UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
(Amendment
No. 1)
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
MEDASORB
TECHNOLOGIES CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
(State
or Other Jurisdiction
of
Incorporation or
Organization)
|
3841
(Primary
Standard Industrial
Classification
Code Number)
|
98-0373793
(I.R.S.
Employer
Identification
Number)
|
7
Deer Park Drive, Suite K
Monmouth
Junction, New Jersey 08852
(732)
329-8885
(Address,
Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant’s Principal Executive Offices)
Phillip
Chan President and Chief Executive Officer
MedaSorb
Technologies Corporation
7
Deer Park Drive, Suite K
Monmouth
Junction, New Jersey 08852
(732)
329-8885
(Name,
Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Agent for Service)
Copies
to:
Eric
M Stein, Esq.
Anslow
Jaclin LLP
195
Route 9 South, Suite 204
Manalapan,
NJ 07726
Approximate
Date of Commencement of Proposed Sale to the Public: From time to time after
the effective date of this registration statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, please
check the following box. x
If this
form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ¨
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ¨
If this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
Non-accelerated
filer (Do not check if a smaller reporting company)
|
¨
|
Smaller
reporting company
|
x
|
CALCULATION
OF REGISTRATION FEE
Title of EachClass
Of Securities to be Registered
|
|
Amount To
Be Registered (1)
|
|
|
Proposed
Maximum
Offering Price Per
Share (2)
|
|
|
Proposed Maximum
Aggregate Offering
Price
|
|
|
Amount of
Registration
Fee
|
|
Common
Stock, $0.001 par value per share, issuable upon the conversion of Series
B 10% Cumulative Convertible Preferred
|
|
|
10,000,000 |
|
|
$ |
0.09 |
|
|
$ |
900,000 |
|
|
$ |
50.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,000,000 |
|
|
$ |
0.09 |
|
|
$ |
900,000 |
|
|
$ |
50.22 |
|
|
(1)
|
The
10,000,000 shares of Common Stock consist of the Common Stock issuable
upon the conversion of 3,620 shares of Series B 10% Cumulative Convertible
Preferred Stock. In accordance with Rule 416 under the Securities Act of
1933, the Registrant is also registering hereunder an indeterminate number
of shares that may be issued and resold resulting from stock splits, stock
dividends or similar transactions, but will not cover for resale an
indeterminate number of shares resulting from operation of the conversion
formula.
|
|
(2)
|
Estimated
solely for the purpose of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933. For purposes of this table,
we have used the average of the closing bid and asked prices of the
registrant’s Common Stock on June 9, 2009, 6 days prior to the initial
filing of this registration statement, as reported by the OTC Bulletin
Board.
|
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING
STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND THE SELLING STOCKHOLDERS ARE NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED JUNE ___, 2009
MEDASORB
TECHNOLOGIES CORPORATION
10,000,000 Shares of Common
Stock
This
prospectus relates to the sale of up to 10,000,000 shares of our Common Stock by
some of our stockholders. The shares offered by this prospectus
include:
|
·
|
10,000,000
shares issuable to the selling stockholders upon the conversion of 3,620
shares of our Series B 10% Cumulative Convertible Series B Preferred Stock
(“Series B
Preferred Stock”), and
|
For a
list of the selling stockholders, please see “Selling Stockholders.” We are not
selling any shares of Common Stock in this offering and therefore will not
receive any proceeds from this offering.
These
shares may be sold by the selling stockholders from time to time in the
over-the-counter market or other national securities exchange or automated
interdealer quotation system on which our Common Stock is then listed or quoted,
through negotiated transactions or otherwise at market prices prevailing at the
time of sale or at negotiated prices.
Our
Common Stock currently trades in the over-the-counter market and is quoted on
the OTC Bulletin Board under the symbol “MSBT.” On June 9, 2009, the last
reported sale price of our Common Stock was $0.09 per
share.
Investing
in our Common Stock involves a high degree of risks. Please refer to the “Risk
Factors” beginning on page 4.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is June__, 2009.
TABLE OF CONTENTS
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Page
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PROSPECTUS
SUMMARY
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|
Summary
of Our Business
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1
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The
Company
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3
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THE
OFFERING
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3
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RISK
FACTORS
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4
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Item
4. Use of Proceeds
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12
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Item
5. Determination of Offering Price
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12
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Item
6. Dilution
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12
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Item
7. Selling Security Holders
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12
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Item
8. Plan of Distribution
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21
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Item
9. Description of Securities To Be Registered
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22
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tem
10. Interests of Named Experts and
Counsel
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26
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DESCRIPTION
OF BUSINESS
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27
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Overview
of Our Business
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|
Commercial
and Research Partners
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|
Royalty
Agreements
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|
Product
Payment & Reimbursement
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|
Competition
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Clinical
Studies
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Government
Research Grants
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Regulation
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Sales
and Marketing
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Intellectual
Property and Patent Litigation
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|
Technology,
Products and Applications
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DESCRIPTION
OF EMPLOYEES AND PROPERTY
|
49
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DESCRIPTION
OF LEGAL PROCEEDINGS
|
49
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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50
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Financial
Statements
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52
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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53
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Development
Stage Corporation
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Patents
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Research
and Development
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Stock
Based-Compensation
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Plan
of Operations
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Liquidity
and Capital Resources
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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54
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DIRECTORS
AND EXECUTIVE OFFICERS
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54
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Audit
Committee Financial Expert
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EXECUTIVE
COMPENSATION
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56
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Director
Compensation
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Employment
Agreement with Named Officers
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|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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60
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PRINCIPAL
STOCKHOLDERS
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63
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EQUITY
COMPENSATION PLAN INFORMATION
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65
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WHERE
YOU CAN FIND MORE INFORMATION
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66
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INFORMATION
NOT REQUIRED IN PROSPECTUS
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66
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SIGNATURES
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67
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PROSPECTUS
SUMMARY
This
summary highlights selected information from this prospectus and may not contain
all of the information that is important to an investor. We encourage you to
read this entire prospectus, including our consolidated financial statements and
the notes to our consolidated financial statements completely and carefully
before deciding whether to invest in our Common Stock. You should also review
the other available information referred to in the section entitled “Where You
Can Find More Information” on page 62.
Summary
of Our Business
We are a
medical device company that is currently in the development stage, headquartered
in Monmouth Junction, New Jersey (near Princeton). We have developed and will
seek to commercialize a blood purification technology that we believe will be
able to efficiently remove middle molecular weight toxins from circulating blood
and physiologic fluids. We will be required to obtain required regulatory
approvals from a Notified Body for the European Community (CE Mark) and the
United States Food and Drug Administration before we can sell our products in
Europe and the United States, respectively. In December 2006, we submitted a
proposed pilot study for approval to the FDA with respect to CytoSorb™, the
first device we intend to bring to market. In the first quarter of 2007, we
received approval from the FDA to conduct a limited study of five patients in
the adjunctive treatment of sepsis. Based on management’s belief that proceeding
with the approved limited study would add at least one year to the approval
process for the United States, we made a determination to focus our efforts on
obtaining regulatory approval in Europe before proceeding with the
FDA.
We
estimate that the market potential in Europe for our products is substantially
equivalent to that in the U.S. Given the opportunity to conduct a much larger
clinical study in Europe, and management’s belief that the path to a CE Mark
should be faster than FDA approval, we have targeted Europe for the initial
market introduction of our CytoSorb™ product. To accomplish the European
introduction, in July 2007 we prepared and filed a request for a clinical trial
with a German Central Ethics Committee. We received approval of the final study
design in October of 2007. The clinical study allows for enrollment of up to
100 patients with acute respiratory distress syndrome or acute lung injury
in the setting of sepsis. To date, we have made arrangements with ten (10)
hospital units in Germany to conduct the clinical study, and those hospitals are
now open for patient enrollment. To date we have enrolled twenty
seven (27) patients in the clinical study, which have been randomized yielding
thirteen (13) treated and fourteen (14) control (non-treated)
patients.
The
clinical protocol for our European clinical study has been designed to allow us
to gather information to support future U.S. studies. In the event we receive
the CE Mark and are able to successfully commercialize our products in the
European market, we will review our plans for the United States to determine
whether to conduct clinical trials in support of 510K or PMA registration. 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.
We have
developed two products, CytoSorb™ and BetaSorb™ utilizing our adsorbent polymer
technology. These products are known medically as hemoperfusion devices. During
hemoperfusion, blood is removed from the body via a catheter or other blood
access device, perfused through a filter medium where toxic compounds are
removed, and returned to the body.
The CytoSorb™ device consists of a
cartridge containing the adsorbent polymer beads. The cartridge incorporates
industry standard connectors at either end of the device which connect directly
to an extra-corporeal circuit (bloodlines) on a stand alone basis. The
extra-corporeal circuit consists of plastic tubing through which the blood
flows, our CytoSorb™ cartridge containing adsorbent polymer beads, pressure
monitoring gauges, and a blood pump to maintain blood flow. The patient’s blood
is accessed through a catheter inserted into his or her veins. The catheter is
connected to the extra-corporeal circuit and the blood pump draws blood from the
patient, pumps it through the cartridge and returns it back to the patient in a
closed loop system. As blood passes over the polymer beads in the cartridge,
toxins (cytokines) are adsorbed from the blood.
To date,
we have manufactured the CytoSorb™ device on a limited basis for testing
purposes, including for use in clinical studies. We believe that current state
of the art blood purification technology (such as dialysis) is incapable of
effectively clearing the various toxic compounds intended to be adsorbed by our
devices.
Our
CytoSorb™ is intended to remove toxins and other substances from blood and
physiologic fluids. We are currently enrolling patients in a European
Sepsis trial of our CytoSorb™ device. The study is a randomized,
controlled clinical study in twelve sites in Germany of up to 100 patients with
acute respiratory distress syndrome or acute lung injury in the setting of
sepsis. Patients are being treated with our device once per day for
up to seven (7) consecutive days. To date we have enrolled twenty
seven (27) patients in the study. The study protocol was designed to support a
request for the European CE Mark (regulatory approval to sell medical devices in
Europe).
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 and other toxic compounds in the
bloodstream. These conditions include, but are not limited to, the prevention of
post-operative complications of cardiac surgery (cardiopulmonary bypass
surgery), damage to organs donated for transplant prior to organ harvest, and
removing drugs from blood.
Previous
studies using our BetaSorb™ device in patients with chronic kidney failure have
provided valuable data which we will use in conducting clinical studies using
our CytoSorb™ device. However, limited studies have been conducted using our
CytoSorb™ device to date and no assurance can be given that our proposed
CytoSorb™ product will work as intended or that we will be able to obtain the
necessary regulatory body approvals to sell CytoSorb™. Even if we ultimately
obtain regulatory approval, because we can not control the timing of responses
to our regulatory submissions, there can be no assurance as to when such
approval will be obtained.
Our
BetaSorb™ device is intended to remove beta2-microglobulin
from the blood of patients suffering from chronic kidney failure who rely on
long term dialysis therapy to sustain their life. BetaSorb™ utilizes an
adsorbent polymer packed into an identically shaped and constructed cartridge as
utilized for our CytoSorb™ product, although the polymers used in the two
devices are physically different. The BetaSorb™ device also incorporates
industry standard connectors at either end of the device which connect directly
into the extra-corporeal circuit (bloodlines) in series with a dialyzer. To
date, we have manufactured the BetaSorb™ device on a limited basis for testing
purposes, including for use in clinical studies.
We had
initially identified end stage renal disease (ESRD) as the target market for our
polymer-based adsorbent technology. However, during the development of
BetaSorb™, we identified several applications for our adsorbent technology in
the treatment of critical care patients. As a result, we shifted our priorities
to pursue critical care applications (such as for the treatment of sepsis) for
our technology given that BetaSorb’s™ potential for usage in chronic conditions
such as end stage renal disease is anticipated to have a longer and more complex
regulatory pathway. We currently intend to pursue our BetaSorb™ product after
the commercialization of the CytoSorb™ product. At such time as we determine to
proceed with our proposed BetaSorb™ product, if ever, we will need to conduct
additional clinical studies using the BetaSorb™ device and obtain separate
regulatory approval in Europe and/or the United States.
To date,
we have conducted clinical studies using our BetaSorb™ device in patients with
chronic kidney failure, which have provided valuable data which underpin the
development of the critical care applications for our technology. The BetaSorb™
device has been used in a total of three human pilot studies, involving 20
patients, in the U.S. and Europe. The studies included approximately 345
treatments, with some patients using the device for up to 24 weeks (in multiple
treatment sessions lasting up to four hours, three times per week) in connection
with the application of our products to patients suffering from chronic kidney
failure. The BetaSorb™ device design was also tested on a single patient with
bacterial sepsis, producing results that our management has found encouraging
and consistent with our belief that our device design is appropriate for more
extensive sepsis study. In addition, CytoSorb’s™ ability to interact safely with
blood (hemocompatibility) has been demonstrated through ISO 10993 testing. These
studies we have done to date were not done in conjunction with obtaining FDA
approval for the use of our CytoSorb™ device, the first device we intend to
bring to market.
We have
not generated any revenue to date. We have incurred losses in each of our fiscal
years and expect these losses to continue for the foreseeable future. We will
need to raise significant additional funds to conduct clinical studies and
obtain regulatory approvals to commercialize our products. No assurance can be
given that we will ever successfully commercialize any
products.
The
Company
MedaSorb
Technologies Corporation was incorporated in Nevada on April 25, 2002 as Gilder
Enterprises, Inc. and was originally engaged in the business of installing and
operating computer networks that provided high-speed access to the Internet. On
June 30, 2006, we disposed of our original business, and pursuant to an
Agreement and Plan of Merger, acquired all of the stock of MedaSorb
Technologies, Inc., a Delaware corporation in a merger, and its business became
our business. Following the merger, in July 2006 we changed our name to MedaSorb
Technologies Corporation. In November 2008 we changed the name of our
operating subsidiary from MedaSorb Technologies, Inc. to CytoSorbents,
Inc. Unless otherwise indicated, all references in this Annual Report
to “MedaSorb,”, “CytoSorbents”, “us” or “we” with respect to events prior to
June 30, 2006 are references to CytoSorbents, Inc. and its
predecessors.
Our
executive offices are located at 7 Deer Park Drive, Suite K, Monmouth Junction,
New Jersey 08852. Our telephone number is (732) 329-8885.
THE
OFFERING
Securities
Offered by Selling Stockholders
|
|
10,000,000
shares of Common Stock issuable upon conversion of 3,620 shares of Series
B Preferred Stock
|
|
|
|
Offering
Price
|
|
Determined
at the time of sale by the selling stockholders.
|
|
|
|
Shares
of Common Stock outstanding before the offering
|
|
As
of June 9, 2009, we have 39,112,969 shares of Common Stock
outstanding.
|
Shares
of Common Stock outstanding immediately after the
offering
|
|
As
of June 9, 2009, we will have 49,112,969 shares of Common Stock
outstanding, assuming the selling stockholders convert the 3,620 shares of
Series B preferred shares being registered in this registration statement,
and no conversion of other outstanding preferred stock nor exercise of the
other outstanding warrants and options.
|
|
|
|
The
Percentage of Outstanding Stock that this Offering Represents Compared to
the Total Shares Outstanding
|
|
20.4%,
assuming the selling stockholders convert 3,620 shares of Series B
Preferred Stock, and no conversion of other outstanding preferred stock
nor exercise of the other outstanding warrants and
options.
|
|
|
|
Use
of Proceeds
|
|
We
will not receive any proceeds from the sale of the shares of Common Stock
by the selling stockholders. We intend to use the proceeds from the
exercise of outstanding warrants covered by this prospectus, if any, for
general corporate purposes.
|
|
|
|
Risk
Factors
|
|
An
investment in MedaSorb involves significant risks and uncertainties. See
“Risk Factors,” beginning on page
4.
|
RISK
FACTORS
An
investment in our Common Stock involves a high degree of risk. You should
carefully consider the risks described below before deciding to purchase shares
of our Common Stock. If any of the events, contingencies, circumstances or
conditions described in the risks below actually occur, our business, financial
condition or results of operations could be seriously harmed. The trading price
of our Common Stock could, in turn, decline and you could lose all or part of
your investment.
RISKS
RELATED TO OUR INDUSTRY AND OUR BUSINESS
We currently have no commercial
operations and there can be no assurance that we will be successful in
developing commercial operations.
We are a
development stage company and have been engaged primarily in research and
development activities and have not generated any revenues to date. There can be
no assurance that we will be able to successfully manage the transition to a
commercial enterprise. Potential investors should be aware of the problems,
delays, expenses and difficulties frequently encountered by an enterprise in the
early stage of development, which include unanticipated problems relating to
development of proposed products, testing, regulatory compliance, manufacturing,
competition, marketing problems and additional costs and expenses that may
exceed current estimates. Our proposed products will require significant
additional research and testing, and we will need to overcome significant
regulatory burdens prior to commercialization. Even though we have raised
$5,293,147 in a Series B Preferred Stock financing closed through August 2008,
which includes $178,147 in promissory notes and accrued interest converted in
the offering, there can be no assurance that after the expenditure of
substantial funds and efforts, we will successfully develop and commercialize
any products, generate any revenues or ever achieve and maintain a substantial
level of sales of our products. The Company will require additional funds in the
short term.
We have a history
of losses and expect to incur substantial future losses, and the report of our
auditor on our consolidated financial statements expresses substantial doubt
about our ability to continue as a going concern.
We have
experienced substantial operating losses since inception. As of December 31,
2008, we had an accumulated deficit of $75,461,481 which included net losses of
$3,017,890 and $3,350,754 for the years ended December 31, 2008 and December 31,
2007. Due to these losses, our audited consolidated financial statements have
been prepared assuming we will continue as a going concern, and the auditors’
report on our December 31, 2008 financial statements express substantial doubt
about our ability to continue as a going concern. Our losses have resulted
principally from costs incurred in the research and development of our polymer
technology and general and administrative expenses. Because our predecessor was
a limited liability company until December 2005, substantially all of these
losses were allocated to that company’s members and will not be available for
tax purposes to us in future periods. We intend to conduct significant
additional research, development, and clinical study activities which, together
with expenses incurred for the establishment of manufacturing arrangements and
marketing and distribution presence and other general and administrative
expenses, are expected to result in continuing operating losses for the
foreseeable future. The amount of future losses and when, if ever, we will
achieve profitability are uncertain.
