, see “Stock-Based
Compensation” in Note 2 of our financial statements for the period ended
December 31, 2006.
|
|
(2) |
At
December 31, 2006, Mr. Rubin held options to purchase 61,715 shares
of our
Common Stock.
|
|
(3) |
At
December 31, 2006, we had issued on behalf of Mr. Katz options to
purchase
56,817 shares of our Common Stock in connection with his service
as a
director. All of these options have been issued to a trust established
by
Mr. Katz for the benefit of his
children.
|
Our
directors did not receive any cash compensation for their service on the Board
of Directors during 2006. On June 15, 2006, in anticipation of our June 30,
2006
merger and private placement, each non-employee director of MedaSorb Delaware
was granted an option to purchase that number of shares of MedaSorb Delaware
common stock equal to the number of shares of common stock then subject to
director options held by such person that had exercise prices ranging from
$6.64
to $21.57. The options issued on June 15, 2006 have an exercise price of $1.25
per share, which is the conversion price of the Series A Preferred Stock issued
in the June 30, 2006 private placement. The non-employee directors of MedaSorb
Delaware at the time of that grant included our current non-employee directors
Joseph Rubin and Kurt Katz, who were each issued options to purchase
15,069 shares
of
common stock; Brian Murray and Jean Futrell, who were each issued options to
purchase 15,069 shares
of
common stock, and Bruce Davis, who was issued an option to purchase 2,260 shares
of common stock. All of these options became options to purchase the same number
of shares of our Common Stock at the same exercise price following the merger.
In addition, on August 1, 2006, we granted options to purchase 5,000 shares
of
Common Stock at an exercise price of $1.25 per share to each of our
non-employee directors,
Joseph Rubin and Kurt Katz, following the determination of our Board that such
grant fairly reflected the services provided by our non-employee directors
during 2006.
In
2007,
we approved arrangements under which each non-employee director receives a
fee
of $2,000 for each Board meeting attended in person and a fee of $1,000 for
each
Board meeting participated in by telephone. In addition, our Board approved
a
policy under which each non-employee director will be eligible to be issued
options to purchase up to 10,000 shares of our Common Stock on December 31,
2007
based on attendance at Board meetings held during 2007, so that, for example,
a
non-employee director attending all of our meetings would be entitled to receive
an option to purchase 10,000 shares of our Common Stock, and a non-employee
director attending 80% of our meetings would be entitled to receive an option
to
purchase 8,000 shares of our Common Stock. Such options will be exercisable
at
the closing price of our Common Stock on the date of grant. Our directors are
also reimbursed for actual out-of-pocket expenses incurred by them in connection
with their attendance at meetings of the Board of Directors.
In
connection with his appointment as Chairman of the Board, we agreed to
compensate Mr. Miller at the rate of $20,000 per annum, and on January 1, 2007
issued Mr. Miller a ten year option to purchase 200,000 shares of our Common
Stock at a price of $1.65 per share (the last reported sales price on the OTC
Bulletin Board on December 29, 2006). We have also agreed to issue to Mr. Miller
in 2008, to the extent he continues to serve as our Chairman, an additional
option to purchase 100,000 shares of Common Stock. Such options would be
exercisable at the closing price of our Common Stock on the date of
grant.
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 received an annual base salary
of
$200,000 through December 31, 2006. Effective January 1, 2007, Mr. Kraus’s
annual base salary was increased to $216,351. 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 413,920 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.
On
February 8, 2007, Mr. Kraus, was granted an immediately exercisable option
to
purchase 400,000 shares of our Common Stock at an exercise price of $1.26 (the
closing price of our Common Stock on the date of grant).
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 received an annual base salary of $181,886 through December 31, 2006.
Effective January 1, 2007, Mr. Capponi’s annual base salary was increased to
$195,527. 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 received an annual base salary of $135,629 through December 31, 2006.
Effective January 1, 2007, Mr. Lamadrid’s annual base salary was increased to
$145,801. 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.
On
January 16, 2007, we granted Mr. Lamadrid an option to purchase 150,000 shares
of our Common Stock at an exercise price of $1.90 (the closing price of our
Common Stock on the date of grant). The option is currently exercisable as
to
50,000 shares, and becomes exercisable as to an additional 50,000 shares on
January 16, 2008 and the remaining 50,000 shares on January 16,
2009.
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.
Item
11. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
following table sets forth information known to us with respect to the
beneficial ownership of Common Stock held of record as of April 23, 2007, 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)
|
|
6,638,334
|
(2) |
25.1
|
% |
|
|
|
|
|
|
Guillermina
Montiel(3)
|
|
|
5,052,456
|
|
|
20.5
|
%
|
|
|
|
|
|
|
|
|
Margery
Germain(4)
|
|
|
2,000,000
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
Robert
Shipley (5)
|
|
|
1,495,710
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Al
Kraus(6)
|
|
|
2,207,551
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
William
R. Miller (7)
|
|
|
200,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
David
Lamadrid (8)
|
|
|
558,734
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
Vince
Capponi (9)
|
|
|
434,753
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
Joseph
Rubin(10)
|
|
|
388,284
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
James
Winchester(11)
|
|
|
69,186
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Kurt
Katz(12)
|
|
|
59,077
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Edward
Jones
|
|
|
0
|
|
|
*
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (eight
persons)(12)
|
|
|
3,917,585
|
|
|
15.0
|
%
|
*
Less
than
1%.
