MEDASORB
TECHNOLOGIES CORPORATION
Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-138247
PROSPECTUS
SUPPLEMENT NO. 2
(To
Prospectus dated May 7, 2007)
This
is a
prospectus supplement to our prospectus dated May 7, 2007 relating to the
resale
from time to time by selling stockholders of up to 9,312,273 shares of our
Common Stock. On August 14, 2007, we filed with the Securities and Exchange
Commission a Quarterly Report on Form 10-QSB with respect to the period ended
June 30, 2007. The text of the Form 10-QSB is attached to and a part of this
prospectus supplement.
This
prospectus supplement should be read in conjunction with the prospectus,
and
this prospectus supplement is qualified by reference to the prospectus, except
to the extent that the information provided by this prospectus supplement
supersedes the information contained in the prospectus.
The
securities offered by the prospectus involve a high degree of risk. You should
carefully consider the “Risk Factors” referenced on page 5 of the prospectus in
determining whether to purchase the Common Stock.
The
date of this prospectus supplement is August 14,
2007.
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________
FORM
10-QSB
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended June
30, 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
August 14, 2007 there were 25,044,932 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 (June 30, 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
|
13
|
|
|
|
|
Item
3. Controls and Procedures
|
14
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
14
|
|
Item
6. Exhibits
|
14
|
PART
I — FINANCIAL
INFORMATION
Item
1. Financial Statements.
(a
development stage company)
CONSOLIDATED
BALANCE SHEETS
|
|
June
30,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,465,919
|
|
$
|
2,873,138
|
|
Prepaid
expenses and other current assets
|
|
|
69,376
|
|
|
24,880
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,535,295
|
|
|
2,898,018
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
233,064
|
|
|
303,560
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
251,129
|
|
|
243,471
|
|
|
|
|
|
|
|
|
|
Total
long-term assets
|
|
|
484,193
|
|
|
547,031
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,019,488
|
|
$
|
3,445,049
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
807,650
|
|
$
|
942,265
|
|
Accrued
expenses and other current liabilities
|
|
|
90,698
|
|
|
69,779
|
|
Accrued
interest
|
|
|
—
|
|
|
70,000
|
|
Dividends/penalties
payable
|
|
|
632,762
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,531,110
|
|
|
1,082,044
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity:
|
|
|
|
|
|
|
|
10%
Series A Preferred Stock, Par Value $0.001, 100,000,000 shares authorized
at June 30, 2007 and December 31, 2006,
7,427,452 and 7,403,585 shares issued and outstanding,
respectively
|
|
|
7,427
|
|
|
7,403
|
|
Common
Stock, Par Value $0.001, 100,000,000 and 100,000,000
Shares authorized at June 30, 2007 and December 31, 2006,
24,765,775 and 24,628,274 shares issued and outstanding, respectively
|
|
|
24,766
|
|
|
24,629
|
|
Additional
paid-in capital
|
|
|
70,418,849
|
|
|
69,757,556
|
|
Deficit
accumulated during the development stage
|
|
|
(69,962,664
|
)
|
|
(67,426,583
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
488,378
|
|
|
2,363,005
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
2,019,488
|
|
$
|
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
|
|
Six months ended June 30,
|
|
Three months ended June 30,
|
|
|
|
June 30, 2007
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
41,535,562
|
|
|
642,791
|
|
|
488,194
|
|
|
298,380
|
|
|
199,213
|
|
Legal,
financial and other consulting
|
|
|
6,520,617
|
|
|
261,104
|
|
|
603,003
|
|
|
131,578
|
|
|
218,465
|
|
General
and administrative
|
|
|
21,011,478
|
|
|
873,369
|
|
|
301,543
|
|
|
187,950
|
|
|
163,768
|
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
63,012,174
|
|
|
1,777,264
|
|
|
1,392,740
|
|
|
617,908
|
|
|
581,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain
on extinguishment of debt
|
|
|
(212,922
|
)
|
|