Our
ability to achieve profitability will depend, among other things, on
successfully completing the development of our technology and commercial
products, obtaining the requisite regulatory approvals, establishing
manufacturing and sales and marketing arrangements with third parties, and
raising sufficient funds to finance our activities. No assurance can be given
that our product development efforts will be successful, that required
regulatory approvals will be obtained, that any of our products will be
manufactured at a competitive cost and will be of acceptable quality, or that
the we will be able to achieve profitability or that profitability, if achieved,
can be sustained.
We
depend upon key personnel who may terminate their employment with us at any
time.
We
currently have only seven employees. Our success will depend to a significant
degree upon the continued services of our key management and advisors,
including, Dr. Phillip Chan, our Chief Executive Officer; David Lamadrid, our
Chief Financial Officer; Vincent Capponi, our Chief Operating Officer; and Dr.
Robert Bartlett, our Chief Medical Officer, who works with us on a consulting
basis.
Effective
January 1, 2009, Dr. Phillip Chan, David Lamadrid and Vincent Capponi entered
into new Employment Agreements with us pursuant to which their employment will
terminate on December 31, 2009 without automatic renewal. There can be no
assurance that they will continue to provide services to us. Effective as of
December 31, 2008, Al Kraus stepped down from his position as president and
Chief Executive Officer. Effective January 1, 2009, Dr. Phillip Chan replaced
him as the Interim CEO. Mr. Kraus remains with us as a Director, serving as
Chairman of the Board.
In
addition, our success will depend on our ability to attract and retain other
highly skilled personnel. We may be unable to recruit such personnel on a timely
basis, if at all. Management and other employees may voluntarily terminate their
employment with us at any time. The loss of services of key personnel, or the
inability to attract and retain additional qualified personnel, could result in
delays in development or approval of our products, loss of sales and diversion
of management resources.
Acceptance
of our medical devices in the marketplace is uncertain, and failure to achieve
market acceptance will prevent or delay our ability to generate
revenues.
Our
future financial performance will depend, at least in part, upon the
introduction and customer acceptance of our polymer products. Even if approved
for marketing by the necessary regulatory authorities, our products may not
achieve market acceptance. The degree of market acceptance will depend upon a
number of factors, including:
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·
|
the
receipt of regulatory clearance of marketing claims for the uses that we
are developing;
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|
·
|
the
establishment and demonstration of the advantages, safety and efficacy of
the our polymer technology;
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|
·
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pricing
and reimbursement policies of government and third-party payers such as
insurance companies, health maintenance organizations and other health
plan administrators;
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|
·
|
our
ability to attract corporate partners, including medical device companies,
to assist in commercializing our products;
and
|
|
·
|
our
ability to market our products.
|
Physicians,
patients, payers or the medical community in general may be unwilling to accept,
utilize or recommend any of our products. If we are unable to obtain regulatory
approval or commercialize and market our products when planned, we may not
achieve any market acceptance or generate revenue.
We
may face litigation from third parties claiming that our products infringe on
their patent, trademark or other intellectual property rights, or seek to
challenge the validity of our patents.
Our
future success is also dependent on the strength of our intellectual property,
trade secrets and know-how, which have been developed from years of research and
development. In addition to the two litigations discussed below which we have
settled, we may be exposed to additional future litigation by third parties
seeking to challenge the validity of our rights based on claims that our
technologies, products or activities infringe the intellectual property rights
of others or are invalid, or that we have misappropriated the trade secrets of
others.
“Alkermes”
Litigation
In
February 2008, Alkermes, Inc. commenced an action against us in the U.S.
District Court for the District of Massachusetts, alleging that our use of the
name MedaSorb infringes on Alkermes’ registered trademark “MEDISORB.” In the
action, Alkermes sought an injunction against our further use of the name
Medasorb. Pursuant to a Settlement Agreement dated June 18, 2008, we will
continue to use the name MedaSorb Technologies Corporation for the near term,
but its wholly-owned subsidiary, through which we conduct all of its operational
activities, has ceased using the “MedaSorb” name to avoid any potential
confusion with Alkermes’ similarly named product. The subsidiary has been
renamed CytoSorbents, Inc.
“Purolite”
Litigation
Since our
inception, we have sought to contract with large, established manufacturers to
supply commercial quantities of our adsorbent polymers. As a result, we have
disclosed, under confidentiality agreements, various aspects of our technology
with potential manufacturers. We believe that these disclosures, while necessary
for our business, have resulted in the attempt by potential suppliers to assert
ownership claims to our technology in an attempt to gain an advantage in
negotiating manufacturing rights.
We have
previously engaged in discussions with the Brotech Corporation and its
affiliate, Purolite International, Inc. (collectively “Purolite”), which had
demonstrated a strong interest in being our polymer manufacturer. For a period
of time beginning in December 1998, Purolite engaged in efforts to develop and
optimize the manufacturing process needed to produce our polymer products on a
commercial scale. However, the parties eventually decided not to proceed. In
2003, Purolite filed a lawsuit against us asserting, among other things,
co-ownership and co-inventorship of certain of our patents. On September 1,
2006, the United States District Court for the Eastern District of Pennsylvania
approved a Stipulated Order and Settlement Agreement under which we and Purolite
agreed to the settlement of the action. The Settlement Agreement provides us
with the exclusive right to use our patented technology and proprietary know how
relating to adsorbent polymers for a period of 18 years. Under the terms of the
Settlement Agreement, we have agreed to pay Purolite royalties of 2.5% to 5% on
the sale of certain of our products if and when those products are sold
commercially.
Several
years ago we engaged in discussions with the Dow Chemical Company, which had
indicated a strong interest in being our polymer manufacturer. After a Dow
representative on our Advisory Board resigned, Dow filed and received several
patents naming our former Advisory Board member as an inventor. In management’s
view the Dow patents improperly incorporate our technology and should not have
been granted to Dow. The existence of these Dow patents could result in a
potential dispute with Dow in the future and additional expenses for
us.
We
have temporarily ceased the application process with the FDA and commenced the
process to obtain CE Mark approval of our products in the European
market.
The FDA
has only approved us to conduct a limited study of five (5) patients in the
adjunctive treatment of sepsis. Because we believe this will delay our
application process in the United States for at least one year, we have decided
to temporarily cease proceeding with the FDA and have commenced the application
process of seeking CE Mark approval of our products in the Europe market. The CE
Mark approval process in Europe will involve pilot and pivotal clinical studies
and is still lengthy and costly, even if we believe it is faster than the FDA
approval process. The failure to obtain the CE Mark approvals for our polymer
products, or to comply with ongoing governmental regulations could prevent,
delay or limit introduction or sale of our products and result in the failure to
achieve revenues or maintain our operations.
After we
obtain the CE Mark approval for our products in Europe, we will consider
resuming the application process with the FDA. Even if the clinical protocol for
our European clinical study has been designed to allow us to gather information
to support future studies, there is no assurance that we will eventually obtain
the FDA approval. In addition, there can be no assurance that government
regulations applicable to our products or the interpretation of those
regulations will not change.
To
commercialize our products in the U.S. Market, we also will be subject to other
Federal, state, and local laws, regulations and recommendations relating to
laboratory and manufacturing practices as well as Medicare, Medicaid and
anti-kickback laws. Non-compliance with applicable requirements can result in
civil penalties, the recall, injunction or seizure of products, an inability to
import products into the United States, the refusal by the government to approve
or clear product approval applications, the withdrawal of previously approved
product applications and criminal prosecution. The extent of potentially adverse
government regulation that might arise from future legislation or administrative
action cannot be predicted.
We
have conducted limited clinical studies of our BetaSorb™ device and have
commenced our first clinical study of our CytoSorb™ device. Clinical and
pre-clinical data is susceptible to varying interpretations, which could delay,
limit or prevent regulatory clearances.
To date,
we have conducted limited clinical studies on our products. There can be no
assurance that we will successfully complete the clinical studies necessary to
receive regulatory approvals. While studies conducted by us and others have
produced results we believe to be encouraging and indicative of the potential
efficacy of our products and technology, data already obtained, or in the future
obtained, from pre-clinical studies and clinical studies do not necessarily
predict the results that will be obtained from later pre-clinical studies and
clinical studies. Moreover, pre-clinical and clinical data are susceptible to
varying interpretations, which could delay, limit or prevent regulatory
approval. A number of companies in the medical device and pharmaceutical
industries have suffered significant setbacks in advanced clinical studies, even
after promising results in earlier studies. The failure to adequately
demonstrate the safety and effectiveness of an intended product under
development could delay or prevent regulatory clearance of the device, resulting
in delays to commercialization, and could materially harm our
business.
We
rely extensively on research and testing facilities at various universities and
institutions, which could adversely affect us should we lose access to those
facilities.
Although
we have our own research laboratories and clinical facilities, we collaborate
with numerous institutions, universities and commercial entities to conduct
research and studies of our products. We currently maintain a good working
relationship with these parties. However, should the situation change, the cost
and time to establish or locate alternative research and development could be
substantial and delay the CE Mark approval and commercializing our products in
the European market.
We are and will be exposed to
product liability risks, and clinical and preclinical liability risks, which
could place a substantial financial burden upon us should we be
sued.
Our
business exposes us to potential product liability and other liability risks
that are inherent in the testing, manufacturing and marketing of medical
devices. We cannot be sure that claims will not be asserted against us. A
successful liability claim or series of claims brought against us could have a
material adverse effect on our business, financial condition and results of
operations.
Our
current clinical trial liability insurance expired in April of 2009. Claims or
losses in excess of any product liability insurance coverage that we may obtain
could have a material adverse effect on our business, financial condition and
results of operations. We have received a renewal Certificate of
Insurance under substantially the same terms and conditions as the expiring
policy. The renewal expires on April 30, 2010 and covers our clinical
trial for up to 100 patients.
Certain
university and other relationships are important to our business and may
potentially result in conflicts of interests.
Clinical
experts such as Dr. John Kellum, among others, are critical care advisors and
consultants of ours and are associated with University of Pittsburgh Medical
Center. Reliance on outside experts with their respective institutional
associations may currently or in the future involve conflicting interests in the
event they or these institutions enter into consulting or other arrangements
with competitors of ours.
We
have limited manufacturing experience, and once our products are approved, we
may not be able to manufacture sufficient quantities at an acceptable cost, or
without shut-downs or delays.
We remain
in the research and development and clinical and pre-clinical study phase of
product commercialization. Accordingly, once our products are approved for
commercial sale, we will need to establish the capability to commercially
manufacture our products in accordance with FDA and other regulatory
requirements. We have limited experience in establishing, supervising and
conducting commercial manufacturing. If we or the third-party manufacturers of
our products fail to adequately establish, supervise and conduct all aspects of
the manufacturing processes, we may not be able to commercialize our
products.
Due
to our limited marketing, sales and distribution experience, we may be
unsuccessful in our efforts to sell our products.
We expect
to enter into agreements with third parties for the commercial manufacture and
distribution of our products. There can be no assurance that parties we may
engage to market and distribute our products will:
|
·
|
satisfy
their financial or contractual obligations to us;
|
|
·
|
adequately
market our products; or
|
|
·
|
not
offer, design, manufacture or promote competing
products.
|
If for
any reason any party we engage is unable or chooses not to perform its
obligations under our marketing and distribution agreement, we would experience
delays in product sales and incur increased costs, which would harm our business
and financial results.
If
we are unable to convince physicians and other health care providers as to the
benefits of our products, we may incur delays or additional expense in our
attempt to establish market acceptance.
Broad use
of our products may require physicians and other health care providers to be
informed about our products and their intended benefits. The time and cost of
such an educational process may be substantial. Inability to successfully carry
out this education process may adversely affect market acceptance of our
products. We may be unable to educate physicians regarding our products in
sufficient numbers or in a timely manner to achieve our marketing plans or to
achieve product acceptance. Any delay in physician education may materially
delay or reduce demand for our products. In addition, we may expend significant
funds towards physician education before any acceptance or demand for our
products is created, if at all.
The
market for our products is rapidly changing and competitive, and new devices and
drugs which may be developed by others could impair our ability to maintain and
grow our business and remain competitive.
The
medical device and pharmaceutical industries are subject to rapid and
substantial technological change. Developments by others may render our
technologies and products noncompetitive or obsolete. We also may be unable to
keep pace with technological developments and other market factors.
Technological competition from medical device, pharmaceutical and biotechnology
companies, universities, governmental entities and others diversifying into the
field is intense and is expected to increase. Many of these entities have
significantly greater research and development capabilities and budgets than we
do, as well as substantially more marketing, manufacturing, financial and
managerial resources. These entities represent significant competition for
us.
If
users of our products are unable to obtain adequate reimbursement from
third-party payers, or if new restrictive legislation is adopted, market
acceptance of our products may be limited and we may not achieve anticipated
revenues.
The
continuing efforts of government and insurance companies, health maintenance
organizations and other payers of healthcare costs to contain or reduce costs of
health care may affect our future revenues and profitability, and the future
revenues and profitability of our potential customers, suppliers and
collaborative partners and the availability of capital. For example, in certain
foreign markets, pricing or profitability of medical devices is subject to
government control. In the United States, given recent federal and state
government initiatives directed at lowering the total cost of health care, the
U.S. Congress and state legislatures will likely continue to focus on health
care reform, the cost of medical devices and on the reform of the Medicare and
Medicaid systems. While we cannot predict whether any such legislative or
regulatory proposals will be adopted, the announcement or adoption of these
proposals could materially harm our business, financial condition and results of
operations.
Our
ability to commercialize our products will depend in part on the extent to which
appropriate reimbursement levels for the cost of our products and related
treatment are obtained by governmental authorities, private health insurers and
other organizations, such as health maintenance organizations (“HMOs”). Third-party
payers are increasingly challenging the prices charged for medical care. Also,
the trend toward managed health care in the United States and the concurrent
growth of organizations such as HMOs, which could control or significantly
influence the purchase of health care services and medical devices, as well as
legislative proposals to reform health care or reduce government insurance
programs, may all result in lower prices for our products. The cost containment
measures that health care payers and providers are instituting and the effect of
any health care reform could materially harm our ability to operate
profitably.
INVESTMENT
RISKS
Directors,
executive officers and principal stockholders own a significant percentage of
the shares of Common Stock, which will limit your ability to influence corporate
matters.
Our
directors, executive officers and principal stockholders together beneficially
own a majority of our outstanding shares of Common Stock. Accordingly, these
stockholders could have a significant influence over the outcome of any
corporate transaction or other matter submitted to stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of
our assets and also could prevent or cause a change in control. The interests of
these stockholders may differ from the interests of our other stockholders.
Third parties may be discouraged from making a tender offer or bid to acquire us
because of this concentration of ownership.
Holders
of the Series B Preferred Stock have priority in the event of our dissolution,
liquidation or winding up.
In the
event of our dissolution, liquidation or winding up, the holders of the Series B
Preferred Stock will receive, in priority over the holders of the Series A
Preferred Stock and Common Stock, a liquidation preference. Therefore, it is
possible that holders of Series A Preferred Stock and Common Stock will not
obtain any proceeds upon our dissolution, liquidation or winding
up.
Penny Stock Regulations May Affect
Your Ability To Sell Our Common Stock.
To the
extent the price of our Common Stock remains below $5.00 per share, our Common
Stock will be subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker dealers which sell these
securities to persons other than established customers and accredited investors.
Under these rules, broker-dealers who recommend penny stocks to persons other
than established customers and "accredited investors" must make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the associated risks. The additional burdens imposed upon
broker-dealers by these requirements could discourage broker-dealers from
effecting transactions in our Common Stock and may make it more difficult for
holders of our Common Stock to sell shares to third parties or to otherwise
dispose of them.
Future
Sales of Common Stock Could Result in a Decline in Market Price.
This
registration statement covers the resale of 10,000,000 shares of Common Stock
underlying 3,620 shares of the Series B Preferred Stock issued in the Series B
Preferred Stock financing completed August, 2008 or issuable in connection
therewith and Warrants issued to a Note holder that converted into the offering.
After the registration statement is declared effective, resale restriction over
these 10,000,000 shares of Common Stock will be lifted. Sales of a significant
number of shares of Common Stock in the public market could result in a decline
in the market price of our Common Stock.
Our
Charter Documents and Nevada Law May Inhibit A Takeover That Stockholders May
Consider Favorable.
Provisions
in our articles of incorporation and bylaws, and Nevada law, could delay or
prevent a change of control or change in management that would provide
stockholders with a premium to the market price of their Common Stock. The
authorization of undesignated preferred stock, for example, gives our board the
ability to issue preferred stock with voting or other rights or preferences that
could impede the success of any attempt to effect a change in control of us, or
otherwise adversely affect holders of Common Stock in relation to holders of
preferred stock.
Compliance
with changing corporate governance and public disclosure regulations may result
in additional expense.
Keeping
abreast of, and in compliance with, changing laws, regulations and standards
relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations will require an increased amount
of management attention and external resources. We intend to continue to invest
all reasonably necessary resources to comply with evolving standards, which may
result in increased general and administrative expense and a diversion of
management time and attention from revenue-generating activities to compliance
activities.
Our
Common Stock is thinly traded on the OTC Bulletin Board, and we may be unable to
obtain listing of our common stock on a more liquid market.
Our
Common Stock is quoted on the OTC Bulletin Board, which provides significantly
less liquidity than a securities exchange (such as the American or New York
Stock Exchange) or an automated quotation system (such as the Nasdaq Stock
Market). There is uncertainty that we will ever be accepted for a listing on an
automated quotation system or securities exchange.
