SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________
FORM
10-QSB
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For
the
quarterly period ended March
31, 2007
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For
the
transition period from __________ to __________
Commission
file number: 000-51038
MedaSorb
Technologies Corporation
(Exact
Name of Small Business Issuer as Specified in Its Charter)
Nevada
|
98-0373793
|
(State
or Other Jurisdiction of
Incorporation
Or Organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
7
Deer Park Drive, Suite K, Monmouth Junction, New Jersey
08852
(Address
of Principal Executive Offices)
|
|
(732)
329-8885
(Issuer’s
Telephone Number, Including Area Code)
_______________________________________________________________________
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. þ
Yes
¨
No
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨
Yes
þ
No
As
of May
14, 2007 there were 24,688,274 shares of the issuer’s common stock
outstanding.
Transitional
Small Business Disclosure Format: ¨
Yes
þ
No
MedaSorb
Technologies Corporation
(a
development stage company)
FORM
10-QSB
TABLE
OF CONTENTS
|
Page
|
PART I. FINANCIAL INFORMATION
|
|
|
|
|
|
Item
1. Financial Statements (March 31, 2007 and 2006 are
unaudited)
|
|
|
Consolidated
Balance Sheets
|
3
|
|
Consolidated
Statements of Operations
|
4
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
5
|
|
Consolidated
Statements of Cash Flows
|
6
|
|
Notes
to Consolidated Financial Statements
|
8
|
|
|
|
|
Item
2. Management’s Discussion and Analysis or Plan of
Operation
|
12
|
|
|
|
|
Item
3. Controls and Procedures
|
14
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
Item
6. Exhibits
|
14
|
|
|
|
PART
I -- FINANCIAL INFORMATION
Item
1. Financial Statements.
|
|
(a
development stage company)
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,189,655
|
|
$
|
2,873,138
|
|
Prepaid
expenses and other current assets
|
|
|
33,335
|
|
|
24,880
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,222,990
|
|
|
2,898,018
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
279,153
|
|
|
303,560
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
252,039
|
|
|
243,471
|
|
|
|
|
|
|
|
|
|
Total
long-term assets
|
|
|
531,192
|
|
|
547,031
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,754,182
|
|
$
|
3,445,049
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
879,118
|
|
$
|
942,265
|
|
Accrued
expenses and other current liabilities
|
|
|
113,481
|
|
|
69,779
|
|
Accrued
interest
|
|
|
70,000
|
|
|
70,000
|
|
Dividends/penalties
payable
|
|
|
372,116
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,434,715
|
|
|
1,082,044
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity:
|
|
|
|
|
|
|
|
10%
Series A Preferred Stock, Par Value $0.001, 100,000,000
|
|
|
|
|
|
|
|
shares
authorized at March 31, 2007 and December 31, 2006,
|
|
|
|
|
|
|
|
7,536,579
and 7,403,585 shares issued and outstanding, respectively
|
|
|
7,536
|
|
|
7,403
|
|
Common
Stock, Par Value $0.001, 100,000,000 and 100,000,000
|
|
|
|
|
|
|
|
Shares
authorized at March 31, 2007 and December 31, 2006,
|
|
|
|
|
|
|
|
respectively,
24,628,274 shares issued and outstanding
|
|
|
24,629
|
|
|
24,629
|
|
Additional
paid-in capital
|
|
|
70,347,502
|
|
|
69,757,556
|
|
Deficit
accumulated during the development stage
|
|
|
(69,060,200
|
)
|
|
(67,426,583
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
1,319,467
|
|
|
2,363,005
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
2,754,182
|
|
$
|
3,445,049
|
|
|
|
|
|
|
|
|
|
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
|
|
Three
months ended
March
31,
|
|
|
|
March,
31 2007
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
41,237,182
|
|
|
344,411
|
|
|
288,981
|
|
Legal,
financial and other consulting
|
|
|
6,389,039
|
|
|
129,526
|
|
|
384,538
|
|
General
and administrative
|
|
|
20,823,528
|
|
|
685,419
|
|
|
137,775
|
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
)
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
62,394,266
|
|
|
1,159,356
|
|
|
811,294
|
|
Other
(Income) Expenses:
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
--
|
|
|
--
|
|
Gain
on extinguishment of debt
|
|
|
(206,608
|
)
|
|
--
|
|
|
--
|
|
Interest
(Income) expense, net
|
|
|
5,613,559
|
|
|
(30,849
|
)
|
|
204,083
|
|
Penalties
associated with non-registration
|
|
|
320,023
|
|
|
320,023
|
|
|
--
|
|
Total
Other (Income) Expenses
|
|
|
5,705,311
|
|
|
289,174
|
|
|
204,083
|
|
Net
loss
|
|
|
(68,099,577
|
)
|
|
(1,448,530
|
)
|
|
(1,015,377
|
)
|
Series
A Preferred Stock Dividend
|
|
|
908,530
|
|
|
132,994
|
|
|
--
|
|
Series
A Preferred Cash Dividend
|
|
|
52,093
|
|
|
52,093
|
|
|
--
|
|
Net
Loss available to common shareholders
|
|
$
|
(69,060,200
|
)
|
$
|
(1,633,617
|
)
|
$
|
(1,015,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
$
|
(0.07
|
)
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of
|
|
|
|
|
|
|
|
|
|
|
common
stock outstanding
|
|
|
|
|
|
24,628,274
|
|
|
4,992,763
|
|
See
accompanying notes to consolidated financial statements.