(6,314
|
)
|
|
—
|
|
|
(6,314
|
)
|
|
—
|
|
Interest
expense (income), net
|
|
|
5,595,410
|
|
|
(48,998
|
)
|
|
4,813,171
|
|
|
(18,149
|
)
|
|
4,609,088
|
|
Penalties
associated with non-registration of Series
A Preferred Stock
|
|
|
440,631
|
|
|
440,631
|
|
|
—
|
|
|
120,608
|
|
|
—
|
|
Net
loss
|
|
|
(68,813,630
|
)
|
|
(2,162,583
|
)
|
|
(6,205,911
|
)
|
|
(714,053
|
)
|
|
(5,190,534
|
)
|
Series
A Preferred Stock Dividend
|
|
|
956,903
|
|
|
181,367
|
|
|
—
|
|
|
48,373
|
|
|
—
|
|
Series
A Preferred Cash Dividend
|
|
|
192,131
|
|
|
192,131
|
|
|
—
|
|
|
140,038
|
|
|
—
|
|
Net
Loss available to common shareholders
|
|
$
|
(69,962,664
|
)
|
$
|
(2,536,081
|
)
|
$
|
(6,205,911
|
)
|
$
|
(902,464
|
)
|
$
|
(5,190,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
$
|
(0.10
|
)
|
$
|
(1.20
|
)
|
$
|
(0.04
|
)
|
$
|
(0.96
|
)
|
Weighted
average number of shares of common
stock outstanding
|
|
|
|
|
|
24,663,094
|
|
|
5,188,416
|
|
|
24,697,913
|
|
|
5,380,281
|
|
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 June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
During the
|
|
Total
|
|
|
|
Common Stock
|
|
Preferred Stock
|
|
Paid-In
|
|
Development
|
|
Stockholders'
|
|
|
|
Shares
|
|
Par
value
|
|
Shares
|
|
Par
Value
|
|
Capital
|
|
Stage
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
—
|
|
|
181,367
|
|
|
181
|
|
|
181,186
|
|
|
(181,367
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividend on 10% Series A Preferred Stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(192,131
|
)
|
|
(192,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange
for accounts payable
|
|
|
11,501
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
22,991
|
|
|
—
|
|
|
23,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock Into
Common Stock
|
|
|
126,000
|
|
|
126
|
|
|
(157,500
|
)
|
|
(157
|
)
|
|
31
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,162,583
|
)
|
|
(2,162,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2007 (Unaudited)
|
|
|
24,765,775
|
|
$
|
24,766
|
|
|
7,427,452
|
|
$
|
7,427
|
|
$
|
70,418,849
|
|
$
|
(69,962,664
|
)
|
$
|
488,378
|
|
See
accompanying notes to consolidated financial statements.
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Period from
|
|
|
|
|
|
|
|
January 22,1997
|
|
Six months
|
|
Six months
|
|
|
|
(date of inception) to
|
|
ended
|
|
Ended
|
|
|
|
June 30, 2007
|
|
June 30, 2007
|
|
June 30, 2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(68,813,630
|
)
|
$
|
(2,162,583
|
)
|
$
|
(6,205,911
|
)
|
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 common stock to consultant for services
|
|
|
30,000
|
|
|
—
|
|
|
—
|
|
Depreciation
and amortization
|
|
|
2,143,149
|
|
|
96,524
|
|
|
127,762
|
|
Amortization
of debt discount
|
|
|
1,000,000
|
|
|
—
|
|
|
1,000,000
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
—
|
|
|
—
|
|
Gain
on extinguishment of debt
|
|
|
(212,921
|
)
|
|
(6,313
|
)
|
|
—
|
|
Abandoned
patents
|
|
|
183,556
|
|
|
—
|
|
|
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
|
|
|
478,409
|
|
|
—
|
|
|
—
|
|
Expense
for issuance of options
|
|
|
848,062
|
|
|
457,085
|
|
|
46,919
|
|
Amortization
of deferred compensation
|
|
|
74,938
|
|
|
—
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(340,924
|
)
|
|
(44,496
|
)
|
|
(90,687
|
)
|
Other
assets
|
|
|
(53,893
|
)
|
|
—
|
|
|
—
|
|
Accounts
payable and accrued expenses
|
|
|
2,713,863
|
|
|
(84,381
|
)
|
|
419,749
|
|
Accrued
interest expense
|
|
|
1,823,103
|
|
|
(70,000
|
)
|
|
473,310
|
|
Dividends/penalty
payable
|
|
|
440,631
|
|
|
440,631
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(49,977,356
|
)
|
|
(1,373,533
|
)
|
|
(875,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(405,677
|
)
|
|
(12,258
|
)
|
|
(3,000
|
)
|
Loan
receivable
|
|
|
(1,632,168
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(4,225,876
|
)
|
|
(33,686
|
)
|
|
(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
|
|
|
—
|
|
|
4,629,437
|
|
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
|
|
|
—
|
|
|
5,029,927
|
|
See
accompanying notes to consolidated financial statements.