CAUTIONARY
STATEMENT CONCERNING
FORWARD-LOOKING
STATEMENTS
This
document contains “forward-looking statements”. These statements are subject to
risks and uncertainties and are based on the beliefs and assumptions of
management and information currently available to management. The use of words
such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,”
“should,” “likely” or similar expressions, indicates a forward-looking
statement. Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. Future results may differ
materially from those expressed in the forward-looking statements. Many of the
factors that will determine these results are beyond the ability of MedaSorb to
control or predict. Stockholders are cautioned not to put undue reliance on any
forward-looking statements, which speak only to the date made. For a discussion
of some of the factors that may cause actual results to differ materially from
those suggested by the forward-looking statements, please read carefully the
information under “Risk Factors” beginning on page 4.
The
identification in this document of factors that may affect future performance
and the accuracy of forward-looking statements is meant to be illustrative and
by no means exhaustive. All forward-looking statements should be evaluated with
the understanding of their inherent uncertainty. You may rely only on the
information contained in this prospectus. We have not authorized anyone to
provide information different from that contained in this prospectus. Neither
the delivery of this prospectus nor the sale of Common Stock means that
information contained in this prospectus is correct after the date of this
prospectus. This prospectus is not an offer to sell or solicitation of an offer
to buy these securities in any circumstances under which the offer or
solicitation is unlawful.
Item
4. Use of Proceeds
The
selling stockholders are selling shares of common stock covered by this
prospectus for their own account. We will not receive any of the proceeds from
the resale of these shares. We have agreed to bear the expenses relating to the
registration of the shares for the selling security holders.
Item
5. Determination of Offering Price
Our
Common Stock currently trades in the over-the-counter market and is quoted on
the OTC Bulletin Board under the symbol “MSBT.” The proposed offering price is
$0.09 which is the closing bid price of our Common Stock as of June 9, 2009 as
reported by the OTC Bulletin Board.
Item
6. Dilution
The
information in this section is not required because there is not substantial
disparity between the public offering price and the effective cash cost to
officers, directors, promoters and affiliated persons of common equity acquired
by them in transactions during the past five years and we were subject to the
reporting requirements of section 13(a) and 15(d) of the Exchange Act
immediately prior to filing the registration statement.
Item
7. Selling Security Holders
The
shares being offered for resale by the selling stockholders consist of the
10,000,000 shares of our Common Stock issuable upon the conversion of 3,620
shares of the Series B Preferred issued in our the private
placement.
Below is
a list of the selling stockholders who have the right to acquire the 10,000,000
shares of Common Stock covered by this prospectus upon the conversion of Series
B Preferred. Other than as set forth below, none of these selling stockholders
hold or within the past three years have held, a position, office or other
material relationship with us or our predecessors or affiliates.
The
shares being offered hereby are being registered to permit public secondary
trading, and the selling stockholders may offer all or part of the shares for
resale from time to time. However, the selling stockholders are under no
obligation to sell all or any portion of such shares nor are the selling
stockholders obligated to sell any shares immediately upon effectiveness of this
prospectus. All information with respect to share ownership has been furnished
by the selling stockholders.
|
|
Before Offering
|
|
|
|
|
|
After Offering(3)
|
|
Name of Selling Stockholder
|
|
Number of
Shares
Owned(1)
|
|
|
Percentage
Owned(2)
|
|
|
Number of
Shares
Offered
|
|
|
Number of
Shares
Owned(1)
|
|
|
Percentage
Owned(2)
|
|
NJTC
Venture Fund SBIC, L.P. (24)
|
|
|
80,297,569 |
(4)
|
|
|
4.99 |
% |
|
|
3,778,471 |
(4)
|
|
|
76,519,098 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margie
Chassman
|
|
|
58,237,575 |
(5)
|
|
|
12.26
|
% |
|
|
1,791,271 |
(5)
|
|
|
56,446,304 |
|
|
|
11.72
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adelson
Partners, LLC (25)
|
|
|
19,117,597 |
(6)
|
|
|
4.99 |
% |
|
|
944,618 |
(6)
|
|
|
18,172,979 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cahn
Medical Technologies, LLC (26)
|
|
|
19,117,597 |
(7)
|
|
|
4.99 |
% |
|
|
944,618 |
(7)
|
|
|
18,172,979 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Shipley(21)
|
|
|
16,871,553 |
(8)
|
|
|
4.99 |
% |
|
|
755,694 |
(8)
|
|
|
16,115,859 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpha
Capital Aktiengesellschaft (27)
|
|
|
16,272,030 |
(9)
|
|
|
4.99 |
% |
|
|
472,309 |
(9)
|
|
|
15,799,721 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Frank C. Carlucci III Revocable Trust
|
|
|
7,647,044 |
(10)
|
|
|
4.99 |
% |
|
|
377,847 |
(10)
|
|
|
7,269,197 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sepsis
Seed Capital Partners (28)
|
|
|
6,601,961 |
(11)
|
|
|
4.99 |
% |
|
|
330,616 |
(11)
|
|
|
6,271,345 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macomber
Associates, LLC (29)
|
|
|
2,964,337 |
(12)
|
|
|
4.99 |
% |
|
|
188,924 |
(12)
|
|
|
2,775,413 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellis
International LTD (30)
|
|
|
3,317,923 |
(13)
|
|
|
4.99 |
% |
|
|
94,462 |
(13)
|
|
|
3,223,461 |
|
|
|
4.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward
Smith
|
|
|
1,465,663 |
(14)
|
|
|
3.61
|
% |
|
|
94,462 |
(14)
|
|
|
1,371,201 |
|
|
|
3.38
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc
Bailin
|
|
|
1,486,064 |
(15)
|
|
|
3.66
|
% |
|
|
94,462 |
(15)
|
|
|
1,391,602 |
|
|
|
3.43
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Swetnick
|
|
|
764,724 |
(16)
|
|
|
1.92
|
% |
|
|
37,785 |
(16)
|
|
|
726,939 |
|
|
|
1.82
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Ortoli
|
|
|
588,669 |
(17)
|
|
|
1.48
|
% |
|
|
37,785 |
(17)
|
|
|
550,884 |
|
|
|
1.39
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip
Chan(22)
|
|
|
1,649,277 |
(18)
|
|
|
4.05
|
% |
|
|
18,892 |
(18)
|
|
|
1,630,385 |
|
|
|
4.00
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Rubin(23)
|
|
|
765,814 |
(19)
|
|
|
1.92
|
% |
|
|
18,892 |
(19)
|
|
|
746,922 |
|
|
|
1.88
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnaldo
Barros
|
|
|
453,551 |
(20)
|
|
|
1.15
|
% |
|
|
18,892 |
(20)
|
|
|
434,659 |
|
|
|
1.10
|
% |
(1)
Unless otherwise indicated in the footnotes to this table, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Includes shares of Common Stock that the selling stockholder
has the right to acquire beneficial ownership of within 60 days.
(2)
Based on 39,112,969 shares of Common Stock issued and outstanding on June 9,
2009.
(3)
This table assumes that each selling stockholder will sell all shares offered
for sale by it under this prospectus. Stockholders are not required to sell
their shares.
(4)
Includes 20,718,232 shares of Common Stock issuable upon conversion of Series B
Preferred Stock which are issuable upon exercise of warrants, 55,248,619 shares
of Common Stock issuable upon conversion of Series B Preferred Stock, and
4,330,718 shares of Common Stock issuable upon conversion of Series B Preferred
Stock dividends paid in kind. Absent the restriction on beneficially owning in
excess of 4.99% of our Common Stock applicable to the Series B Preferred Stock
and warrants, and consistent with Rule 13d-3 under the Securities Exchange Act
of 1934, as of June 9, 2009 (i) NJTC Venture Fund SBIC, L.P. is the beneficial
owner of 80,297,569 shares of Common Stock, representing 67.24% of our
outstanding shares of Common Stock. The 3,778,471 shares being
offered for resale on behalf of NJTC Venture Fund SBIC, L.P. represent a portion
of the common stock that is issuable upon conversion of its Series B Preferred
Stock. The 3,778,471 shares being offered for resale represent 8.81%
of our outstanding shares of Common Stock.
(5)
Includes 2,940,331 shares of Common Stock issuable upon conversion of Series B
Preferred Stock which are issuable upon exercise of warrants, 26,191,907 shares
of Common Stock issuable upon conversion of Series B Preferred Stock, 1,767,128
shares of Common Stock issuable upon conversion of Series B Preferred Stock
dividends paid in kind , 12,696,780 shares of Common Stock issuable upon
conversion of Series A Preferred Stock, and 9,846,429 shares of Common Stock
issuable upon exercise of warrants. Absent the restriction on beneficially
owning in excess of 4.99% of our Common Stock applicable to the Series A & B
Preferred Stock and warrants, and consistent with Rule 13d-3 under the
Securities Exchange Act of 1934, as of June 9, 2009, Margie Chassman is the
beneficial owner of 58,237,575 shares of Common Stock, representing 62.92% of
our outstanding shares of Common Stock. The 1,791,271 shares being
offered for resale on behalf of Margie Chassman represent a portion of the
common stock that is issuable upon conversion of her Series B Preferred
Stock. The 1,791,271 shares being offered for resale represent 4.38%
of our outstanding shares of Common Stock.
(6)
Includes 4,222,790 shares of Common Stock issuable upon conversion of
Series B Preferred Stock which are issuable upon exercise of warrants,
13,812,155 shares of Common Stock issuable upon conversion of Series B Preferred
Stock, and 1,082,652 shares of Common Stock issuable upon conversion of Series B
Preferred Stock dividends paid in kind. Absent the restriction on beneficially
owning in excess of 4.99% of our Common Stock applicable to the Series B
Preferred Stock and warrants, and consistent with Rule 13d-3 under the
Securities Exchange Act of 1934, as of June 9, 2009, Adelson Partners, LLC is
the beneficial owner of 19,117,597 shares of Common Stock, representing 32.83%
of our outstanding shares of Common Stock. The 944,618 shares being
offered for resale on behalf of Adelson Partners, LLC represent a portion of the
common stock that is issuable upon conversion of the Series B Preferred
Stock. The 944,618 shares being offered for resale represent 2.36% of
our outstanding shares of Common Stock.
(7)
Includes 4,222,790 shares of Common Stock issuable upon conversion of Series B
Preferred Stock which are issuable upon exercise of warrants, 13,812,155 shares
of Common Stock issuable upon conversion of Series B Preferred Stock, and
1,082,652 shares of Common Stock issuable upon conversion of Series B Preferred
Stock dividends paid in kind. Absent the restriction on beneficially owning in
excess of 4.99% of our Common Stock applicable to the Series B Preferred Stock
and warrants, and consistent with Rule 13d-3 under the Securities Exchange Act
of 1934, as of June 9, 2009, Cahn Medical Technologies, LLC is the beneficial
owner of 19,117,597 shares of Common Stock, representing 32.83% of our
outstanding shares of Common Stock. The 944,618 shares being offered
for resale on behalf of Cahn Medical Technologies, LLC represent a portion of
the common stock that is issuable upon conversion of the Series B Preferred
Stock. The 944,618 shares being offered for resale represent 2.36% of
our outstanding shares of Common Stock.
(8)
Includes 3,378,232 shares of Common Stock issuable upon conversion of
Series B Preferred Stock which are issuable upon exercise of warrants,
11,049,724 shares of Common Stock issuable upon conversion of Series B Preferred
Stock, 866,160 shares of Common Stock issuable upon conversion of Series B
Preferred Stock dividends paid in kind, 410,129 shares of Common Stock issuable
upon conversion of Series A Preferred Stock, and 661,293 shares of Common Stock
issuable upon exercise of warrants. Absent the restriction on beneficially
owning in excess of 4.99% of our Common Stock applicable to the Series A & B
Preferred Stock and warrants, and consistent with Rule 13d-3 under the
Securities Exchange Act of 1934, as of June 9, 2009, Robert Shipley is the
beneficial owner of 16,871,553 shares of Common Stock, representing 30.41% of
our outstanding shares of Common Stock. The 755,694 shares being
offered for resale on behalf of Robert Shipley represent a portion of the common
stock that is issuable upon conversion of the Series B Preferred
Stock. The 755,694 shares being offered for resale represent 1.90% of
our outstanding shares of Common Stock.
(9)
Includes 2,111,381 shares of Common Stock issuable upon conversion of Series B
Preferred Stock which are issuable upon exercise of warrants, 6,906,077 shares
of Common Stock issuable upon conversion of Series B Preferred Stock, 538,867
shares of Common Stock issuable upon conversion of Series B Preferred Stock
dividends paid in kind, 6,315,705 shares of Common Stock issuable upon
conversion of Series A Preferred Stock, and 400,000 shares of Common Stock
issuable upon exercise of warrants. From the Series B Preferred Stock shares
listed above, Alpha Capital Aktiengesellschaft has as of June 9, 2009, converted
a total of 450 shares of Series B Preferred Stock into 1,243,094 shares of
Common Stock. From the Series A Preferred Stock shares listed above,
Alpha Capital Aktiengesellschaft has as of June 9, 2009, converted a total of
62,500 shares of Series A Preferred Stock into 50,000 shares of Common
Stock. Absent the restriction on beneficially owning in excess of
4.99% of our Common Stock applicable to the Series A & B Preferred Stock and
warrants, and consistent with Rule 13d-3 under the Securities Exchange Act of
1934, as of June 9, 2009, Alpha Capital Aktiengesellschaft is the beneficial
owner of 16,272,030 shares of Common Stock, representing 30.05% of our
outstanding shares of Common Stock. The 472,309 shares being offered
for resale on behalf of Alpha Capital Aktiengesellschaft represent a portion of
the common stock that is issuable upon conversion of the Series B Preferred
Stock. The 472,309 shares being offered for resale represent 1.19% of
our outstanding shares of Common Stock.
(10)
Includes 1,689,116 shares of Common Stock issuable upon conversion of
Series B Preferred Stock which are issuable upon exercise of warrants, 5,524,862
shares of Common Stock issuable upon conversion of Series B Preferred Stock, and
433,066 shares of Common Stock issuable upon conversion of Series B Preferred
Stock dividends paid in kind. Absent the restriction on beneficially owning in
excess of 4.99% of our Common Stock applicable to the Series B Preferred Stock
and warrants, and consistent with Rule 13d-3 under the Securities Exchange Act
of 1934, as of June 9, 2009, The Frank C. Carlucci III Revocable Trust U/A DTD
5/19/2005 is the beneficial owner of 7,647,044 shares of Common Stock,
representing 16.35% of our outstanding shares of Common Stock. The
377,847 shares being offered for resale on behalf of The Frank C. Carlucci III
Revocable Trust U/A DTD 5/19/2005 represent a portion of the common stock that
is issuable upon conversion of the Series B Preferred Stock. The
377,847 shares being offered for resale represent less than 1% of our
outstanding shares of Common Stock.
(11)
Includes 1,393,508 shares of Common Stock issuable upon conversion of Series B
Preferred Stock which are issuable upon exercise of warrants, 4,834,254 shares
of Common Stock issuable upon conversion of Series B Preferred Stock, and
374,199 shares of Common Stock issuable upon conversion of Series B Preferred
Stock dividends paid in kind. From the Series B Preferred Stock shares listed
above, Sepsis Seed Capital Partners has as of June 9, 2009, converted a total of
543 shares of Series B Preferred Stock into 1,500,000 shares of Common
Stock. Absent the restriction on beneficially owning in excess of
4.99% of our Common Stock applicable to the Series B Preferred Stock and
warrants, and consistent with Rule 13d-3 under the Securities Exchange Act of
1934, as of June 9, 2009, Sepsis Seed Capital Partners is the beneficial owner
of 6,601,961 shares of Common Stock, representing 14.93% of our outstanding
shares of Common Stock. The 330,616 shares being offered for resale
on behalf of Sepsis Seed Capital Partners represent a portion of the common
stock that is issuable upon conversion of the Series B Preferred
Stock. The 330,616 shares being offered for resale represent less
than 1% of our outstanding shares of Common Stock.
(12)
Includes 2,762,431 shares of Common Stock issuable upon conversion of Series B
Preferred Stock, and 201,906 shares of Common Stock issuable upon conversion of
Series B Preferred Stock dividends paid in kind. Absent the restriction on
beneficially owning in excess of 4.99% of our Common Stock applicable to the
Series B Preferred Stock and warrants, and consistent with Rule 13d-3 under the
Securities Exchange Act of 1934, as of June 9, 2009, Macomber Associates, LLC is
the beneficial owner of 2,964,337 shares of Common Stock, representing 7.04% of
our outstanding shares of Common Stock. The 188,924 shares being
offered for resale on behalf of Macomber Associates, LLC represent a portion of
the common stock that is issuable upon conversion of the Series B Preferred
Stock. The 188,924 shares being offered for resale represent less
than 1% of our outstanding shares of Common Stock.
(13)
Includes 422,265 shares of Common Stock issuable upon conversion of Series B
Preferred Stock which are issuable upon exercise of warrants, 1,381,215 shares
of Common Stock issuable upon conversion of Series B Preferred Stock, 94,088
shares of Common Stock issuable upon conversion of Series B Preferred Stock
dividends paid in kind, 1,320,355 shares of Common Stock issuable upon
conversion of Series A Preferred Stock, and 100,000 shares of Common Stock
issuable upon exercise of warrants. From the Series B Preferred Stock shares
listed above, Ellis International has as of June 9, 2009, converted a total of
500.69 shares of Series B Preferred Stock into 1,383,122 shares of Common
Stock. From the Series A Preferred Stock shares listed above, Ellis
International has as of June 9, 2009, converted a total of 76,832 shares of
Series A Preferred Stock into 234,585 shares of Common Stock. Absent
the restriction on beneficially owning in excess of 4.99% of our Common Stock
applicable to the Series A & B Preferred Stock and warrants, and consistent
with Rule 13d-3 under the Securities Exchange Act of 1934, as of June 9, 2009,
Ellis International LTD is the beneficial owner of 3,317,923 shares of Common
Stock, representing 8.08% of our outstanding shares of Common
Stock. The 94,462 shares being offered for resale on behalf of Ellis
International LTD represent a portion of the common stock that is issuable upon
conversion of the Series B Preferred Stock. The 94,462 shares being
offered for resale represent less than 1% of our outstanding shares
of Common Stock.