|
|
MEDASORB
TECHNOLOGIES CORPORATION
|
|
|
|
(a
development stage company)
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
from December 31, 2006 to March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Common
Stock
|
|
Preferred
Stock
|
|
Additional
|
|
During
the
|
|
Total
|
|
|
|
Shares
|
|
Par
value
|
|
Shares
|
|
Par
Value
|
|
|
|
|
|
Stockholders'
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
24,628,274
|
|
$
|
24,629
|
|
|
7,403,585
|
|
$
|
7,403
|
|
$
|
69,757,556
|
|
$
|
(67,426,583
|
)
|
$
|
2,363,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options to employees, consultants, and directors
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
457,085
|
|
|
--
|
|
|
457,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock dividend on 10% Series A Preferred Stock
|
|
|
--
|
|
|
--
|
|
|
132,994
|
|
|
133
|
|
|
132,861
|
|
|
(132,994
|
)
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividend on 10% Series A Preferred Stock
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(52,093
|
)
|
|
(52,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(1,448,530
|
)
|
|
(1,448,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007 (Unaudited)
|
|
|
24,628,274
|
|
$
|
24,629
|
|
|
7,536,579
|
|
$
|
7,536
|
|
$
|
70,347,502
|
|
$
|
(69,060,200
|
)
|
$
|
1,319,467
|
|
See
accompanying notes to consolidated financial statements.
|
|
MEDASORB
TECHNOLOGIES CORPORATION
|
|
|
|
(a
development stage company)
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
January
22,1997
|
|
Three
months
|
|
Three
months
|
|
|
|
(date
of inception) to
|
|
ended
|
|
Ended
|
|
|
|
March
31, 2007
|
|
March
31,
2007
|
|
March
31,
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(68,099,577
|
)
|
$
|
(1,448,530
|
)
|
$
|
(1,015,377
|
)
|
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
|
|
|
--
|
|
|
--
|
|
Issuance
of common stock to consultant for services
|
|
|
30,000
|
|
|
--
|
|
|
--
|
|
Depreciation
and amortization
|
|
|
2,094,650
|
|
|
48,025
|
|
|
63,882
|
|
Amortization
of debt discount
|
|
|
1,000,000
|
|
|
--
|
|
|
--
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
--
|
|
|
--
|
|
Gain
on extinguishment of debt
|
|
|
(206,608
|
)
|
|
--
|
|
|
--
|
|
Abandoned
patents
|
|
|
183,556
|
|
|
--
|
|
|
--
|
|
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
|
|
|
478,409
|
|
|
--
|
|
|
--
|
|
Expense
for issuance of options
|
|
|
848,062
|
|
|
457,085
|
|
|
--
|
|
Amortization
of deferred compensation
|
|
|
74,938
|
|
|
--
|
|
|
--
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(304,883
|
)
|
|
(8,455
|
)
|
|
(14,753
|
)
|
Other
assets
|
|
|
(53,893
|
)
|
|
--
|
|
|
--
|
|
Accounts
payable and accrued expenses
|
|
|
2,778,799
|
|
|
(19,445
|
)
|
|
281,036
|
|
Accrued
interest expense
|
|
|
1,893,103
|
|
|
--
|
|
|
211,655
|
|
Dividends/penalty
payable
|
|
|
320,023
|
|
|
320,023
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(49,255,120
|
)
|
|
(651,297
|
)
|
|
(473,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
32,491
|
|
|
--
|
|
|
--
|
|
Purchases
of property and equipment
|
|
|
(2,220,522
|
)
|
|
(21,428
|
)
|
|
--
|
|
Patent
costs
|
|
|
(404,177
|
)
|
|
(10,758
|
)
|
|
(3,000
|
)
|
Loan
receivable
|
|
|
(1,632,168
|
)
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(4,224,376
|
)
|
|
(32,186
|
)
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
400,490
|
|
|
--
|
|
|
400,490
|
|
Proceeds
from issuance of preferred stock
|
|
|
4,679,437
|
|
|
--
|
|
|
--
|
|
Equity
contributions - net of fees incurred
|
|
|
41,711,198
|
|
|
--
|
|
|
--
|
|
Proceeds
from borrowings
|
|
|
8,378,631
|
|
|
--
|
|
|
--
|
|
Proceeds
from subscription receivables
|
|
|
499,395
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
55,669,151
|
|
|
--
|
|
|
400,490
|
|
See
accompanying notes to consolidated financial statements.