1
|
Gives
effect to the shares of Common Stock issuable upon the exercise of
all
options exercisable within 60 days of April 23, 2007 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 24,485,696
shares of Common Stock outstanding as of April 23, 2007.
|
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
328,402 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
413,920 shares of Common Stock issuable upon exercise of stock options
pursuant to Mr. Kraus’s Employment Agreement described above, and an
additional 400,000 shares of Common Stock. issuable upon other currently
exercisable stock options.
|
7
|
These
shares are issuable upon exercise of stock
options
|
8
|
Includes
50,000 shares of Common Stock issuable upon exercise of stock options.
|
9
|
Includes
16,667 shares of Common Stock issuable upon exercise of stock options.
|
10
|
Includes
2,050 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.
|
11
|
Includes
16,667 shares of Common Stock issuable upon exercise of stock options.
|
12
|
Includes
56,817 shares of Common Stock issuable upon exercise of stock options,
all
of which are held by a trust established for the benefit of Mr. Katz’s
children. Mr. Katz does not exercise voting control over these shares
and
disclaims beneficial ownership of the
shares.
|
13
|
Includes
an aggregate of 1,460,091 shares of Common Stock issuable upon exercise
of
stock options and warrants and conversion of Series A Preferred
Stock.
|
Item
12. Certain
Relationships and Related Transactions, and Director
Independence.
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. No assurance can be given that the sale of the pledged securities
will provide these investors with sufficient proceeds to cover the full extent
of their loss, if any, on their investment. 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, 2006, MedaSorb Delaware owed Mr. Rubin’s firm approximately $5,000
in respect of legal services provided by his firm to MedaSorb
Delaware.
Director
Independence
All
members of our Board of Directors, other than Joseph Rubin, who performs legal
services for us as disclosed above; and AL Kraus, our Chief Executive Officer,
are independent under the standards set forth in Nasdaq Marketplace Rule
4200(a)(15).
Item
13. Exhibits.
14
|
Code
of Business Conduct and Ethics of MedaSorb Technologies
Corporation
|
31.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
31.2
|
Certification
of David Lamadrid, Chief Financial Officer, pursuant to Rules 13a-14(a)
and 15(d)-14(a) of the Securities Exchange Act of
1934
|
Item
14. Principal
Accountant Fees and Services.
The
following table presents fees for professional audit services rendered by
WithumSmith+Brown, A Professional Corporation, for the audit of our annual
financial statements for the years ended December 31, 2006 and 2005, and fees
billed for other services rendered by WithumSmith+Brown during those years.
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Audit
fees
(1)
|
|
$
|
127,772
|
|
$
|
41,200
|
|
Audit
related fees
|
|
|
--
|
|
|
--
|
|
Tax
fees
|
|
|
--
|
|
|
--
|
|
All
other fees
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
Total
fees
|
|
$
|
127,772
|
|
$
|
41,200
|
|
_____________________________
(1) |
Includes
fees paid for professional services rendered in connection with the
audit
of annual financial statements and the review of quarterly financial
statements, and the review of such financial statements in the Company’s
Annual Report on Form 10-KSB, Quarterly Reports on Form 10-QSB,
Registration Statement on Form SB-2 and Current Reports on Form
8-K.
|
Pre-Approval
Policies And Procedures
We
do not
have an audit committee or a formal pre-approval process for the performance
for
us by our independent auditor of non-audit services, and no such services were
provided to us during the year ended December 31, 2006. We anticipate that
any
non-audit services to be performed for us by our independent auditor, subject
to
the de minimis exceptions for non-audit services described in Section
10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended, will be
approved prior to our auditor’s engagement for such services by our Board of
Directors, acting in the capacity of an audit committee.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, MedaSorb Technologies
Corporation has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on this 30th day of April,
2007.
|
|
|
|
MEDASORB
TECHNOLOGIES CORPORATION |
|
|
|
|
By: |
/s/ Al
Kraus |
|
Al
Kraus |
|
Chief
Executive Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Al Kraus
|
|
Chief
Executive Officer (Principal Executive Officer) and
Director
|
|
April
30, 2007
|
Al
Kraus
|
|
|
|
|
|
|
|
|
|
/s/
David Lamadrid
|
|
|
|
|
David
Lamadrid
|
|
Chief
Financial Officer (Principal Accounting and Financial
Officer)
|
|
April
30, 2007
|
|
|
|
|
|
/s/
William R. Miller
|
|
|
|
|
William
R. Miller
|
|
Chairman
of the Board
|
|
April
30, 2007
|
|
|
|
|
|
/s/
Joseph Rubin
|
|
|
|
|
Joseph
Rubin, Esq.
|
|
Director
|
|
April
30, 2007
|
|
|
|
|
|
/s/
Kurt Katz
|
|
|
|
|
Kurt
Katz
|
|
Director
|
|
April
30, 2007
|
|
|
|
|
|
/s/
Edward
Jones
|
|
|
|
|
Edward
Jones, MD
|
|
Director
|
|
April
30, 2007
|