(14)
Includes 1,381,215 shares of Common Stock issuable upon conversion of Series B
Preferred Stock, and 84,448 shares of Common Stock issuable upon conversion of
Series B Preferred Stock dividends paid in kind. The 94,462 shares
being offered for resale on behalf of Edward Smith represent a portion of the
common stock that is issuable upon conversion of the Series B Preferred
Stock. The 94,462 shares being offered for resale represent less than
1% of our outstanding shares of Common Stock.
(15)
Includes 1,381,215 shares of Common Stock issuable upon conversion of
Series B Preferred Stock, and 84,448 shares of Common Stock issuable upon
conversion of Series B Preferred Stock dividends paid in kind. The
94,462 shares being offered for resale on behalf of Marc Bailin represent a
portion of the common stock that is issuable upon conversion of the Series B
Preferred Stock. The 94,462 shares being offered for resale represent
less than 1% of our outstanding shares of Common Stock.
(16)
Includes 168,923 shares of Common Stock issuable upon conversion of Series
B Preferred Stock which are issuable upon exercise of warrants, 552,486 shares
of Common Stock issuable upon conversion of Series B Preferred Stock, and 43,315
shares of Common Stock issuable upon conversion of Series B Preferred Stock
dividends paid in kind. The 37,785 shares being offered for resale on
behalf of Robert Swetnick represent a portion of the common stock that is
issuable upon conversion of the Series B Preferred Stock. The 37,785
shares being offered for resale represent less than 1% of our outstanding shares
of Common Stock.
(17)
Includes 552,486 shares of Common Stock issuable upon conversion of Series
B Preferred Stock, and 33,785 shares of Common Stock issuable upon conversion of
Series B Preferred Stock dividends paid in kind. The 37,785 shares
being offered for resale on behalf of Richard Ortoli represent a portion of the
common stock that is issuable upon conversion of the Series B Preferred
Stock. The 37,785 shares being offered for resale represent less than
1% of our outstanding shares of Common Stock.
(18)
Includes 84,448 shares of Common Stock issuable upon conversion of Series B
Preferred Stock which are issuable upon exercise of warrants, 276,243 shares of
Common Stock issuable upon conversion of Series B Preferred Stock, 21,657 shares
of Common Stock issuable upon conversion of Series B Preferred Stock dividends
paid in kind, and 1,266,929 shares of Common Stock issuable upon exercise of
options. The 18,892 shares being offered for resale on behalf of
Philip Chan represent a portion of the common stock that is issuable upon
conversion of the Series B Preferred Stock. The 18,892 shares being
offered for resale represent less than 1% of our outstanding shares of Common
Stock.
(19)
Includes 276,243 shares of Common Stock issuable upon conversion of Series B
Preferred Stock, 16,906 shares of Common Stock issuable upon conversion of
Series B Preferred Stock dividends paid in kind, 2,561 shares of Common Stock
issuable upon conversion of Series A Preferred Stock, and 387,840 shares of
Common Stock issuable upon exercise of warrants. The 18,892 shares
being offered for resale on behalf of Joseph Rubin represent a portion of the
common stock that is issuable upon conversion of the Series B Preferred
Stock. The 18,892 shares being offered for resale represent less than
1% of our outstanding shares of Common Stock.
(20)
Includes 84,448 shares of Common Stock issuable upon conversion of Series B
Preferred Stock which are issuable upon exercise of warrants, and 276,243 shares
of Common Stock issuable upon conversion of Series B Preferred Stock, 21,657
shares of Common Stock issuable upon conversion of Series B Preferred Stock
dividends paid in kind, 51,203 shares of Common Stock issuable upon conversion
of Series A Preferred Stock, and 20,000 shares of Common Stock issuable upon
exercise of warrants. The 18,892 shares being offered for resale on
behalf of Arnaldo Barros represent a portion of the common stock that is
issuable upon conversion of the Series B Preferred Stock. The 18,892
shares being offered for resale represent less than 1% of our outstanding shares
of Common Stock.
(21)
Robert Shipley was a Director of MedaSorb Delaware prior to its merger
with Gilder Enterprises on June 30, 2006.
(22)
Phillip Chan is a Director of ours, and effective January first has become
CEO.
(23)
Joseph Rubin is a Director of ours and from time to time renders legal services
to us.
(24) James
Gunton is the natural person who exercises the sole voting and dispositive
powers with respect to the shares to be offered by NJTC Venture Fund SBIC,
L.P.
(25)
Andrew S. Adelson is the natural person who exercises the sole voting and
dispositive powers with respect to the shares to be offered by Adelson Partners,
LLC.
(26)
Charles C. Cahn, Jr. is the natural person who exercises the sole voting and
dispositive powers with respect to the shares to be offered by Cahn Medical
Technologies, LLC.
(27) Konrad
Ackerman is the natural person who exercises the sole voting and dispositive
powers with respect to the shares to be offered by Alpha Capital
Aktiengesellschaft.
(28) Susi
G. Belli is the natural person who exercises the sole voting and dispositive
powers with respect to the shares to be offered by Sepsis Seed Capital
Partners.
(29) John
Macomber is the natural person who exercises the sole voting and dispositive
powers with respect to the shares to be offered by Macomber Associates,
LLC.
(30) Wilhelm
Ungar is the natural person who exercises the sole voting and dispositive powers
with respect to the shares to be offered by Ellis International
LTD.
To the
best of our knowledge, none of the selling shareholders are broker-dealers or
affiliates of a broker-dealer.
The total
dollar value of the securities that we are registering (which is 10,000,000
shares of common stock underlying the Series B Preferred Shares) is
$1,400,000. This was calculated by multiplying the number of
securities being registered by the market price per share of common stock on the
date of the sale of the preferred shares. The market price as of June
25, 2008 (the closing date for the sale of the Series B Preferred Shares) was
$0.14.
The only
payments that we intend to make to any selling shareholder, any affiliate of a
selling shareholder, or any person with whom any selling shareholder has a
contractual relationship regarding the transaction shall be dividend payments
pursuant to the terms of the Series B Certificate of
Designation. Such dividend payments are payable in additional shares
of Series B Preferred Shares and are payable at a rate of 10% per annum, payable
quarterly. Such dividend payments have been made in accordance with
the following table:
Name of Selling Stockholder
|
|
Series
B
Preferred
Shares
PIK
Dividend (1)
|
|
Common Stock
Underlying
PIK Dividend (2)
|
NJTC Venture
Fund SBIC, L.P.
|
|
|
1,567.72
|
|
4,330,718
|
|
|
|
|
|
|
Margie
Chassman
|
|
|
639.70
|
|
1,767,127
|
|
|
|
|
|
|
Adelson
Partners, LLC
|
|
|
391.92
|
|
1,082,652
|
|
|
|
|
|
|
Cahn
Medical Technologies, LLC
|
|
|
391.92
|
|
1,082,652
|
|
|
|
|
|
|
Robert
Shipley
|
|
|
313.55
|
|
866,160
|
|
|
|
|
|
|
Alpha
Capital Aktiengesellschaft
|
|
|
195.07
|
|
538,867
|
|
|
|
|
|
|
The
Frank C. Carlucci III Revocable Trust
|
|
|
156.77
|
|
433,066
|
|
|
|
|
|
|
Sepsis
Seed Capital Partners
|
|
|
135.46
|
|
374,199
|
|
|
|
|
|
|
Macomber
Associates, LLC
|
|
|
73.09
|
|
201,906
|
|
|
|
|
|
|
Ellis
International LTD
|
|
|
34.06
|
|
94,088
|
|
|
|
|
|
|
Edward
Smith
|
|
|
30.57
|
|
84,448
|
|
|
|
|
|
|
Marc
Bailin
|
|
|
30.57
|
|
84,448
|
|
|
|
|
|
|
Robert
Swetnick
|
|
|
15.68
|
|
43,315
|
|
|
|
|
|
|
Richard
Ortoli
|
|
|
12.23
|
|
33,785
|
|
|
|
|
|
|
Phillip
Chan
|
|
|
7.84
|
|
21,657
|
|
|
|
|
|
|
Joseph
Rubin
|
|
|
6.12
|
|
16,906
|
|
|
|
|
|
|
Arnaldo
Barros
|
|
|
7.84
|
|
21,657
|
(1) Cumulative
Paid in Kind quarterly stock dividend payments made from June 30, 2008 through
March 31, 2009.
(2) Number
of shares of Common Stock that PIK stock dividends can currently convert
into.
In
addition, we expect to continue to pay dividends to our Series B Preferred
Shareholders at 10% of the Stated Value of the Series B Preferred Shares per
annum. We do not expect to pay any additional amounts to any selling
shareholder, any affiliate of a selling shareholder, or any person with whom any
selling shareholder has a contractual relationship regarding the
transaction.
The total
possible profit the selling shareholders could realize as a result of the
conversion discount for the securities underlying the Series B Preferred Shares
are presented in the following table.
Market
Price per Share
of
Underlying
Securities
(1)
|
|
Conversion
Price per
Share
(2)
|
|
|
Total
possible shares of
Common
Stock
underlying
the Series B
Preferred
Shares issued
Through
03/31/09
|
|
|
Combined
Market Price
of
the total number of
shares
underlying the
Series
B Preferred
Shares
(3)
|
|
|
Total
Discount to the
Market
Price (4)
|
|
$0.14
|
|
$ |
0.0362 |
|
|
|
157,297,184 |
|
|
$ |
22,021,606 |
|
|
$ |
16,327,448 |
|
(1)
|
The
market price per share of the securities underlying the preferred shares
is determined as of the date of the sale of the preferred
shares.
|
(2)
|
The
conversion price per share of the underlying securities on the date of the
sale of the preferred shares is a fixed rate subject to certain
adjustments and was initially $0.035 per
share.
|
(3)
|
This
is calculated by using the market price per share on the date of the sale
of the preferred shares and the total possible common shares underlying
the Series B Preferred Shares.
|
(4)
|
The
total possible discount to the market price as of the date of the sale of
the preferred shares is calculated by subtracting the total conversion
price on the date of the sale of the Series B Preferred Shares from the
combined market price of the total number of common shares underlying the
Series B Preferred Shares on that
date.
|
The
conversion price of the Series B Preferred Shares is a fixed price and shall not
adjust, except subject to certain anti-dilution
adjustments.
The
following table displays the gross proceeds paid by each selling shareholder to
us pursuant to the sale of the Series B Preferred Shares.
Selling
Shareholder
|
|
Gross
Proceeds Paid to
the
Issuer in the Series
B
Preferred Share
Transaction
|
|
|
All
payments that have
been
made and will be
required
to be made to
the
Selling Shareholder
|
|
|
The
resulting net
proceeds
to the Issuer (1)
|
|
|
The
combined total
possible
profit to be
realized
by each selling
shareholder
(2)
|
|
NJTC
Venture Fund SBIC, L.P.
|
|
$ |
2,000,000 |
|
|
$ |
0 |
|
|
$ |
2,000,000 |
|
|
$ |
6,184,335 |
|
Margie
Chassman (3)
|
|
$ |
948,147 |
|
|
$ |
0 |
|
|
$ |
948,147 |
|
|
$ |
2,902,148 |
|
Adelson
Partners, LLC
|
|
$ |
500,000 |
|
|
$ |
0 |
|
|
$ |
500,000 |
|
|
$ |
1,546,081 |
|
Cahn
Medical Technologies, LLC
|
|
$ |
500,000 |
|
|
$ |
0 |
|
|
$ |
500,000 |
|
|
$ |
1,546,081 |
|
Robert
Shipley (4)
|
|
$ |
400,000 |
|
|
$ |
0 |
|
|
$ |
400,000 |
|
|
$ |
1,236,869 |
|
Alpha
Capital Aktiengesellschaft (5)
|
|
$ |
250,000 |
|
|
$ |
0 |
|
|
$ |
250,000 |
|
|
$ |
772,785 |
|
The
Frank C. Carlucci III Revocable Trust
|
|
$ |
200,000 |
|
|
$ |
0 |
|
|
$ |
200,000 |
|
|
$ |
618,433 |
|
Sepsis
Seed Capital Partners
|
|
$ |
175,000 |
|
|
$ |
0 |
|
|
$ |
175,000 |
|
|
$ |
540,637 |
|
Macomber
Associates, LLC
|
|
$ |
100,000 |
|
|
$ |
0 |
|
|
$ |
100,000 |
|
|
$ |
307,698 |
|
Ellis
International LTD(6)
|
|
$ |
50,000 |
|
|
$ |
0 |
|
|
$ |
50,000 |
|
|
$ |
153,137 |
|
Edward
Smith
|
|
$ |
50,000 |
|
|
$ |
0 |
|
|
$ |
50,000 |
|
|
$ |
152,136 |
|
Marc
Bailin (7)
|
|
$ |
50,000 |
|
|
$ |
0 |
|
|
$ |
50,000 |
|
|
$ |
152,136 |
|
Robert
Swetnick
|
|
$ |
20,000 |
|
|
$ |
0 |
|
|
$ |
20,000 |
|
|
$ |
61,844 |
|
Richard
Ortoli (8)
|
|
$ |
20,000 |
|
|
$ |
0 |
|
|
$ |
20,000 |
|
|
$ |
60,855 |
|
Phillip
Chan
|
|
$ |
10,000 |
|
|
$ |
0 |
|
|
$ |
10,000 |
|
|
$ |
30,922 |
|
Joseph
Rubin (9)
|
|
$ |
10,000 |
|
|
$ |
0 |
|
|
$ |
10,000 |
|
|
$ |
30,429 |
|
Arnaldo
Barros (10)
|
|
$ |
10,000 |
|
|
$ |
0 |
|
|
$ |
10,000 |
|
|
$ |
30,922 |
|
(1)
|
The
resulting net proceeds is determined by subtracting any payments we make
to the selling shareholder from the gross proceeds that we received from
each selling shareholder.
|
(2)
|
This
is the total possible profit to be realized as a result of any conversion
discounts regarding the securities underlying the preferred shares
purchased and preferred stock dividends issued through March 31, 2009
assuming the market price per share of the securities underlying the
preferred shares as of the date of the initial sale of the preferred
shares.
|
(3)
|
In
addition to this purchase of Series B Preferred Stock: Ms. Chassman
invested $1,000,000 in 2006 for 1,000,000 shares of Series A Preferred
Stock.
|
(4)
|
In
addition to this purchase of Series B Preferred Stock: Mr. Shipley
invested a total of $2,126,251 during 2000 and 2004 while MedaSorb was a
private company at prices ranging from $3.32 to $31.52 per share for which
he received a total of 506,015 shares of common stock. (price per share
and number of shares received are adjusted for reverse stock split as well
as company's conversion from its original partnership form to a
corporation). In connection with our reverse merger transaction in June
2006, the Common Stock shares Mr. Shipley purchased were exchanged for
506,015 shares of common stock of MedaSorb Technologies Corporation. Mr.
Shipley also invested $400,490 in 2006 for 490,490 shares of Series A
Preferred Stock.
|
(5)
|
In
addition to this purchase of Series B Preferred Stock: Alpha Capital
invested $1,000,000 in 2006 for 1,000,000 shares of Series A Preferred
Stock.
|
(6)
|
In
addition to this purchase of Series B Preferred Stock: Ellis international
invested $250,000 in 2006 for 250,000 shares of Series A Prferred
Stock.
|
(7)
|
In
addition to this purchase of Series B Preferred Stock: Mr. Bailin invested
a total of $434,500 during 1997, 1998 and 2000 while MedaSorb was a
private company at prices ranging from $6.64 to $31.52 per share for which
he received a total of 17,744 shares of common stock. (price per share and
number of shares received are adjusted for reverse stock split as well as
company's conversion from its original partnership form to a corporation).
In connection with our reverse merger transaction in June 2006, the Common
Stock shares Mr. Bailin purchased were exchanged for 17,744 shares of
common stock of MedaSorb Technologies
Corporation.
|
(8)
|
In
addition to this purchase of Series B Preferred Stock: Mr. Ortoli invested
a total of $42,500 during 1998 and 2000 while MedaSorb was a private
company at prices ranging from $19.91 to $31.52 per share for which he
received a total of 1,765 shares of common stock. (price per share and
number of shares received are adjusted for reverse stock split as well as
company's conversion from its original partnership form to a corporation).
In connection with our reverse merger transaction in June 2006, the Common
Stock shares Mr. Ortoli purchased were exchanged for 1,765 shares of
common stock of MedaSorb Technologies
Corporation.
|
(9)
|
In
addition to this purchase of Series B Preferred Stock: Mr. Rubin invested
a total of $27,000 during 1997, 1998 and 2000 while MedaSorb was a private
company at prices ranging from $19.91 to $31.52 per share for which he
received a total of 1,041 shares of common stock. (price per share and
number of shares received are adjusted for reverse stock split as well as
company's conversion from its original partnership form to a corporation).
In connection with our reverse merger transaction in June 2006, the Common
Stock shares Mr. Rubin purchased were exchanged for 1,041 shares of common
stock of MedaSorb Technologies Corporation. Mr. Rubin also invested $2,500
in 2006 for 2,500 shares of Series A Preferred
Stock.
|
(10)
|
In
addition to this purchase of Series B Preferred Stock: Mr. Barros invested
$50,000 in 2006 for 50,000 shares of Series A Preferred
Stock.
|
The
potential investor profit per share in this transaction is significant because
of the low conversion price for the Series B Preferred Shares. The
low conversion price was determined (in light of the higher historic prices)
given the risk involved in this transaction, and the low average daily volume
for our common stock. Our investors were not willing to participate
in an offering at a higher conversion price given the amount of risk they were
taking in this transaction. Additionally, it is presumed that the
historical prices for our stock was not an accurate indication of our stock
price given the low daily trading volume of our stock.
All prior
securities transactions between the selling shareholders and us have been
disclosed in the footnotes to the table above.