Net
increase in cash and cash equivalents
|
|
|
2,189,655
|
|
|
(683,483
|
)
|
|
(76,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of period
|
|
|
--
|
|
|
2,873,138
|
|
|
707,256
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
$
|
2,189,655
|
|
$
|
2,189,655
|
|
$
|
631,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
10,201,714
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,586,444
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock Dividends
|
|
$
|
960,623
|
|
$
|
185,087
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
Notes
to Consolidated Financial Statements
(UNAUDITED)
March
31, 2007
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 December 31, 2007. 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 March 31,
2007 and the results of its operations and cash flows for the three month
periods ended March 31, 2007 and 2006. Results for the 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, 2006 as included in the
Company’s Form 10-KSB filed with the Commission on March 30,
2007.
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 March 31, 2007 of $69,060,200.
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 March 31, 2007, 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
The
Company considers all
highly liquid investments purchased with an original maturity of three months
or
less to be cash equivalents.
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation
of property and equipment is provided for by the straight-line method over
the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lesser of their economic useful lives or the term of the
related leases. Gains and losses on depreciable assets retired or sold are
recognized in the statements of operations in the year of disposal. Repairs
and
maintenance expenditures are expensed as incurred.
Patents
Legal
costs incurred to establish patents are capitalized. When patents are issued,
capitalized costs are amortized on the straight-line method over the related
patent term. In the event a patent is abandoned, the net book value of the
patent is written off.
Impairment
or Disposal of Long-Lived Assets
The
Company assesses the impairment of patents and other long-lived assets under
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
whenever events or changes in circumstances indicate that the carrying value
may
not be recoverable. For long-lived assets to be held and used, the Company
recognizes an impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss based
on
the difference between the carrying amount and fair value.
Research
and Development
All
research and development costs, payments to laboratories and research
consultants are expensed when incurred.
Income
Taxes
Income
taxes are accounted for under the asset and liability method prescribed by
SFAS
No. 109, “Accounting for Income Taxes.” Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the
tax
basis of assets and liabilities. Deferred tax assets and liabilities reflect
the
tax rates expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely
than
not that some or all of the deferred tax asset will not be realized. Under
Section 382 of the Internal Revenue Code the net operating losses generated
prior to the June 30, 2006 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 accounts payable and other debt obligations approximated
their fair values due to their short-term nature.
Stock-Based
Compensation
The
Company accounts for its stock-based compensation under the recognition
requirements of Statement of Financial Accounting Standards (“SFAS”) No. 123(R),
“Accounting
for Stock-Based Compensation”,
for
employees and directors whereby each option granted is valued at fair market
value on the date of grant. Under SFAS No. 123, the fair value of each option
is
estimated on the date of grant using the Black-Scholes option pricing
model.
Effects
of Recent Accounting Pronouncements
The
Company has adopted the provisions of FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109"
("FIN 48"), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance
with FASB Statement 109, "Accounting for Income Taxes", and prescribes a
recognition threshold and measurement process for financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. Based on management’s evaluation, the Company has concluded that
there are no significant uncertain tax positions requiring recognition in its
financial statements or adjustments to deferred tax assets and related valuation
allowance. The Company’s evaluation was performed for the tax years ended
December 31, 2003, 2004, 2005 and 2006, the tax years which remain subject
to
examination by major tax jurisdictions as of March 31, 2007. To date, the
Company has not generated any income. Accordingly the Company has not been,
and
does not expect to be, assessed interest or penalties by tax jurisdictions.