Net
increase in cash and cash equivalents
|
|
|
1,465,919
|
|
|
(1,407,219
|
)
|
|
4,151,377
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of period
|
|
|
—
|
|
|
2,873,138
|
|
|
707,256
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
$
|
1,465,919
|
|
$
|
1,465,919
|
|
$
|
4,858,633
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
581,780
|
|
$
|
70,000
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable principal and interest conversion to equity
|
|
$
|
10,201,714
|
|
$
|
—
|
|
$
|
8,030,149
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
1,609,446
|
|
$
|
23,002
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Dividends
|
|
$
|
1,061,089
|
|
$
|
285,553
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 10,000,000 shares of common stock in consideration for funding
$1,000,000 convertible note payable
|
|
$
|
1,000,000
|
|
$
|
—
|
|
$
|
1,000,000
|
|
See
accompanying notes to consolidated financial statements.
Notes
to Consolidated Financial Statements
(UNAUDITED)
June
30, 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 June 30,
2007 and the results of its operations and cash flows for the six and three
month periods ended June 30, 2007 and 2006, and for the period January 22,
1997
(date of inception) to June 30, 2007. Results for the six and three months
ended
are not necessarily indicative of results that may be expected for the entire
year. The unaudited condensed consolidated financial statements should be read
in conjunction with the audited financial statements of the Company and the
notes thereto as of and for the year ended December 31, 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 June 30, 2007 of $69,962,664. 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 multiple pending patents, covering materials, methods of
production, systems incorporating the technology and multiple medical
uses.
2. PRINCIPAL
BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Nature
of Business
The
Company, through its subsidiary, is engaged in the research, development and
commercialization of medical devices with its platform blood purification
technology incorporating a proprietary adsorbent polymer technology. The
Company is focused on developing this technology for multiple applications
in
the medical field, specifically to provide improved blood purification for
the
treatment of acute and chronic health complications associated with blood
toxicity. As of June 30, 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 (NOL)
generated prior to the June 30, 2006 reverse merger may be limited due to the
change in ownership. In addition, the Company was a limited liability company
through December 31, 2005. Consequently, all losses generated prior to December
31, 2005 are not available for utilization as an NOL for the
Company.
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.
Net
Loss Per Common Share
Basic
EPS
is computed by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during
the
period. The computation of Diluted EPS does not assume conversion, exercise
or
contingent exercise of securities that would have an anti-dilutive effect on
earnings.
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
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements or adjustments
to
our deferred tax assets and related valuation allowance. Our 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
June 30, 2007.
The
Company may from time to time be assessed interest or penalties by major tax
jurisdictions, although such assessments historically have been minimal and
immaterial to our financial results. In the event we have received an assessment
for interest and/or penalties, it has been classified in the financial
statements as general and administrative expense.
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
items 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. The Company
is
currently evaluating this pronouncement in connection with SFAS No.
157.
3. STOCKHOLDERS'
EQUITY
During
the six months ended June 30, 2007 the Company recorded a non-cash stock
dividend of $181,367 in connection with the issuance of 181,367 shares of Series
A Preferred Stock as a stock dividend payable as well as a cash dividend payable
of $192,131 to its preferred shareholders as of June 30, 2007. Effective
February 26, 2007 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 were required to be paid in cash, (ii) the dividend rate has
increased from 10% per annum to 20% per annum, and (iii) were entitled to
liquidating damages of 2% of their principal investment payable in cash per
30
day period until the registration statement was declared effective. In
connection with such cash dividend and penalty obligations, the Company’s
financial statements for the six month period ending June 30, 2007 reflects
an
aggregate charge of $440,631 for the incremental cash dividends and penalties
payable to the June 30, 2006 purchasers of the Series A Preferred Stock.
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. Pursuant to a settlement agreement signed
in August 2007, the dividend rate and the payment terms reverted back to the
original agreement and the 2% liquidating damage penalties ceased to accrue
as
of May 7, 2007. (See Note 6 “Subsequent Events”).
During
the six months ended June 30, 2007, 157,500 shares of Series A Preferred Stock
were converted into 126,000 shares of Common Stock at a rate of $1.25 as
stipulated in the preferred stock agreements. The conversions had no effect
on
the statement of operations for the six months ended June 30, 2007.