Number of Shares
Outstanding Prior to the
Series B Preferred
Shares Transaction
Held by Persons Other
than Selling
Shareholders (1)
|
|
Number of Shares
Registered for Resale
by the Selling
Shareholder or
Affiliates of the Selling
Shareholders in Prior
Registration Statements
|
|
Number of Shares
Registered for Resale
on behalf of the Selling
Shareholders in the
Current Transaction
|
19,661,653
|
|
|
2,593,889 |
|
10,000,000
shares
|
(1)
|
This
calculation does not include any securities underlying any outstanding
convertible securities, options or
warrants.
|
The
following is a list of all relationships and arrangements that have existed in
the past three years or are to be performed in the future between us and each
selling shareholder:
NJTC
Venture Fund has right to 2 BOD seats;
Cahn
Medical has observer rights on BOD meetings;
Robert
Shipley was Director prior to merger in 2006;
Phillip
Chan is CEO and former partner of NJTC Venture Fund; and
Joseph
Rubin is Director and provides legal services.
Copies of
all agreements between us and any selling shareholder are attached
hereto.
We do not
intend to redeem either the Series A or Series B Preferred Shares. In
the event that after the fifth anniversary of the sale of our Series B Preferred
Shares our common stock is trading below the effective conversion price and the
holders elect to require us to redeem all the Series B Preferred Stock, we do
not have a reasonable basis to believe that we will have the financial ability
to satisfy our redemption obligation.
Based on
information obtained from selling shareholders, we do not believe that any of
our selling shareholders hold an existing short position our common
stock.
Under
the terms of the Financing, we were obligated to file this registration
statement within 180 days of the closing of the placement. In the
event this registration statement is not filed timely, we are obligated to make
payments of an amount in cash to each of the investors, as partial
liquidated damages and not as a penalty, an amount equal to 1% of the aggregate
unit purchase price paid by each Holder pursuant to the Purchase Agreement for
any unregistered Registrable Securities then held by such Holder. The
Company has received a waiver from a majority of the Series B holders for the
non-registration event and the timing of the Series B registration does not
create a cross-default of the Series A Preferred
Series.
The
Financing also provides that we pay all fees and expenses incident to the
registration statement, other than brokerage commissions and underwriting
discounts of the selling stockholders on the sale of their shares.
We do not
have any arrangement with any broker-dealer for it to act as an underwriter for
the sale of the shares included herein for any of the selling
stockholders. Each of the selling stockholders purchased or received
the shares offered by it in this prospectus in the ordinary course of business,
and at the time of purchase of such shares, it had no agreements or
understandings, directly or indirectly, with any person for the distribution of
such shares.
Item 8. Plan of
Distribution
We are
registering 10,000,000 shares of our Common Stock on behalf of the selling
stockholders. As used in this prospectus, “selling stockholders” includes the
pledges, donees, transferees or others who may later hold the selling
stockholders’ interests. We have agreed to pay the costs and fees of registering
the shares, but the selling stockholders will pay any brokerage commissions,
discounts or other expenses relating to the sale of the shares, including
attorneys’ fees for opinions or for removal of any restrictive
legends.
The
stockholders and any of their pledgees, assignees and successors-in-interest
may, from time to time, sell any or all of their shares of Common Stock on any
stock exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. The
stockholders may use any one or more of the following methods when selling
shares:
|
¨
|
ordinary
brokerage transactions and transactions in which the broker dealer
solicits purchasers;
|
|
|
|
|
¨
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
|
|
¨
|
purchases
by a broker-dealer as principal and resale by the broker dealer for its
account;
|
|
|
|
|
¨
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
|
|
¨
|
privately
negotiated transactions;
|
|
|
|
|
¨
|
settlement
of short sales;
|
|
|
|
|
¨
|
broker-dealers
may agree with the stockholders to sell a specified number of such shares
at a stipulated price per share;
|
|
|
|
|
¨
|
a
combination of any such methods of sale;
and
|
|
¨
|
any other method permitted
pursuant to applicable law.
|
The
stockholders may also sell shares under Rule 144 under the Securities Act, if
available, rather than under this prospectus.
Broker-dealers
engaged by the stockholders may arrange for other brokers dealers to participate
in sales. Broker-dealers may receive commissions or discounts from the
stockholders (or, if any broker-dealer acts as agent for the purchaser of
shares, from the purchaser) in amounts to be negotiated. The stockholders do not
expect these commissions and discounts to exceed what is customary in the types
of transactions involved.
The
stockholders may from time to time pledge or grant a security interest in some
or all of the shares of Common Stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of Common Stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
stockholders to include the pledgee, transferee or other successors in interest
as stockholders under this prospectus.
The
stockholders and any broker-dealers or agents that are involved in selling the
shares may be deemed to be “underwriters” within the meaning of the Securities
Act in connection with such sales. In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
Brokers,
dealers, or agents participating in the distribution of the shares may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or the purchasers of shares for whom such
broker-dealers may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). Neither the selling stockholders nor we can presently
estimate the amount of such compensation. We know of no existing arrangements
between the selling stockholders and any other stockholder, broker, dealer or
agent relating to the sale or distribution of the shares. We will not receive
any proceeds from the sale of the shares of the selling security holders
pursuant to this prospectus. We have agreed to bear the expenses of the
registration of the shares, including legal and accounting fees, and such
expenses are estimated to be approximately $25,000.
Item
9. Description of Securities to be Registered
Our
total authorized capital stock consists of 500,000,000 shares of Common Stock,
par value $.001 per share and 100,000,000 shares of preferred stock, par value
$0.001 per share. We have designated 12,000,000 shares of our preferred stock as
Series A 10% Cumulative Convertible Preferred Stock and 200,000 shares of our
preferred stock as Series B 10% Cumulative Convertible Preferred Stock. As of
June 9, 2009, there were 39,112,969 shares of our Common Stock outstanding,
8,032,443 shares of our Series A Preferred Stock and 55,447.89 shares of Series
B Preferred outstanding.
The
following description of our capital stock does not purport to be complete and
is subject to and qualified by our Articles of Incorporation and By-laws, and by
the provisions of applicable Nevada law.
Common
Stock
Holders
of our Common Stock are entitled to receive dividends out of assets legally
available therefore at such times and in such amounts as the Board of Directors
from time to time may determine. Holders of our Common Stock are entitled to one
vote for each share held on all matters submitted to a vote of the stockholders.
Cumulative voting with respect to the election of directors is not permitted by
our Articles of Incorporation. Our Common Stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Upon our liquidation,
dissolution or winding-up, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the Common Stock
after payment of liquidation preferences, if any, on any outstanding stock
having prior rights on such distributions and payment of other claims of
creditors.
Preferred
Stock
Our
Articles of Incorporation authorize the issuance of shares of preferred stock in
one or more series. Our Board of Directors has the authority, without any vote
or action by the stockholders, to create one or more series of preferred stock
up to the limit of our authorized but unissued shares of preferred stock and to
fix the number of shares constituting such series and the designation of such
series, the voting powers (if any) of the shares of such series and the relative
participating, option or other special rights (if any), and any qualifications,
preferences, limitations or restrictions pertaining to such series which may be
fixed by the Board of Directors pursuant to a resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors. Our
Board of Directors has authorized the creation of both Series A and Series B
preferred stock. Each Series is further described herein.
Series
A 10% Cumulative Convertible Preferred Stock
We
have designated 12,000,000 shares of our preferred stock as Series A 10%
Cumulative Convertible Preferred Stock (the “Series A Preferred
Stock”), of which 8,032,443
shares were issued and outstanding as of June
9, 2009. Each share of Series A Preferred Stock has a stated value
of $1.00.
Dilution and
Subordination
As one of
the conditions to the closing of the Series B financing with an initial closing
on June 25, 2008, we entered into an Agreement and Consent as of the same date
with the holders of more than 80% of our Series A Preferred Stock, par value
0.001 per share and the holders of more than 80% of the outstanding common stock
purchase warrants issued to the purchasers of our Series A Preferred Stock (the
“Class A
Warrant”). Pursuant to the Agreement and Consent, our holders of the
Series A Preferred Stock consented to the permanent waiver of the anti-dilution
protection previously provided to the holders of the Series A Preferred Stock
and the holders of the Class A Warrant.
In
connection with such Agreement and Consent, the conversion price with respect to
the June 30, 2006 purchasers of Series A Preferred Stock held by the Holders was
reduced effective June 25, 2008, the initial closing of the Series B Financing
according to the Schedule A to the Agreement and Consent as set forth below. In
the event that within the 60-day period following the Initial Closing, at
additional closings, the Company issued additional shares of Series B Preferred
Stock so that the aggregate gross proceeds that were raised on the Initial
Closing and such additional closings (excluding the principal amount of our
outstanding debt converted into the Series B Preferred Stock) from the holders
of the Series A Preferred Stock or their affiliates, is $1,500,000 or more, the
conversion price with respect to the Series A Preferred Stock held by these
holders was agreed to be further reduced in accordance with Schedule A to the
Agreement and Consent as set forth below. Based on the total amount raised and
in accordance with our investor agreements, MedaSorb’s Series B Preferred Stock
private placement was considered a “Qualified” closing.
In
addition, June 30, 2006 purchasers of the Series A Preferred Stock also agreed
the conversion price with respect to the Class A Warrant shall be reduced
effectively on the initial closing. Pursuant to our agreement for a Qualified
closing, Conversion pricing and warrant exercise pricing was further reduced as
disclosed in the following chart.
Series A Preferred Stock Holders on 06/30/06
|
|
Initial Closing (06/25/08)
|
|
|
Qualified Closing (08/25/08)
|
|
|
|
Preferred Stock
Conversion Price
|
|
|
Warrant
Exercise Price
|
|
|
Preferred Stock
Conversion Price
|
|
|
Warrant
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpha
Capital Aktiengesellschaft
|
|
$ |
0.26 |
|
|
$ |
0.52 |
|
|
$ |
0.20 |
|
|
$ |
0.40 |
|
Longview
Fund, LP
|
|
$ |
1.25 |
|
|
$ |
2.00 |
|
|
$ |
0.45 |
|
|
$ |
0.90 |
|
Platinum
Partners Long Term Growth III LLC
|
|
$ |
1.25 |
|
|
$ |
2.00 |
|
|
$ |
0.10 |
|
|
$ |
0.40 |
|
Ellis
International Ltd.
|
|
$ |
0.26 |
|
|
$ |
0.52 |
|
|
$ |
0.20 |
|
|
$ |
0.40 |
|
Margie
Chassman
|
|
$ |
1.25 |
|
|
$ |
2.00 |
|
|
$ |
0.10 |
|
|
$ |
0.40 |
|
Dividends
The
holders of outstanding shares of Series A Preferred Stock shall be entitled to
receive preferential dividends paid in additional shares of preferred stock with
the holders of the Series B Preferred Stock, before any dividend or other
distribution will be paid or declared and set apart for payment on any shares of
any Common Stock, or other class of junior stock at the rate of 10% per annum on
the Series A Stated Value from the date of issue of such shares. Such dividends
shall be payable on June 30, 2006 and on the last day of each calendar quarter
thereafter. The rate of such preferential dividends shall be increased to 20%
per annum upon the occurrence of any “Event of Default” and become payable in
cash as defined in Section 6 of the Certificate of Amendment to Certificate of
Designation.
Voting
Rights
Holders
of Series A Preferred Stock do not have the right to vote on matters submitted
to the holders of our Common Stock. However, consent of the holders of at least
80% of the shares of Series A preferred Stock, voting as a separate class, shall
be required for amending the rights related to Series A Preferred Stock in our
certificate of incorporation.
Liquidation
Upon our
liquidation, dissolution or winding-up, the assets legally available for
distribution to stockholders are distributable ratably among the holders of the
Series A Preferred Stock after payment of liquidation to the Series B Preferred
Stock, if any.
Redemption
Commencing
on June 30, 2009, if an Event of Default has not occurred and is not then
continuing, we have the option to redeem the Obligation Amount of the Series A
Preferred Stock, in whole or in part, by paying to the holders of the Series A
Preferred Stock a sum of money equal to 120% of the Obligation Amount to be
redeemed.
Series
B 10% Cumulative Convertible Preferred Stock
We have
designated 200,000 shares of our preferred stock as Series B 10% Cumulative
Convertible Preferred Stock (the “Series
B Preferred Stock”), of which 55,447.89
shares were issued and outstanding as of June 9,
2009. Each share of Series B Preferred Stock has a stated value of
$100.00, and is convertible at the holder’s option into that number of shares of
Common Stock equal to the Series B stated value at a conversion price of
$0.0362, subject to certain adjustments. Additionally, upon the occurrence of a
stock split, stock dividend, combination of the Common Stock into a smaller
number of shares, issuance of any of shares of Common Stock or other securities
by reclassification of the Common Stock, merger or sale of substantially all of
our assets, the conversion rate will be adjusted so that the conversion rights
of the Series B Preferred Stock stockholders will remain equivalent to those
prior to such event.
Dividend
The
holders of Series B Preferred Stock are entitled to receive preferential
dividends payable in shares of additional Series B Preferred Stock . Any
dividends payable to both the Series A and Series B Preferred shareholders shall
be paid before any dividend or other distribution will be paid to any Common
Stock shareholder. The Series B Preferred Stock dividend is based payable at a
rate of 10% per annum on the Series B Stated Value payable on the last day of
each calendar quarter after June 30, 2008. However, upon the occurrence of any
“Event of Default” as defined in the Certificate of Designation of Series B
Preferred Stock, the dividend rate increases to 20% per annum, and revert back
to 10% after the “Event of Default” is cured. An Event of Default includes, but
is not limited to,
|
¨
|
the occurrence of
“Non-Registration Events”;
|
|
¨
|
an uncured breach by us of any
material covenant, term or condition in the Certificate of Designation or
any of the related transaction documents;
and
|
|
¨
|
any money judgment or similar
final process being filed against us for more than
$100,000.
|
Dividends
must be delivered to the holder of the Series B Preferred Stock no later than
five (5) business days after the end of each period for which dividends are
payable. Dividends on the Series B Preferred Stock will be made in additional
shares of Series B Preferred Stock, valued at the Series B Preferred Stock
stated value. Notwithstanding the foregoing, during the first three-years
following the initial closing, upon the approval of the holders of a majority of
the Series B Preferred Stock, including the lead investor, NJTC Venture Fund, if
it then owns 25% of the shares of Series B Preferred Stock initially purchased
by it, we may pay dividends in cash instead of additional shares of Series B
Preferred Stock, and after such three-year period, the holders of a majority of
the Series B Preferred Stock, including NJTC if it then owns the 25% of the
shares of the Series B Preferred Stock initially purchased by it, may require us
to make such payments in cash.
Liquidation
In the
event of the Company’s dissolution, liquidation or winding up, the holders of
the Series B Preferred Stock will receive, in priority over the holders of
Series A Preferred Stock and Common Stock, a liquidation preference equal to the
stated value of such shares plus accrued dividends on the shares.
Voting Rights; Board
Rights
Holders
of Series B Preferred Stock have the right to vote on matters submitted to the
holders of Common Stock on an as converted basis. However, the consent of the
holders of at least a majority of the shares of the Series B Preferred Stock as
a separate class, including NJTC if it is then a holders of at least 25% of the
shares of Series B Preferred Stock purchased by it on the Initial Closing Date,
shall be required on matters related to the rights of the Series B Preferred
Stock.
In
addition, so long as NJTC holds 25% of the Series B Preferred Stock it purchased
before the initial closing, NJTC is entitled to elect (i) two directors to our
Board of Directors, which shall consist of six members, and (ii) two members to
our compensation committee, which shall consist of three members.
Moreover,
so long as Cahn medical Technologies, LLC is the holder of at least 25% of the
shares of the Series B Preferred Stock purchased by it on the initial closing
date, it has the right to have its designee receive notices of, and attend as an
observer, all meetings of our Board of Directors.
Registration
Rights
We have
agreed to file a registration statement under the Securities Act covering the
Common Stock issuable upon conversion of the Series B Preferred Stock within 180
days following the initial closing and to cause it to become effective within
240 days of such closing. We also granted the investors demand and piggyback
registration rights with respect to such Common Stock. The investors in the
Series B Financing are entitled to liquidated damages in an amount equal to two
percent (2%) of the purchase price of the Series B Preferred Stock if we fail to
timely file that registration statement with, or have it declared effective by,
the SEC.
In
February 2009, our Series B Preferred Shareholders voted to approve to waive any
Event of Default and liability due upon an Event of Default pursuant to Section
6(ix) of the Certificate of Designation of Series B Preferred Shares that shall
arise from or in connection with the occurrence of a Non-Registration Event as
provided in Section 11.4 of the Series B Subscription Agreement. The
Registration Statement has been filed but it has not been declared effective as
of the date of this filing.
Redemption
Rights
Following
the fifth anniversary of the initial closing, the holders of a majority of the
Series B Preferred Stock, including NJTC if it then holds 25% of the shares of
Series B Preferred Stock initially purchased by it, may elect to require us to
redeem all, but not less than all, of their shares of Series B Preferred Stock
at the original purchase price for such shares plus all accrued and unpaid
dividends whether or not declared, if the market price of our Common Stock is
then below the conversion price of the Series B Preferred Stock.
Anti-Takeover
Provisions
Certain
anti-takeover provisions in our Certificate of Incorporation may make a change
in control of the Company more difficult, even if a change in control would be
beneficial to our stockholders. In particular, our board of directors will be
able to issue shares of preferred stock with rights and privileges that might be
senior to our Common Stock, without the consent of the holders of our Common
Stock, and has the authority to determine the price, rights, preferences,
privileges and restrictions of the preferred stock. Although the ability to
issue preferred stock may provide us with flexibility in connection with
possible acquisitions and other corporate purposes, this issuance may make it
more difficult for a third party to acquire a majority of our outstanding voting
stock.
Transfer
Agent
The
transfer agent for our Common Stock is American Stock Transfer & Trust
Company, located at 6201 15th Avenue, Brooklyn, New York 11219. American Stock
Transfer & Trust Company’s telephone number is 718-921-8143.