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS
157"). SFAS 157 defines fair value, establishes a framework for measuring fair
value in accordance with accounting principles generally accepted in the United
States, and expands disclosures about fair value measurements. SFAS No. 157
is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, with earlier application encouraged. Any amounts recognized
upon adoption as a cumulative effect adjustment will be recorded to the opening
balance of retained earnings in the year of adoption. The Company has not yet
determined the impact of this statement on its results of operations or
financial condition.
In
February 2007, the FASB issued SFAS No. 159, “Establishing the Fair Value Option
for Financial Assets and Liabilities” to permit all entities to choose to elect
to measure eligible financial instruments and certain other items at fair
value. The decision whether to elect the fair value option may occur for
each eligible item either on a specified election date or according to a
preexisting policy for specified types of eligible items. However, that decision
must also take place on a date on which criteria under SFAS 159 occurs.
Finally, the decision to elect the fair value option shall be made on an
instrument-by-instrument basis, except in certain circumstances. An entity
shall report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS
No.
159 applies to fiscal years beginning after November 15, 2007, with early
adoption permitted for an entity that has also elected to apply the provisions
of SFAS No. 157, Fair
Value Measurements. The
Company is currently evaluating this pronouncement in connection with SFAS
No.
157.
3. STOCKHOLDERS'
EQUITY
During
the three months ended March 31, 2007, the Company recorded a non-cash stock
dividend of $132,994 in connection with the issuance of 132,994 shares of Series
A Preferred Stock as a stock dividend payable to its preferred shareholders
as
of March 31, 2007. In addition, due to the Company’s failure to have the
registration statement it filed declared effective by the Commission within
the
time required under agreements with the June 30, 2006 purchasers of the Series
A
Preferred Stock (i) dividends on the shares of Series A Preferred Stock issued
to those purchasers are required to be paid in cash, and the dividend rate
increased from 10% per annum to 20% per annum from February 26, 2007 through
May
7, 2007, the date such registration statement became effective, and (ii) the
Company is obligated to pay those purchasers an aggregate of $105,000 per 30-day
period from February 26, 2007 through May 7, 2007. In connection with such
cash
dividend and penalty obligations, the Company’s financial statements for the
three month period ended March 31, 2007 reflects an aggregate charge of $320,023
for the incremental cash dividends and penalties payable to the June 30, 2006
purchasers of the Series A Preferred Stock.
During
the three months ended March 31, 2007, the Company issued stock options to
employees, consultants and directors resulting in a compensation expense of
approximately $457,000, approximately $6,000 and $451,000 of which is presented
in research and development expenses and general and administrative expenses,
respectively.
The
summary of the stock option activity for the three months ended March 31, 2007
is as follows:
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
|
|
Exercise
|
|
Remaining
|
|
|
|
Shares
|
|
per
Share
|
|
Life
(Years)
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 1, 2007
|
|
|
1,185,001
|
|
$
|
15.66
|
|
|
7.2
|
|
Granted
|
|
|
776,000
|
|
$
|
1.50
|
|
|
9.8
|
|
Cancelled
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Outstanding
March 31, 2007
|
|
|
1,961,001
|
|
$
|
10.06
|
|
|
8.2
|
|
At
March
31, 2007, the aggregate intrinsic value of options outstanding and currently
exercisable amounted to approximately $0.
The
summary of the status of the Company’s non-vested options for the three months
ended March 31, 2007 is as follows:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
|
|
|
|
|
|
Non-vested,
January 1, 2007
|
|
|
79,665
|
|
$
|
.77
|
|
Granted
|
|
|
776,000
|
|
$
|
.73
|
|
Cancelled
|
|
|
--
|
|
|
--
|
|
Vested
|
|
|
659,668
|
|
$
|
.69
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Non-vested,
March 31, 2007
|
|
|
195,997
|
|
$
|
.86
|
|
As
of
March 31, 2007, approximately $167,500 of total unrecognized compensation cost
related to stock options is expected to be recognized over a weighted average
period of 5.6 years.
As
of
March 31, 2007, 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
|
|
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
|
|
52,080
|
|
$
|
2.00
|
|
|
July
31, 2011
|
|
400,000
|
|
$
|
2.00
|
|
|
October
31, 2011
|
|
240,125
|
|
$
|
2.00
|
|
|
October
24, 2016
|
|
As
of
March 31, 2007, the Company has the following warrants to purchase preferred
stock outstanding:
Number
of
Shares
to be
Purchased
|
|
Warrant
Exercise
Price
per
Preferred
Share
|
|
Warrant
Expiration
Date
|
|
525,000
|
|
$
|
1.00
|
|
|
June
30, 2011
|
|
If
the holder of warrants for preferred stock exercises
in full, the holder will receive additional five-year warrants to purchase
a
total of 210,000 shares of common stock at $2.00 per share.