During
the six months ended June 30, 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.
During
the six months ended June 30, 2007, the Company issued 11,501 shares of common
stock to settle accounts payable in the amount of $23,002. The settlement had
no
effect on the statements of operations for the six months ended June 30,
2007.
The
summary of the stock option activity for the six months ended June 30, 2007
is
as follows:
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
|
|
Exercise
|
|
Remaining
|
|
|
|
Shares
|
|
per
Share
|
|
Life
(Years)
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 1, 2007
|
|
|
1,185,001
|
|
$
|
15.66
|
|
|
7.0
|
|
Granted
|
|
|
776,000
|
|
$
|
1.50
|
|
|
9.6
|
|
Cancelled
|
|
|
–
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
Outstanding
June 30, 2007
|
|
|
1,961,001
|
|
$
|
10.06
|
|
|
8.0
|
|
At
June
30, 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 six months
ended June 30, 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
|
|
|
664,668
|
|
$
|
.69
|
|
Exercised
|
|
|
|
|
|
|
|
Non-vested,
June 30, 2007
|
|
|
190,997
|
|
$
|
.87
|
|
As
of
June 30, 2007, approximately $167,500 of total unrecognized compensation cost
related to stock options is expected to be recognized over a weighted average
period of 5.5 years.
As
of
June 30, 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
|
|
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
June 30, 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 date 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
Pursuant
to an agreement dated August 11, 2003, an existing investor agreed to make
a $4
million equity investment in the Company. These amounts were received by the
Company in 2003. In connection with this agreement, the Company granted the
investor a future royalty of 3% on all gross revenues received by the Company
from the sale of its CytoSorb device. The Company has not generated any revenue
from this product and has not incurred any royalty costs through June 30, 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 June 30, 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 (EPS) for the six months
ended
June 30, 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 5,925,420, and
3,822,648 incremental shares at June 30, 2007 and 2006, respectively, as well
as
shares issuable upon conversion of Series A Preferred Stock and Preferred Stock
Warrants representing 6,571,962 and 4,830,000 incremental shares at June 30,
2007 and 2006 respectively, have been excluded from the computation of diluted
EPS as they are anti-dilutive.
6.
SUBSEQUENT EVENTS
In
July
2007, 348,946 shares of Series A Preferred Stock were converted into 279,157
shares of Common Stock.
In
August
2007, the Company executed a settlement agreement with the June 30, 2006
purchasers of the Series A Preferred Stock. These purchasers had been entitled
to receive cash dividends and penalties as a result of the Company’s failure to
have the registration statement it filed declared effective by the Commission
within the time required under agreements with those purchasers (see Note 3
“Stockholders’ Equity”). Pursuant to the settlement agreement, cash dividends
stopped accruing on the Series A Preferred Stock effective on the date the
Company’s registration statement was declared effective (May 7, 2007) and all
cash dividends and penalties due through that date are being paid with
additional shares of Series A Preferred Stock at its stated value of $1.00
per
share in lieu of cash. Additionally, as part of the settlement, the dividend
rate on the Series A Preferred Stock issued to these purchasers was reset to
10%
effective as of May 7, 2007.
In
August
2007, the Company received approval from the German Ethics Committee to proceed
with a clinical trial in Germany using the CytoSorbTM
device
in the adjunctive treatment of sepsis.
Item
2. Management’s Discussion and Analysis or Plan of
Operation.
These
unaudited condensed consolidated financial statements and management’s
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 Securities and
Exchange Commission (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; acceptance
of
the Company's medical devices in the marketplace; the outcome of pending and
potential litigation; obtaining government approvals, including required FDA
approvals; compliance with governmental regulations; reliance on research and
testing facilities of various universities and institutions; product liability
risks; limited manufacturing experience; limited marketing, sales and
distribution experience; market acceptance of the Company's products;
competition; unexpected changes in technologies and technological advances;
and
other factors detailed in the Company's Current Report on Form 10-KSB filed
with
the Commission 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 CytoSorb™ product
which we believe will provide a relatively faster regulatory pathway to market.
The first indication for CytoSorb™ will be in the adjunctive treatment of sepsis
(bacterial infection of the blood), which causes systemic inflammatory response
syndrome. CytoSorb™ 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 CytoSorb™ device.
Following
the sepsis indication, we intend to continue our research in other acute
conditions where CytoSorb™ 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 CytoSorb™ device may have in removing drugs from blood in situations such as
patient overdoses.