Item
10. Interests of Named Experts and Counsel
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had, or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
The
consolidated financial statements for the years ended December 31, 2008 and 2007
and the cumulative period from January 1, 2001 to December 31, 2008 included in
this prospectus and the registration statement have been audited by
WithumSmith+Brown, PC, independent registered public accountants as stated
in their report dated April 8, 2009 which includes an explanatory paragraph
relating to our ability to continue as a going concern. Such financial
statements have been included in reliance upon the authority of said
firm as experts in auditing and accounting.
Item
11. Information with Respect to the Registrant
DESCRIPTION
OF BUSINESS
Corporate
History
We were
incorporated in Nevada on April 25, 2002 as Gilder Enterprises, Inc. and were
originally engaged in the business of installing and operating computer networks
that provided high-speed access to the Internet. On June 30, 2006, we disposed
of our original business, and pursuant to an Agreement and Plan of Merger,
acquired all of the stock of MedaSorb Technologies, Inc. (“MedaSorb Delaware”)
in a merger, and its business became our business.
In
connection with the merger, we also changed our principal executive offices to
those of MedaSorb Delaware, which are located at 7 Deer Park Drive, Suite K,
Monmouth Junction, New Jersey 08852. Following the merger, in July 2006 we
changed our name to MedaSorb Technologies Corporation.
MedaSorb
Delaware was originally organized as a Delaware limited liability company in
August 1997 as Advanced Renal Technologies, LLC. MedaSorb Delaware changed its
name to RenalTech International, LLC in November 1998, and to MedaSorb
Technologies, LLC in October 2003. In December 2005,
MedaSorb Delaware converted from a limited liability company to a
corporation.
MedaSorb
Delaware has been engaged in research and development since its inception, and
prior to the merger, had raised approximately $53 million from investors. These
proceeds have been used to fund the development of multiple product applications
and to conduct clinical studies. These funds have also been used to establish
in-house manufacturing capacity to meet clinical testing needs, expand our
intellectual property through additional patents and to develop extensive
proprietary know-how with regard to our products.
Immediately
prior to the merger, MedaSorb Delaware had 292 stockholders that held an
aggregate of 20,340,929 shares of common stock of MedaSorb Delaware. In
connection with the merger, certain stockholders of ours (i.e., persons who
were stockholders of Gilder Enterprises prior to the merger), including Joseph
Bowes, a former principal stockholder and our sole director and officer prior to
the merger, sold an aggregate of 3,617,500 shares of our Common Stock to several
purchasers, and forfeited 4,105,000 shares of Common Stock, which we cancelled.
As a result, prior to giving effect to the merger, we had outstanding 3,750,000
shares of Common Stock and, after giving effect to the merger, we had
outstanding 24,090,929 shares of Common Stock.
The
principal stockholders of MedaSorb Delaware immediately prior to the merger were
Margie Chassman, Guillermina Montiel, Al Kraus and Robert Shipley, who
respectively beneficially owned 10,000,000 shares (49.2%), 5,052,456 shares
(24.6%), 1,393,631 shares (6.9%) and 1,248,372 shares (6%), of the outstanding
common stock of MedaSorb Delaware. Immediately following the merger and the
closing of the Series A Preferred Stock financing described below, Ms. Chassman
beneficially owned an additional 630,000 shares of Common Stock underlying the
warrant we issued to her in connection with her pledge of stock to the
purchasers of the Series A Preferred Stock, as described below. On July 5, 2006,
Ms. Chassman transferred 2,005,000 shares of Common Stock owned by her to her
designees as provided for under the Investment Agreement described elsewhere in
this prospectus. In addition, following the closing of the Series A Preferred
Stock financing, without giving effect to applicable restrictions that prohibit
conversion of the Series A Preferred Stock or exercise of warrants if as a
result the holder would hold in excess of 4.99% of our Common Stock, Longview
Fund, LP beneficially owned 3,600,000 shares (13%) of our Common
Stock.
On June
25, 2008, we completed an initial closing of a $4.45 million private placement,
which included the conversion of Promissory Notes in the aggregate amount of
$175,000 plus accrued interest described below. In connection with this
transaction we issued 44,531.47 shares of Series B Preferred Stock. The Company
also issued a five year warrant to purchase 3,986,429 shares of Common Stock at
an exercise price of $0.035 per share to the holder of the Promissory Notes in
connection with their conversion into the private placement. In August 2008 the
Company completed a closing of an $840,000 private placement. In connection with
this transaction, the Company issued 8,400 shares of Series B Preferred Stock.
The purchasers of the Series B Preferred Stock at the initial closing in June
2008 are entitled to purchase an additional $1.5 million of Series B Preferred
Stock at the same price of $100 per share for a period of 15 months following
the initial closing date.
As
inducement to invest in the private placement of Series B Preferred Stock, we
granted additional consideration to the participants of the Series B Preferred
Stock private placement if litigation is commenced against MedaSorb prior to
June 30, 2018 for patent infringement on certain of our issued patents. In the
event claims are brought against the Company for patent infringement, we may be
required to issue warrants to purchase shares of our common stock in the
aggregate of up to a maximum of ten million shares of common stock subject to
certain adjustments. As of the date of this filing, no such litigation has
arisen.
Principal Terms of the
Reverse Merger
In
connection with the merger, the former stockholders of MedaSorb Delaware were
issued an aggregate of 20,340,929 shares of Common Stock in exchange for the
shares of MedaSorb common stock previously held by them. In addition, pursuant
to the terms of the merger, outstanding warrants and options to purchase a total
of 1,697,648 shares of the common stock of MedaSorb Delaware were cancelled in
exchange for warrants and options to purchase the same number of shares of our
Common Stock at the same exercise prices and otherwise on the same general terms
as the MedaSorb Delaware options and warrants that were cancelled. Certain
providers of legal services to MedaSorb Delaware who previously had the right to
be issued approximately 997,000 shares of MedaSorb
Delaware common stock as payment toward accrued legal fees, became entitled to
instead be issued the same number of shares of our Common Stock as payment
toward such services.
Concurrently
with the closing of the merger, Joseph G. Bowes, our sole director and officer
prior to the merger, appointed Al Kraus, Joseph Rubin, Esq., and Kurt Katz to
the Board of Directors, and then resigned from the Board and from his positions
as an officer. In addition, at such time, Al Kraus was appointed our President
and Chief Executive Officer, James Winchester, MD was appointed our Chief
Medical Officer, Vincent Capponi was appointed our Chief Operating Officer and
David Lamadrid was appointed our Chief Financial Officer.
For
accounting purposes, the merger is being accounted for as a reverse merger,
since we were a shell company prior to the merger, the former stockholders of
MedaSorb Delaware own a majority of the issued and outstanding shares of our
Common Stock after the merger, and the directors and executive officers of
MedaSorb Delaware became our directors and executive officers. Accordingly,
MedaSorb Delaware is treated as the acquiror in the merger, which is treated as
a recapitalization of MedaSorb Delaware, and the pre-merger financial statements
of MedaSorb Delaware are now deemed to be our historical financial
statements.
Principal Terms of the
Series A Financing Consummated upon the Closing of the
Merger
On June
30, 2006, immediately following the merger, we sold to four institutional
investors, in a private offering generating gross proceeds of $5.25 million, an
aggregate of 5,250,000 shares of our Series A 10% Cumulative Convertible
Preferred Stock initially convertible into 4,200,000 shares of Common Stock, and
five-year warrants to purchase an aggregate of 2,100,000 shares of our Common
Stock.
The
Series A Preferred Stock has a stated value of $1.00 per share. The Series A
Preferred Stock is not redeemable at the holder’s option but may be redeemed by
us at our option following the third anniversary of the issuance of the Series A
Preferred Stock for 120% of the stated value thereof plus any accrued but unpaid
dividends upon 30 days' prior written notice (during which time the Series A
Preferred Stock may be converted), provided a registration statement is
effective under the Securities Act with respect to the shares of our Common
Stock into which such Series A Preferred Stock is then convertible, and an event
of default, as defined in the Certificate of Designations relating to the Series
A Preferred Stock is not then continuing.
The
Series A Preferred Stock has a dividend rate of 10% per annum, payable
quarterly. The dividend rate increases to 20% per annum upon the occurrence of
the events of default specified in the Amendment Certificate to Certificate of
Designations. Dividends may be paid in cash or, provided no event of default is
then continuing, with additional shares of Series A Preferred Stock valued at
the stated value thereof. The Series A Preferred Stock is convertible into
Common Stock at the conversion rate of one share of Common Stock for each $1.25
of stated value or accrued but unpaid dividends converted.
The
warrants issued in the private placement have an initial exercise price of $2.00
per share. The aggregate number of shares of Common Stock covered by the
Warrants equaled, at the date of issuance, one-half the number of shares of
Common Stock issuable upon the full conversion of the Series A Preferred Stock
issued to the investors on that date. Based on the Qualified Closing of Series B
Preferred Stock in August 2008, the June 30, 2006 purchasers of Series A
Preferred Stock had their conversion prices reduced to prices ranging from $0.10
to $0.45 per share of Common Stock. The June 30, 2006 purchasers of Series A
Preferred Stock also had the exercise price on their corresponding warrants
reduced to prices ranging from $0.40 to $0.90 per share of Common
Stock.
We agreed
to file a registration statement under the Securities Act covering the Common
Stock issuable upon conversion of the Series A Preferred Stock and exercise of
the warrants within 120 days following closing of the private placement and to
cause it to become effective within 240 days of that closing. We also granted
the investors demand and piggyback registration rights with respect to such
Common Stock. Because the registration statement was not declared effective
within the time required under our agreements with the June 30, 2006, dividends
on the shares of Series A Preferred Stock issued to those purchasers accrued at
the rate of 20% per annum from February 26, 2007 through May 6, 2007 and were in
cash for such period, and we were obligated to pay those purchasers an aggregate
of $105,000 per 30-day period from February 26, 2007 through May 6, 2007. The
Registration Statement was declared effective on May 7, 2007.
Even
though pursuant to the original Certificate of Designation designating Series A
Preferred Stock, both the conversion price of the Series A Preferred Stock and
the exercise price of the Class A Warrants are subject to “full-ratchet”
anti-dilution provisions, the holders of Series A Preferred Stock permanently
waive the right of anti-dilution as one of the conditions to the closing of the
Series B Financing.
On June
25, 2008, we entered into an Agreement and Consent as of the same date with the
holders of more than 80% of our Series A Preferred Stock, par value 0.001 per
share and the holders of more than 80% of the outstanding common stock purchase
warrants issued to the purchasers of our Series A Preferred Stock (the “Class A
Warrant”).
In
connection with such Agreement and Consent, the conversion price and exercise
price with respect to the June 30, 2006 purchasers of Series A Preferred Stock
and warrants shall be reduced effective August 25, 2008, at the initial closing
of the Series B Financing and the qualified closing of the Series B Financing
according to the Schedule A to the Agreement and Consent as set forth as
follows:
Series A Preferred Stock Holders on 06/30/06
|
|
Initial Closing (06/25/08)
|
|
|
Qualified Closing (08/25/08)
|
|
|
|
Preferred Stock
Conversion Price
|
|
|
Warrant
Exercise Price
|
|
|
Preferred Stock
Conversion Price
|
|
|
Warrant
Exercise Price
|
|
Alpha
Capital Aktiengesellschaft
|
|
$ |
0.26 |
|
|
$ |
0.52 |
|
|
$ |
0.20 |
|
|
$ |
0.40 |
|
Longview
Fund, LP
|
|
$ |
1.25 |
|
|
$ |
2.00 |
|
|
$ |
0.45 |
|
|
$ |
0.90 |
|
Platinum
Partners Long Term Growth III LLC
|
|
$ |
1.25 |
|
|
$ |
2.00 |
|
|
$ |
0.10 |
|
|
$ |
0.40 |
|
Ellis
International Ltd.
|
|
$ |
0.26 |
|
|
$ |
0.52 |
|
|
$ |
0.20 |
|
|
$ |
0.40 |
|
Margie
Chassman
|
|
$ |
1.25 |
|
|
$ |
2.00 |
|
|
$ |
0.10 |
|
|
$ |
0.40 |
|
In the
event that within the 60-day period following the Initial Closing, at additional
closings, the Company issued additional shares of Series B Preferred Stock so
that the aggregate gross proceeds that were raised on the Initial Closing and
such additional closings (excluding the principal amount of our outstanding debt
converted into the Series B Preferred Stock) from the holders of the Series A
Preferred Stock or their affiliates, is $1,500,000 or more, the conversion price
with respect to the June 30, 2006 holders of Series A Preferred Stock was agreed
to be further reduced in accordance with Schedule A to the Agreement and Consent
as set forth in the table above. Based on the total amount raised and
in accordance with our investor agreements, MedaSorb’s Series B Preferred Stock
private placement was considered a “Qualified” Closing.
In
addition, effective upon the Qualified Closing of Series B Preferred Stock on
August 25, 2008, the June 30, 2006 holders of the Series A Preferred Stock
received reduction in the warrant exercise price to their Class A Warrants as
set forth in the table above under Qualified Closing.
Series B
Financing
Each
share of Series B Preferred Stock has a stated value of $100.00, and is
convertible at the holder’s option into that number of shares of Common Stock
equal to the stated value of such share of Series B Preferred Stock divided by
an initial conversion price of $0.035 which has subsequently been adjusted to
$0.0362, subject to certain adjustments. Additionally, upon the occurrence of a
stock split, stock dividend, combination of the Common Stock into a smaller
number of shares, issuance of any of shares of Common Stock or other securities
by reclassification of the Common Stock, merger or sale of substantially all of
our assets, the conversion rate will be adjusted so that the conversion rights
of the Series B Preferred Stock stockholders will be equivalent to the
conversion rights of the Series B Preferred Stock stockholders prior to such
event.
The
Series B Preferred Stock bears a dividend of 10% per annum payable quarterly,
but if an “Event of Default” as defined in the Certificate of Designation of the
Series B Preferred Stock has occurred and is then continuing, the dividend rate
increases to 20% per annum. An Event of Default includes, but is not limited to,
the following:
|
¨
|
the occurrence of
“Non-Registration Events”;
|
|
¨
|
an uncured breach by us of any
material covenant, term or condition in the Certificate of Designation or
any of the related transaction documents;
and
|
|
¨
|
any money judgment or similar
final process being filed against us for more than
$100,000.
|
Dividends
on the Series B Preferred Stock will be made in additional shares of Series B
Preferred Stock, valued at the stated value thereof. Notwithstanding the
foregoing, during the first three-years following the initial closing, upon the
approval of the holders of a majority of the Series B Preferred Stock, including
the lead investor, NJTC, if it then owns 25% of the shares of Series B Preferred
Stock initially purchased by it (the “Required Amount”), we
may pay dividends in cash instead of additional shares of Series B Preferred
Stock, and after such three-year period, the holders of a majority of the Series
B Preferred Stock, including NJTC if it then owns the Required Amount, may
require that such payments be made in cash.
In the
event of our dissolution, liquidation or winding up, the holders of the Series B
Preferred Stock will receive, in priority over the holders of Series A Preferred
Stock and Common Stock, a liquidation preference equal to the stated value of
such shares plus accrued dividends thereon.
Holders
of Series B Preferred Stock have the right to vote on matters submitted to the
holders of Common Stock on an as converted basis. However, the consent of the
holders of at least a majority of the shares of the Series B Preferred Stock as
a separate class, including NJTC if it is then a holders of at least 25% of the
shares of Series B Preferred Stock purchased by it on the Initial Closing Date,
shall be required on matters related to the rights of the Series B Preferred
Stock.
In
addition, so long as NJTC holds 25% of the Series B Preferred Stock it purchased
before the initial closing, NJTC is entitled to elect (i) two directors to our
Board of Directors, which shall consist of six members for the first twelve
months, after which it will be reduced to five members, and (ii) two members to
our compensation committee, which shall consist of no less than three
members.
Moreover,
so long as Cahn Medical Technologies, LLC is the holder of at least 25% of the
shares of the Series B Preferred Stock purchased by it on the initial closing
date, it has the right to have its designee receive notices of, and attend as an
observer, all meetings of our Board of Directors.
We have
agreed to file a registration statement under the Securities Act covering the
Common Stock issuable upon conversion of the Series B Preferred Stock within 180
days following the initial closing and to cause it to become effective within
240 days of such closing. We also granted the investors demand and piggyback
registration rights with respect to such Common Stock. The investors in the
Series B Financing are entitled to liquidated damages in an amount equal to two
percent (2%) of the purchase price of the Series B Preferred Stock if we fail to
timely file that registration statement with, or have it declared effective by,
the SEC.
Following
the fifth anniversary of the initial closing, the holders of a majority of the
Series B Preferred Stock, including NJTC if it then holds 25% of the shares of
Series B Preferred Stock initially purchased by it, may elect to require us to
redeem all, but not less than all, of their shares of Series B Preferred Stock
at the original purchase price for such shares plus all accrued and unpaid
dividends whether or not declared, if the market price of our Common Stock is
then below the conversion price of the Series B Preferred Stock.
The
transaction documents entered into with the purchasers of the Series B Preferred
Stock also provide for various penalties and fees for breaches or failures to
comply with provisions of those documents, such as the timely payment of
dividends, delivery of stock certificates upon conversion of the Series B
Preferred Stock or exercise of the warrants, and obtaining and maintaining an
effective registration statement with respect to the shares of Common Stock
underlying the Series B Preferred Stock and warrants sold in the
offering.
Overview of Our
Business
We are a
medical device company that is currently in the development stage, headquartered
in Monmouth Junction, New Jersey (near Princeton). We have developed and will
seek to commercialize a blood purification technology that we believe will be
able to efficiently remove middle molecular weight toxins from circulating
blood. We will be required to obtain required approvals from the United States
Food and Drug Administration before we can sell our products in the United
States. In December 2006, we submitted a proposed pilot study for approval to
the FDA with respect to CytoSorb™, the first device we intend to bring to
market. In the first quarter of 2007, we received approval from the FDA to
conduct a limited study of five patients in the adjunctive treatment of sepsis.