4. COMMITMENTS
AND CONTINGENCIES
Pending
Litigation
The
Company may, at times, become involved in various claims and legal actions.
At
the time of this filing, the Company was not involved in any legal claims
expected to have a material adverse impact on the consolidated financial
position of the Company and/or the results of its operations.
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 maintain 5% of the outstanding stock of the Company
on
a fully diluted basis.
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 CytoSorbTM
device.
The Company has not generated any revenue from this product and has not incurred
any royalty costs through March 31, 2007. 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 agreement, MedaSorb has agreed to pay royalties
of
2.5% to 5% on the sale of certain of its products if and when those products
are
sold commercially for a term not greater than 18 years commencing with the
first
sale of such product. The
Company has not generated any revenue from its products and has not incurred
any
royalty costs through March 31, 2007. The amount of future revenue subject
to
the license 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.
5. NET
LOSS PER SHARE
Basic
earnings per share and diluted earnings per share for the three months ended
March 31, 2007 and 2006 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 representing 5,928,072 and
799,201 incremental shares at March 31, 2007 and 2006, respectively, as well
as
shares issuable upon conversion of Series A Convertible Preferred Stock and
Preferred Stock Warrants representing 6,659,263 and -0-incremental shares at
March 31, 2007 and 2006, respectively, have been excluded from the computation
of diluted earnings per share as they are anti-dilutive.
6. SUBSEQUENT
EVENTS
On
May 7,
2007 the Company’s registration statement filed in connection with the Company’s
obligations to the June 30, 2006 purchasers of its Series A Preferred Stock
was
declared effective by the Commission.
Item
2. Management’s Discussion and Analysis or Plan of
Operation.
These
unaudited condensed consolidated financial statements and discussion should
be
read in conjunction with the audited financial statements of the Company and
the
notes thereto as of and for the year ended December 31, 2006 as included in
the
Company’s Form 10-KSB filed with the Commission on March 30, 2007.
Forward-looking
statements
Statements
contained in this Quarterly Report on Form 10-QSB, other than the historical
financial information, constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All such
forward-looking statements involve known and unknown risks, uncertainties or
other factors which may cause actual results, performance or achievement of
the
Company to be materially different from any future results, performance or
achievement expressed or implied by such forward-looking statements. Primary
risk factors include, but are not limited to: ability
to successfully develop commercial operations; the ability to obtain adequate
financing in the future when needed; dependence on key personnel; limited
clinical studies of our products; acceptance of the Company's medical devices
in
the marketplace; potential litigation; obtaining government approvals, including
required FDA approvals; compliance with governmental regulations; reliance
on
research and testing facilities of various universities and institutions;
product liability risks; limited manufacturing experience; limited marketing,
sales and distribution experience; competition; unexpected changes in
technologies and technological advances; and other factors detailed in the
Company's Annual Report on Form 10-KSB filed with the SEC on March 30,
2007.
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
intend
to initially focus our efforts on the commercialization of our
CytoSorbTM
product,
which we believe will provide a relatively faster regulatory pathway to market.
The first indication for CytoSorbTM
will be
in the adjunctive treatment of sepsis (bacterial infection of the blood), which
causes systematic inflammatory response syndrome. CytoSorbTM
has been
designed to prevent or reduce the accumulation of high concentrations of
cytokines in the bloodstream associated with sepsis. We believe that current
state of the art blood purification technology (such as dialysis) is incapable
of effectively clearing the toxins intended to be adsorbed by our
CytoSorbTM
device.
Following
the sepsis indication, we intend to continue our research in other acute
conditions where CytoSorbTM
has
indicated potential in preliminary studies 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 CytoSorbTM
device
may have in removing drugs from blood in situations such as patient
overdoses.
In
December 2006, we submitted to the FDA a proposed pilot study utilizing the
CytoSorbTM
device
in humans for the adjunctive treatment of sepsis. The FDA has responded to
our
proposal and conditionally approved a limited study of five patients. We are
now
preparing additional information for the FDA’s consideration. We intend to
propose to the FDA a phase-in approach to patient enrollment under which the
number of patients approved for our study would be increased. If the pilot
study, as proposed by us, is approved by the FDA, we anticipate
commencing clinical studies in the third or fourth quarter of 2007. If these
studies 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
CytoSorbTM
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 BetaSorbTM
device
in patients with chronic kidney failure have provided valuable data, which
we
will use in conducting clinical studies using our CytoSorbTM
device.