In
the
first quarter of 2007, the Company received approval from the FDA to conduct
a
limited study of five patients in the adjunctive treatment of sepsis. The
Company had also been pursuing approval to conduct clinical trials in Europe
with the ultimate goal being to attain a CE Mark for its CytoSorb™ device. In
August of 2007, the German Ethics Committee approved MedaSorb’s application to
proceed with a clinical trial enrolling up to 75 patients with acute respiratory
distress syndrome or acute lung injury in the setting of sepsis. The Company
estimates that the market potential in Europe for its products are substantially
equivalent to that in the U.S. Given the opportunity to conduct a much larger
clinical study in Europe, and the Company’s belief that the path to a CE Mark
should be faster than that of an FDA approval, MedaSorb intends to launch its
next clinical study in Germany. The Company will, however, continue to work
with
the FDA and keep the FDA informed of its progress with its European clinical
trial. The clinical protocol has been designed to support future U.S. studies
after the Company receives the CE Mark and successfully commercializes its
products in the European market. No assurance can be given that our proposed
CytoSorb™ product will work as intended or that we will be able to obtain CE
Mark (or FDA) approval to sell CytoSorb™. Even if we ultimately obtain CE Mark
approval, because we cannot control the timing of responses from regulators
to
our submissions, there can be no assurance as to when such approval will be
obtained.
Our
research and development costs were, $642,791 and $488,194 for the six months
ended June 30, 2007 and 2006, respectively, and
$298,380 and $199,213, for the three months ended June 30, 2007 and 2006
respectively. We have experienced substantial operating losses since inception.
As of June 30, 2007, we had an accumulated deficit of $69,962,664 which included
losses from operations of $714,053 and $2,162,583, respectively, for the three
and six month periods ended June 30, 2007. In comparison, we had losses from
operations of $5,190,534 and $6,205,911, respectively, for the three and six
month periods ended June 30, 2006. Historically, our losses have resulted
principally from costs incurred in the research and development of our polymer
technology, and general and administrative expenses, which together were
$486,330 and $1,516,160, respectively, for the three and six month periods
ended
June 30, 2007.
Our
net
loss available to common shareholders for the three and six months ended June
30, 2007 includes $260,646 and $632,762, respectively, 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 Commission by February 26, 2007. As a result, from
that date through May 7, 2007 (the date deemed effective by the SEC), (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 Commission on May 7, 2007.
In
August
2007, the Company executed a settlement agreement with the June 30, 2006
purchasers of the Series A Preferred Stock. These purchasers had been entitled
to receive cash dividends at a rate of 20% per annum and cash penalties as
described above. Pursuant to the settlement agreement, cash dividends stopped
accruing on the Series A Preferred Stock effective on the date the registration
statement was declared effective (May 7, 2007) and all cash dividends and
penalties due through that date are being paid with additional shares of Series
A Preferred Stock at its stated value of $1.00 per share in lieu of cash.
Additionally, as part of the settlement, the dividend rate on the Series A
Preferred Stock issued to these purchasers was reset to 10% effective as of
May
7, 2007.
Liquidity
and Capital Resources
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
June 30, 2007 we had cash on hand of $1,465,919, and current liabilities of
$1,531,110.
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 June 30, 2007 include $632,762 of dividends and
liquidated damages payable to the June 30, 2006 purchasers of our Series A
Preferred Stock as described above.
Item
3. Controls and Procedures.
An
evaluation was performed, under the supervision of, and with the participation
of, our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-(e)
to
the Securities and Exchange Act of 1934). Based on that evaluation, the
Company’s management, including our Chief Executive Officer and Chief Financial
Officer, concluded that the Company’s disclosure controls and procedures were
adequate and effective, as of June 30, 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 Commission’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 three months ended June 30, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART
II. OTHER INFORMATION
In
May
2007, three of the June 30, 2006 institutional purchasers of our Series A
Preferred Stock converted an aggregate of 157,500 shares of such stock into
126,000 shares of our Common Stock. The issuance of such shares of Common Stock
was exempt from registration pursuant to Sections 4(2) and 3(a)(9), and
Regulation D, under the Securities Act.
In
May
2007, we issued 11,501 shares of Common Stock to a creditor of ours in
satisfaction of a trade payable in the amount of $23,002. Such issuance was
exempt from registration pursuant to Sections 4(2) and Regulation D under the
Securities Act.
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
|