Based upon management’s belief that proceeding with the approved limited study
would add at least one year to the approval process for the U.S., we made a
determination to focus our efforts on obtaining CE Mark regulatory approval in
Europe before proceeding with the FDA.
Since
we believe that the path to a CE Mark should be faster than FDA approval, we
have targeted Europe for the initial market introduction of our CytoSorbTM. We estimate that the market
potential in Europe for our products is substantially equivalent to that in the
U.S., given the opportunity to conduct a much larger clinical study in Europe.
To accomplish the European introduction, in July 2007, we prepared and filed a
request for a clinical trial with German regulators. We received approval of the
final study design in October, 2007. The clinical study allows for enrollment of
up to 100 patients with acute respiratory distress syndrome or acute lung
injury in the setting of sepsis. We have made arrangements with ten
hospital sites in Germany to conduct the clinical studies, and to date,
have enrolled twenty seven (27) patients in the
study.
The
clinical protocol for our European clinical study has been designed to allow us
to gather information to support future U.S. studies. In the event we receive
the CE Mark and are able to successfully commercialize our products in the
European market, we will review our plans for the U.S. to determine whether to
conduct clinical trials in support of 510K or PMA registration with the
FDA.
However,
there can be no assurance we will eventually obtain CE Mark regulatory approval
for our CytoSorb™ or any other device in Europe. Even if we eventually obtain CE
Mark approval, there can be no assurance as to when such approval will be
obtained, because we cannot control the timing of responses from regulators to
our submissions. After we can obtain the CE Mark approval, there is no assurance
that we will resume the application process with the FDA. If we do decide to
continue the process with FDA, we cannot guarantee that we will be able to
obtain the FDA approval eventually.
We have
developed two products, CytoSorb™ and BetaSorb™ utilizing our adsorbent polymer
technology. These products are known medically as hemoperfusion devices. During
hemoperfusion, blood is removed from the body via a catheter or other blood
access device, perfused through a filter medium where toxic compounds are
removed, and returned to the body.
The
CytoSorb™ device consists of a cartridge containing adsorbent polymer
beads. The cartridge incorporates industry standard connectors at either end of
the device which connect directly to an extra-corporeal circuit (bloodlines) on
a stand alone basis. The extracorporeal circuit consists of plastic tubing
through which the blood flows, our CytoSorb™ cartridge containing adsorbent
polymer beads, pressure monitoring gauges, and a blood pump to maintain blood
flow. The patient’s blood is accessed through a catheter inserted into his or
her veins. The catheter is connected to the extracorporeal circuit and the blood
pump draws blood from the patient, pumps it through the cartridge and returns it
back to the patient in a closed loop system. As blood passes over the polymer
beads in the cartridge, toxins (cytokines) are adsorbed from the
blood.
To date,
we have manufactured the CytoSorb™ device on a limited basis for testing
purposes, including for use in clinical studies. 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
devices.
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.
Previous
studies using our BetaSorb™ device in patients with chronic kidney failure have
provided valuable data which we will use in conducting clinical studies using
our CytoSorb™ device. However, limited studies have been conducted using our
CytoSorb™ device to date and no assurance can be given that we will eventually
obtain regulatory approval for our CytoSorb™ or any other device. Even if we
eventually obtain CE Mark approval, there can be no assurance as to when such
approval will be obtained. After we can obtain the CE Mark approval, there is no
assurance that we will resume application process with the FDA. If we do decide
to continue the process with FDA, we cannot guarantee that we will be able to
obtain the FDA approval eventually.
Our
BetaSorb™ device is intended to remove beta2-microglobulin
from the blood of patients suffering from chronic kidney failure who rely on
long term dialysis therapy to sustain their life. BetaSorb™ utilizes an
adsorbent polymer packed into an identically shaped and
constructed cartridge as utilized for our CytoSorb™ product, although the
polymers used in the two devices are physically different. The BetaSorb™ device
also incorporates industry standard connectors at either end of the device which
connect directly into the extracorporeal circuit (bloodlines) in series with a
dialyzer. To date, we have manufactured the BetaSorb™ device on a limited basis
for testing purposes, including for use in clinical studies.
We had
initially identified end stage renal disease (ESRD) as the target market for our
polymer-based adsorbent technology. However, during the development of
BetaSorb™, we identified several applications for our adsorbent technology in
the treatment of critical care patients. As a result, we shifted our priorities
to pursue critical care applications (such as for the treatment of sepsis) for
our technology given that BetaSorb’s™ potential for usage in chronic conditions
such as end stage renal disease is anticipated to have a longer and more complex
regulatory pathway. We currently intend to pursue our BetaSorb™ product after
the commercialization of the CytoSorb™ product. At such time as we determine to
proceed with our proposed BetaSorb™ product, if ever, we will need to conduct
additional clinical studies using the BetaSorb™ device and obtain CE Market and
/or FDA regulatory approval(s).
To date,
we have conducted clinical studies using our BetaSorb™ device in patients with
chronic kidney failure, which have provided valuable data which underpin the
development of the critical care applications for our technology. The BetaSorb™
device has been used in a total of three human pilot studies, involving 20
patients, in the U.S. and Europe. The studies included approximately 345
treatments, with some patients using the device for up to 24 weeks (in multiple
treatment sessions lasting up to four hours, three times per week) in connection
with the application of our products to patients suffering from chronic kidney
failure. The BetaSorb™ device design was also tested on a single patient with
bacterial sepsis, producing results that our management has found encouraging
and consistent with our belief that our device design is appropriate for a more
extensive sepsis study. In addition, CytoSorb’s™ ability to interact safely with
blood (hemocompatibility) has been demonstrated through ISO 10993 testing. The
studies we have done to date were not done in conjunction with obtaining CE
Market approval for the use of our CytoSorb™ device, the first device we intend
to bring to the European Market.
We have
not generated any revenue to date. We have incurred losses in each of our fiscal
years and expect these losses to continue for the foreseeable future. We will
need to raise significant additional funds to conduct clinical studies and
obtain regulatory approvals to commercialize our products. No assurance can be
given that we will ever successfully commercialize any products.
Markets
Sepsis
In the
United States alone, there are more than one million new cases of severe sepsis
annually; extrapolated to a global population, the worldwide incidence
is approximately 18 million cases per year. Severe trauma and
community acquired pneumonia are often associated with sepsis.
Sepsis
patients are critically ill and suffer a very high mortality rate of between 28%
and 60%. Because they are so expensive to treat, we believe that efficacy rather
than cost will be the determining factor in the adoption of CytoSorb™ in the
treatment of sepsis. Based on current pricing of charcoal hemoperfusion devices
in the market today, we estimate that our CytoSorb™ device will sell for $500
per unit. Our current pricing model represents a fraction of what is currently
spent on the treatment of a sepsis patient.
Brain-Dead Organ
Donors
There are
in excess of 6,000 brain dead organ donors each year in the United States;
worldwide, the number of these organ donors is estimated to be at least double
the U.S. brain dead organ donor population. There is a severe shortage of donor
organs. Currently, there are more than 85,000 individuals on transplant waiting
lists in the United States. We expect that the use of our CytoSorb™ device in
brain dead organ donors will increase the number of viable organs harvested from
the donor pool and improve the survival of transplanted organs.
Cardiopulmonary Bypass
Procedures
There are
approximately 400,000 cardiopulmonary bypass (CPB) and cardiac surgery
procedures performed annually in the U.S. and more than 800,000 worldwide. Some
patients, nearly one-third, suffer from post-operative complications of
cardiopulmonary bypass surgery, including complications from infection,
pneumonia, pulmonary, and neurological dysfunction. A common characteristic of
these post operative complications is the presence of cytokines in the blood.
Extended surgery time leads to longer ICU recovery time and hospital stays, both
leading to higher costs - approximately $32,000 per coronary artery bypass graft
procedure. We believe that the use of CytoSorb™ during and after the surgical
procedure may prevent or mitigate post-operative complications for many CPB
patients.
We
anticipate that the CytoSorb™ device, incorporated into the extra-corporeal
circuit used with the by-pass equipment during surgery, and/or employed
post-operatively for a period of time, may mitigate inflammation and speed
recovery.
Chronic Kidney
Failure
The
National Kidney Foundation estimates that more than 20 million Americans have
chronic kidney disease. Left untreated, chronic kidney disease can ultimately
lead to chronic kidney failure, which requires a kidney transplant or chronic
dialysis (generally three times per week) to sustain life. There are
approximately 300,000 patients in the United States currently receiving chronic
dialysis and more than 1.4 million worldwide. Approximately 89% of patients with
chronic kidney disease are treated with hemodialysis.
Our
BetaSorb™ device has been designed for use in conjunction with standard
dialysis. Standard dialysis care typically involves three sessions per week,
averaging approximately 150 sessions per year. Assuming BetaSorb™ use in each
session, every 100,000 patients would require approximately 15 million devices
annually.
Products
We
believe that the polymer adsorbent technology used in our products has the
potential to remove middle molecular weight toxins, such as cytokines,
circulating in the blood. All of the potential applications described below
(i.e., the
treatment and/or prevention of sepsis; the treatment of chronic kidney failure;
the treatment of liver failure; the prevention of post-operative complications
of cardiopulmonary bypass surgery; and the prevention of damage to organs
donated by brain-dead donors prior to organ harvest) share in common high
concentrations of toxins in the circulating blood. However, because of the
limited studies we have conducted to date, we are subject to substantial risk
that our technology will have little or no effect on the treatment of any of
these indications.
In
December 2006, we submitted a proposed pilot study for approval to the FDA with
respect to CytoSorb™, the first device we intend to bring to market. In the
first quarter of 2007, we received approval from the FDA to conduct a limited
study of five patients in the adjunctive treatment of sepsis. Based upon
management’s belief that proceeding with the approved limited study would add at
least one year to the approval process for the U.S., we made determination to
focus our efforts on obtaining regulatory approval in Europe before proceeding
with the FDA.
We
estimate that the market potential in Europe for our products is substantially
equivalent to that in the U.S. Given the opportunity to conduct a much larger
clinical study in Europe, and management’s belief that the path to a CE Mark
should be faster than FDA approval, we have targeted Europe for the initial
market introduction of our CytoSorb™ device . To accomplish the European
introduction, in July 2007, we prepared and filed a request for a clinical trial
with German regulators. We received approval from the German Ethics Committee in
October, 2007 to conduct a clinical study of up to 80 patients with acute
respiratory distress syndrome or acute lung injury in the setting of
sepsis. In April 2009, we submitted a protocol revision to expand the
options for anti-coagulation that the clinical sites may use, and to increase
the total number of patients that may be enrolled from 80 to to 100
patients. This revision has been approved by the German Ethics
Committee. We believe that the revised protocol will enable more
potential sites to participate in the study, and may help accelerate patient
enrollment through greater access to potential candidates. Further,
while we do not anticipate enrolling more than 80 patients, we now have the
flexibility to enroll up to 100 patients if needed. Additionally, we
have updated blood sampling and handling procedures to minimize non-device
related artifacts that may potentially arise if the samples are not processed
appropriately. To date we have enrolled twenty seven (27) patients in
the study.
The
clinical protocol for our European clinical study has been designed to allow us
to gather information to support future U.S. studies in the event we receive the
CE Mark and are able to successfully commercialize our products in the European
market, we will review our plans for the U.S. to determine whether to conduct
clinical trials in support of 510K or PMA registration.
However,
there can be no assurance we will eventually obtain regulatory approval for our
CytoSorb™ or any other device from CE Mark. Even if we eventually obtain CE Mark
approval, there can be no assurance as to when such approval will be obtained,
because we cannot control the timing of responses from regulators to our
submissions. After we can obtain the CE Mark approval, there is no assurance
that we will resume application process with the FDA. If we do decide to
continue the process with FDA, we cannot guarantee that we will be able to
obtain the FDA approval eventually.
The CytoSorb™ Device
(Critical Care)
APPLICATION:
Treatment and Prevention of Sepsis
Sepsis is
defined by high levels of toxic compounds (“cytokines”) which are
released into the blood stream as part of the body’s auto-immune response to
severe infection or injury. These toxins cause severe inflammation and damage
healthy tissues, which can lead to organ dysfunction and failure. Sepsis is very
expensive to treat and has a high mortality rate.
Potential Benefits:
To the extent our adsorbent blood purification technology is able to prevent or
reduce the accumulation of cytokines in the circulating blood, we believe our
products may be able to prevent or mitigate severe inflammation, organ
dysfunction and failure in sepsis patients. Therapeutic goals as an adjunctive
therapy include reduced ICU and total hospitalization time.
Background and
Rationale: We believe that the effective treatment of sepsis is the most
valuable potential application for our technology. Sepsis carries mortality
rates of between 28% and 60%. Death can occur within hours or days, depending on
many variables, including cause, severity, patient age and co-morbidities.
Researchers estimate that there are approximately one million new cases of
severe sepsis in the U.S. each year; extrapolated to a global population, this
equates to approximately 18 million new cases annually. In the U.S.
alone, treatment of sepsis costs nearly $18 billion annually. According to the
Centers for Disease Control, sepsis is the tenth leading cause of death in the
U.S., as reported by (CDC). More than 1,000 people die each day from
sepsis.
An
effective treatment for sepsis has been elusive. Pharmaceutical companies have
been trying to develop drug therapies to treat the condition. With the exception
of a single drug, Xigris® from Eli Lilly, which demonstrated a small improvement
in survival in a small segment of the patient population, to our knowledge, all
other efforts to date have failed to significantly improve patient
survival.
We
believe that our technology presents a new therapeutic approach in the treatment
of sepsis. The potential benefits of blood purification in the treatment of
sepsis patients are widely acknowledged by medical professionals and have been
studied using dialysis and hemofiltration technology. These studies, while
encouraging, demonstrated that dialysis alone produced only limited benefit to
sepsis patients. The reason for this appears to be rooted in a primary
limitation of dialysis technology itself: the inability of standard dialysis to
effectively and efficiently remove larger toxins from circulating blood. Limited
studies of our CytoSorb™ device have provided us with data consistent with our
belief that CytoSorb™ has the ability to remove these larger toxins. CytoSorb’s™
ability to interact safely with blood (hemocompatibility) has been demonstrated
through ISO 10993 testing. Data collected during the “emergency and
compassionate use” treatment of a single sepsis patient has been encouraging to
us.
CytoSorb™
has been designed to achieve broad-spectrum removal of both pro- and
anti-inflammatory cytokines, preventing or reducing the accumulation of high
concentrations in the bloodstream. This approach is intended to modulate the
immune response without blocking or suppressing the function of any of its
mediators. For this reason, researchers have referred to the approach reflected
in our technology as ‘immunomodulatory’ therapy.
Projected Timeline and
Budget Requirements: Previous clinical studies using our BetaSorb™ device
in patients with chronic kidney failure have provided valuable data which
underpin the development of the critical care applications for our technology.
The BetaSorb™ device has been used in a total of three human pilot studies,
involving 20 patients, in the U.S. and Europe. The studies included
approximately 345 treatments, with some patients using the device for up to 24
weeks (in multiple treatment sessions lasting up to four hours, three times per
week) in connection with the application of our products to patients suffering
from chronic kidney failure. The BetaSorb™ device design was also tested on a
single patient with bacterial sepsis, producing results that our management has
found encouraging and consistent with our belief that our device design is
appropriate for a more extensive sepsis study.
Because
our technology pertains to a medical device, the regulatory pathway and approval
process are faster and more straightforward than the process related to the
approval of a drug. However, even if we ultimately obtain CE Market approval,
because we cannot control the timing of CE Market responses to our submissions,
there can be no assurance as to when such approval will be obtained. Further,
even if we ultimately obtain CE Market approval, there is no assurance that we
can obtain the FDA approval.
APPLICATION: Prevention and treatment of organ
dysfunction in brain-dead organ donors to increase the number and quality of
viable organs harvested from donors
Potential Benefits:
If CytoSorb™ is able to prevent or reduce high-levels of cytokines from
accumulating in the bloodstream of brain-dead organ donors, we believe CytoSorb™
will be able to mitigate organ dysfunction and failure which results from severe
inflammation following brain-death. The primary goals for this application
are:
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·
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improving the viability of organs
which can be harvested from brain-dead organ donors,
and
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·
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increasing the likelihood of
organ survival following
transplant.
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Background and
Rationale: When brain death occurs, the body responds by generating large
quantities of inflammatory cytokines. This process is similar to sepsis. A high
percentage of donated organs are never transplanted due to this response, which
damages healthy organs and prevents transplant. In addition, inflammation in the
donor may damage organs that are harvested and reduce the probability of graft
survival following transplant.
There is
a shortage of donated organs worldwide, with approximately 85,000 people
currently on the waiting list for organ transplants in the United States alone.
Because there are an insufficient number of organs donated to satisfy demand, it
is vital to maximize the number of viable organs donated, and optimize the
probability of organ survival following transplant.
Projected Timeline and
Budget Requirements: Studies were conducted under a $1 million grant from
the Health Resources and Services Administration (HRSA), an agency of the
U.S. Department of Health and Human Services. Researchers at the University of
Pittsburgh Medical Center and the University of Texas, Houston Medical Center
completed the observational and dosing phases of the project in the third
quarter of 2006. The observational and dosing phases of the study involved 30
viable donors and eight non-viable donors, respectively. The next phase of this
study, the treatment phase, will involve viable donors treated with the
CytoSorb™ device. In this phase of the project, viable donors will be treated
and the survival and function of organs in transplant recipients will be tracked
and measured. We are not currently focusing our efforts on the commercialization
of CytoSorb™ for application in organ donors. The treatment phase
will be contingent upon further discussion with the FDA and HRSA regarding study
design, as well as obtaining additional funding.
APPLICATION:
Prevention and treatment of post-operative complications of cardiopulmonary
bypass surgery
Potential Benefits:
If CytoSorb™ is able to prevent or reduce high-levels of cytokines from
accumulating in the blood system during and following cardiac surgery, we
anticipate that post-operative complications of cardiopulmonary bypass surgery
may be able to be prevented or mitigated. The primary goals for this application
are to:
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·
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reduce ventilator and oxygen
therapy requirements;
|
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·
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reduce length of stay in hospital
intensive care units;
and
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reduce the total cost of patient
care.