No assurance can be given that our proposed CytoSorbTM
product
will work as intended or that we will be able to obtain FDA approval to sell
CytoSorbTM.
Even if
we ultimately obtain FDA approval, because we cannot control the timing of
FDA
responses to our submissions, there can be no assurance as to when such approval
will be obtained.
In
addition, we are currently investigating the requirements for obtaining the
CE
Mark (European Union regulatory approval) for the CytoSorbTM
device,
and have engaged a European regulatory and clinical consultant to assist us
in
that regard.
Our
research and development costs were $344,411 and $288,981 for the three months
ended March 31, 2007 and 2006, respectively. We have experienced substantial
operating losses since inception. As of March 31, 2007, we had an accumulated
deficit of $69,060,200 which included losses from operations of $1,448,530
for
the three month period ended March 31, 2007. In comparison, we had losses from
operations of $1,015,377 for the three month period ended March 31, 2006.
Historically, our losses have resulted principally from costs incurred in the
research and development of our polymer technology, and general and
administrative expenses, which were $1,029,830 for the three-months ended March
31, 2007.
Our
net
loss available to common shareholders for the three months ended March 31,
2007
includes $372,116 for cash dividends and penalties payable to the June 30,
2006
purchasers of our Series A Preferred Stock. The cash dividends and penalties
are
payable as a result of our failure to have the registration statement we filed
on behalf of these purchasers declared effective by the SEC by February 26,
2007. As a result, from that date through the end of the three month period,
(i)
cash dividends on the shares of Series A Preferred Stock issued to those
purchasers accrued at the rate of 20% per annum, and (ii) penalties of $105,000
per 30-day period accrued to those purchasers. The registration statement was
declared effective by the SEC following the end of the quarter on May 7,
2007.
Since
inception, our operations have been financed through the private placement
of
our debt and equity securities. At December 31, 2006, we had cash of $2,873,138.
Due to our losses and limited amounts of available cash, our audited
consolidated financial statements for the year ended December 31, 2006 have
been
prepared assuming we will continue as a going concern, and the auditors’ report
on those financial statements expresses substantial doubt about our ability
to
continue as a going concern.
As
of
March 31, 2007 we had cash on hand of $2,189,655, and current liabilities of
$1,434,715.
We
believe that we have sufficient cash to fund our operation through the
fourth quarter of 2007, following
which we will need additional financing before we can complete clinical studies
and the commercialization of our proposed products. There
can be no assurance that we will be successful in our capital raising
efforts.
Our
current liabilities at March 31, 2007 include $372,116 of dividends and
liquidated damages payable to the June 30, 2006 purchasers of our Series A
Preferred Stock as described above.
An
evaluation was performed, under the supervision of, and with the participation
of, our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-(e)
to
the Securities and Exchange Act of 1934). Based on that evaluation, the
Company’s management, including our Chief Executive Officer and Chief Financial
Officer, concluded that the Company’s disclosure controls and procedures were
adequate and effective, as of March 31, 2007, to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934, is recorded, processed, summarized,
and reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
We
do not
expect that our disclosure controls and procedures or internal control over
financial reporting will prevent all errors and all fraud. A control system,
no
matter how well conceived and operated, can provide only reasonable assurance
that the objectives of the system are met and cannot detect all deviations.
Because of the inherent limitations in all control systems, no evaluation of
control can provide absolute assurance that all control issues and instances
of
fraud or deviations, if any, within the Company have been detected.
There
were no significant changes in our internal controls over financial reporting
that occurred subsequent to our evaluation of our internal control over
financial reporting for the quarter ended March 31, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART
II. OTHER INFORMATION
Item
6. Exhibits.
Number
|
Description
|
|
|
31.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
|
31.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant
to
Rules 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
|
32.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|
|
|
32.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant
to
Rules 13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
MEDASORB
TECHNOLOGIES CORPORATION
|
Date:
May 15, 2007
|
By:
/s/ David Lamadrid
|
|
|
Name:
David Lamadrid
Title:
Chief Financial Officer
|
|
(On
behalf of the registrant and as
principal
accounting officer)
|
EXHIBIT
INDEX
|
|
Number
|
Description
|
|
|
31.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
|
31.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant
to
Rules 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
|
32.1
|
Certification
of Al Kraus, Chief Executive Officer of the Registrant, pursuant
to Rules
13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|
|
|
32.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant
to
Rules 13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|