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Background and
Rationale: Due to the highly invasive nature of cardiopulmonary bypass
surgery, high levels of cytokines are produced by the body, triggering severe
inflammation. If our products are able to prevent or reduce the accumulation of
cytokines in a patient’s blood stream, we expect to prevent or mitigate
post-operative complications caused by an excessive or protracted inflammatory
response to the surgery. While not all patients undergoing cardiac surgery
suffer these complications, it is impossible to predict before surgery which
patients will be affected.
Projected Timeline:
We commissioned the University of Pittsburgh to conduct a study to characterize
the production of cytokines as a function of the surgical timeline for
cardiopulmonary bypass surgery. An observational study of 32 patients was
completed, and information was obtained with respect to the onset and duration
of cytokine release. We expect that this information will aid us in defining the
appropriate time to apply the CytoSorb™ device to maximize therapeutic impact.
We are not currently focusing our efforts on the commercialization of CytoSorb™
for application in cardiac surgery. Upon successful commercialization of the
sepsis application, we will pursue the use of our polymer absorbent technology
for other critical care uses, such as cardiopulmonary bypass
surgery.
The BetaSorb™ Device
(Chronic Care)
APPLICATION:
Prevention and treatment of health complications caused by the accumulation of
metabolic toxins in patients with chronic renal failure
Potential Benefits:
If CytoSorb™ is able to prevent or reduce high levels of metabolic waste
products from accumulating in the blood and tissues of long-term dialysis
patients, we anticipate that the health complications characteristic to these
patients can be prevented or mitigated. The primary goals for this application
are to
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improve and maintain the general
health of dialysis patients;
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improve the quality of life of
these patients;
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reduce the total cost of patient
care; and
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increase life
expectancy.
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Background and
Rationale: Our BetaSorb™ device is intended for use on patients suffering
from chronic kidney failure who rely on long-term dialysis therapy to sustain
life. Due to the widely recognized inability of dialysis to remove larger
proteins from blood, metabolic waste products, such as Beta-2 microglobulin,
accumulate to toxic levels and are deposited in the joints and tissues of
patients. Specific toxins known to accumulate in these patients have been linked
to their severe health complications, increased healthcare costs, and reduced
quality of life.
Researchers
also believe that the accumulation of toxins may play an important role in the
significantly reduced life expectancy experienced by dialysis patients. In the
U.S., the average life expectancy of a dialysis patient is five years. Industry
research has identified links between many of these toxins and poor patient
outcomes. If our BetaSorb™ device is able to routinely remove these toxins
during dialysis and prevent or reduce their accumulation, we expect our
BetaSorb™ device to maintain or improve patient health in the long-term. We
believe that by reducing the incidence of health complications, the annual cost
of patient care will be reduced and life expectancy increased.
The poor
health experienced by chronic dialysis patients is illustrated by the fact that
in the U.S. alone, more than $20 billion is spent annually caring for this
patient population. While the cost of providing dialysis therapy alone is
approximately $23,000 per patient per year, the total cost of caring for a
patient ranges from $60,000 to more than $120,000 annually due to various health
complications associated with dialysis.
Projected Timeline:
We have collected a significant amount of empirical data for the development of
this application. As the developer of this technology, we had to undertake
extensive research, as no comparable technology was available for reference
purposes. We have completed several pilot studies, and most recently a clinical
pilot of six patients in California for up to 24 weeks in which our BetaSorb™
device removed the targeted toxin, beta2-microglobulin,
as expected. In total, we have sponsored clinical studies utilizing our
BetaSorb™ device on 20 patients involving approximately 345 total treatments.
Each study was conducted by a clinic or hospital personnel with MedaSorb
providing technical assistance as requested.
As
discussed above, due to practical and economic considerations, we are now
focusing our efforts and resources on commercializing our CytoSorb™ device for
critical care application. Following commercial introduction of the CytoSorb™
device, we expect to conduct additional clinical studies using the BetaSorb™
device in the treatment of end stage renal disease patients.
Commercial and Research
Partners
- University of Pittsburgh
Medical Center
Two
government research grants by the National Institutes of Health (NIH) and Health
and Human Services (HHS) have been awarded to investigators at the University of
Pittsburgh to explore the use of adsorbent polymers in the treatment of sepsis
and organ transplant preservation. Under “SubAward Agreements” with the
University of Pittsburgh, we have been developing polymers for use in these
studies.
A
grant of $1 million
was awarded to the University of Pittsburgh Medical Center in 2003. The project
seeks to improve the quantity and viability of organs donated for transplant by
using CytoSorb™ to detoxify the donor’s blood. The observational and dosing
phases of the study, involving 30 viable donors and eight non-viable donors,
respectively, have been completed. The next phase of this study, the treatment
phase, will involve viable donors. We are not currently focusing our efforts on
the commercialization of CytoSorb™ for application in organ
donors. The treatment phase will be contingent upon further
discussion with the FDA and HRSA regarding study design, as well as obtaining
additional funding.
In
addition, in September 2005, the University of Pittsburgh Medical Center was
awarded a grant of approximately $7 million from NIH entitled “Systems
Engineering of a Pheresis Intervention for Sepsis (SEPsIS)” to study the use of
adsorbent polymer technology in the treatment of severe sepsis. The study,
expected to last for a total of five years, commenced in September, 2005 and
remains in progress. Under a SubAward Agreement, we are working with researchers
at the University of Pittsburgh - Critical Care Medicine Department. Currently,
we believe that the only polymers being used in this study are polymers we have
developed specifically for use in the study, which are similar to the polymers
used in our devices. Under the SubAward Agreement, for each of 2006 and 2007, we
received approximately $102,000 for our efforts in support of the grant.
Additionally for 2008 we received an approximate $59,000 for our supporting
efforts. We continue to supply UPMC with new samples based on our adsorbent
polymer technology under the same terms as the initial SubAward Agreement, and
expect to do so for the duration of the study. UPMC has indicated to us that the
amounts budgeted for our participation under the study are approximately $78,000
and $163,000, respectively for the grant periods commencing September 2008 and
ending September 2010. The amounts are subject to change on an annual
basis by the NIH, and our continued participation in the study is subject to our
performance and an annual review by UPMC.
These
grants represent a substantial research cost savings to us and demonstrate the
strong interest of the medical and scientific communities in our
technology.
Researchers
at UPMC have participated in nearly every major clinical study of potential
sepsis intervention during the past twenty years. Drs. Derek Angus and John
Kellum were investigators for Eli Lilly’s sepsis drug, Xigris®. Dr. Kellum, a
member of the UPMC faculty since 1994, is our principal investigator for
CytoSorb™. Dr. Kellum, together with several other researchers at UPMC, serve on
our Critical Care Advisory Board. Dr. Kellum’s research interests span various
aspects of Critical Care Medicine, but center on critical care nephrology
(including acid-base, and renal replacement therapy), sepsis and multi-organ
failure, and clinical epidemiology. He is Chairman of the Fellow Research
Committee at the University of Pittsburgh Medical Center and has authored more than
70 publications and has received numerous research grants from foundations and
industry.
- Fresenius Medical Care
AG
In 1999,
we entered into an exclusive, long-term agreement with Fresenius Medical Care
for the global marketing and distribution of our BetaSorb™ device and any
similar product we may develop for the treatment of renal disease. We currently
intend to pursue our BetaSorb™ product after the commercialization of the
CytoSorb™ product. At such time as we determine to proceed with our proposed
BetaSorb™ product, if ever, we will need to conduct additional clinical studies
using the BetaSorb™ device and obtain FDA approval.
Fresenius
Medical Care is the world's largest, integrated provider of products and
services for individuals with chronic kidney failure. Through its network of
more than 1,600 dialysis clinics in North America, Europe, Latin America and
Asia-Pacific, Fresenius Medical Care provides dialysis treatment to more than
130,000 patients around the globe. Fresenius Medical Care is also the world's
largest provider of dialysis products, such as hemodialysis machines, dialyzers
and related disposable products.
Advisory
Boards
From time
to time our management meets with scientific advisors who sit on our Scientific
Advisory Board, our Medical Advisory Board - Critical Care Medicine, and our
Medical Advisory Board - Chronic Kidney Failure / Dialysis.
Our
Scientific Advisory Board consists of four scientists with expertise in the
fields of fundamental chemical research, polymer research and development, and
dialysis engineering technology.
Our
Medical Advisory Board - Critical Care Medicine consists of seven medical
doctors, four of whom are affiliated with UPMC, with expertise in critical care
medicine, sepsis, multi-organ failure and related clinical study
design.
Our
Medical Advisory Board - Chronic Kidney Failure / Dialysis consists of four
medical doctors with expertise in kidney function, kidney diseases and their
treatment, and dialysis technology.
We
compensate members of our Advisory Boards at the rate of $2,000 for each
full-day meeting they attend in person; $1,200 if attendance is by telephone.
When we consult with members of our Advisory Board (whether in person or by
telephone) for a period of less than one day, we compensate them at the rate of
$200 per hour. We also reimburse members of our Advisory Boards for their travel
expenses for attending our meetings.
Royalty
Agreements
With Principal
Stockholder
In August
2003, in order to induce Guillermina Vega Montiel, a principal stockholder of
ours, to make a $4 million investment in MedaSorb Delaware, we granted Ms.
Montiel a perpetual royalty equal to three percent of all gross revenues
received by us from sales of CytoSorbTM in the
applications of sepsis, cardiopulmonary bypass surgery, organ donor,
chemotherapy and inflammation control. In addition, for her investment, Ms.
Montiel received 1,230,770 membership units of MedaSorb Delaware, which at the
time was a limited liability company. Those membership units ultimately became
185,477 shares of our Common Stock following our June 30, 2006
merger.
With
Purolite
In 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 no greater than 18 years commencing with the first
sale of such product.
Product Payment &
Reimbursement
Critical Care
Applications
Europe
Payment
for our CytoSorb™ device for the removal of cytokines in patients with acute
respiratory distress syndrome or acute lung injury in the setting of sepsis and
other related acute care applications will be applied for on a country by
country basis in Europe. We intend to initially apply for reimbursement in
Germany where we are conducting a clinical study. If we are able to successfully
introduce the CytoSorb™ device into the German market we intend to apply for
reimbursement in France, England, Italy and Spain representing the five economic
leaders in Europe and introduce our products in those countries accordingly. We
will first need to establish the CE Mark for the CytoSorb™ device, then pursue
reimbursement on a country by country basis. Each country will determine
reimbursement status of the device based on the data obtained from the clinical
trial. There can be no assurances that reimbursement will be granted or that
additional clinical data may not be required to establish
reimbursement.
United
States
Payment
for our CytoSorb™ device in the treatment and prevention of sepsis and other
related acute care applications is anticipated to fall under the
“diagnosis-related group” (DRG) in-patient reimbursement system, which is
currently the predominant basis of hospital medical billing in the United
States. Under this system, predetermined payment amounts are assigned to
categories of medical patients with respect to their treatments at medical
facilities based on the DRG that they fall within (which is a function of such
characteristics as medical condition, age, sex, etc.) and the length of time
spent by the patient at the facility. Reimbursement is not determined by the
actual procedures used in the treatment of these patients, and a separate
reimbursement decision would not be required to be made by Medicare, the HMO or
other provider of medical benefits in connection with the actual method used to
treat the patient.
Critical
care applications such as those targeted by our CytoSorb™ device involve a high
mortality rate and extended hospitalization, coupled with extremely expensive
ICU time. In view of these high costs and high mortality rates, we believe
acceptance of our proprietary technology by critical care practitioners and
hospital administrators will primarily depend on safety and efficacy factors
rather than cost.
Chronic Renal
Failure
In Europe
chronic dialysis is predominately provided by government supported clinics
accounting for approximately 75% of dialysis treatment, with the remainder being
provided by private clinics. However, these figures vary widely among countries
within Europe. For example dialysis clinics in Denmark and Finland are 100%
publicly managed facilities while those in Portugal are 90% privately managed
facilities. Generally speaking, dialysis services are always regulated and
controlled by the healthcare authorities and not homogeneous between the various
European countries.
There are
three main types of reimbursement in Europe: budget transfer, fee for service
and flat rate. In some cases, the reimbursement method varies within the same
country depending on the type of provider (public or private). Europe is similar
to the U.S. in that a product such as BetaSorb™ may be part of a composite rate
or separate line item reimbursement. In either case, a country by country
application for reimbursement must be made.
It is
expected that in the U.S., Medicare will be the primary payer for the BetaSorb™
device, either through the current “fee for service” mechanism or managed care
programs. The large majority of costs not covered by federal programs are
covered by the private insurance sector.
While the
fee-for-service composite rate system is currently the dominant payment
mechanism, many industry participants believe that a managed care system will
become the dominant payment mechanism. We believe that movement to a full or
shared-risk managed care system would speed market acceptance of BetaSorb™
because, under such a system, providers will have a strong incentive to adopt
technologies that lower overall treatment costs. Fresenius is a leading
participant in the move to managed care and may play a leading role in the
demonstration and introduction of our product to Medicare.
Competition
General
We
believe that our products represent a unique approach to disease states and
health complications associated with the presence of larger toxins (often
referred to as middle molecular weight toxins) in the bloodstream, including
sepsis, post-operative complications of cardiac surgery (cardiopulmonary bypass
surgery), damage to organs donated for transplant prior to organ harvest, and
renal disease. Researchers have explored the potential of using existing
membrane-based dialysis technology to treat patients suffering from sepsis.
These techniques are unable to effectively remove the middle molecular weight
toxins. We believe that our devices may be able to remove middle molecular
weight toxins from circulating blood. This concept has been tested at the
University of Pittsburgh using a septic rat model based on lipopolysaccharide (a
particular kind of toxin, known as a bacterial endotoxin) and the CytoSorb™
polymer.
Both
the CytoSorb™ and BetaSorb™ devices consist of a cartridge containing adsorbent
polymer beads. The cartridge incorporates industry standard connectors at
either end of the device which connect directly to an extra-corporeal circuit
(bloodlines) on a stand alone basis. The extra-corporeal circuit consists of
plastic tubing through which the blood flows, our cartridge (CytoSorb™ or
BetaSorb™ depending on the condition being treated) containing our adsorbent
polymer beads, pressure monitoring gauges, and a blood pump to maintain blood
flow. The patient’s blood is accessed through a catheter inserted into his or
her veins. The catheter is connected to the extra-corporeal circuit and the
blood pump draws blood from the patient, pumps it through the cartridge and
returns it back to the patient in a closed loop system. As blood passes over the
polymer beads in the cartridge, toxins are adsorbed from the blood, without
filtering any fluids from the blood or the need for replacement fluid or
dialysate.
Although
standard dialysis also uses extra-corporeal circuits and blood pumps, the
technology used in dialysis to remove toxins (osmosis and convection) drains
fluids out of the bloodstream in a process called ultrafiltration, and uses
semi-permeable membranes as a filter, allowing the passage of certain sized
molecules across the membrane, but preventing the passage of other, larger
molecules.
MedaSorb’s
technology uses the same extra-corporeal circuits as dialysis, however, our
devices do not rely on membrane technology but instead use an adsorbent of
specified pore size, which controls the size of the molecules which can pass
into the adsorbent. As blood flows over our polymer adsorbent, middle molecules
such as cytokines flow into the polymer adsorbent and are adsorbed. Our devices
do not use semipermeable membranes or dialysate. In addition, our devices do not
remove fluids from the blood like a dialyser. Accordingly, we believe that our
technology has significant advantages as compared to traditional dialysis
techniques.
Sepsis
Researchers
have explored the potential of using existing membrane-based dialysis technology
to treat patients suffering from sepsis. These techniques are unable to
effectively remove middle molecular weight toxins, which leading researchers
have shown to cause and complicate sepsis. The same experts believe that a blood
purification technique that efficiently removes, or significantly reduces, the
circulating concentrations of such toxins might represent a successful
therapeutic option. We believe that the CytoSorb™ device may have the ability to
remove middle molecular weight toxins from circulating blood.
Medical
research during the past two decades has focused on drug interventions aimed at
chemically blocking or suppressing the function of one or two inflammatory
agents. In hindsight, some researchers now believe this approach has little
chance of significantly improving patient outcomes because of the complex
pathways and multiple chemical factors at play. Clinical studies of these drug
therapies have been largely unsuccessful. An Eli Lilly drug, Xigris®, cleared by
the FDA in November 2001, is the first and only drug to be approved for the
treatment of severe sepsis. Clinical studies demonstrated that use of Xigris®
resulted in a 6% reduction in the absolute risk of death, and a 13% risk
reduction in the most severe sepsis patients. The drug remains controversial and
is considered extremely expensive when compared to the percentage of patients
who benefit.
While
studies of other potential sepsis drug therapies are in progress, we are not
aware of any other FDA approved broad-spectrum blood detoxification therapy for
this application that could be considered directly competitive with our
approach.
Cardiopulmonary Bypass
Surgery
We are
not aware of any practical competitive approaches for removing cytokines in CPB
patients. Alternative therapies such as “off-pump” surgeries are available but
“post-bypass” syndrome has not been shown to be reduced in this less invasive
procedure. If successful, CytoSorb™ is expected to be useful in both on-pump and
off-pump procedures.
Chronic
Dialysis
Although
standard dialysis treatment effectively removes urea and creatinine from the
blood stream (which are normally filtered by functioning kidneys), standard
dialysis has not been effective in removing beta2-microglobulin
toxins from the blood of patients suffering from chronic kidney failure. We know
of no other device, medication or therapy considered directly competitive with
our technology. Research and development in the field has focused primarily on
improving existing dialysis technologies. The introduction of the high-flux
dialyzer in the mid-1980s and the approval of Amgen’s Epogen™, a recombinant
protein used to treat anemia, are the two most significant developments in the
field over the last two decades.
Efforts
to improve removal of middle molecular weight toxins with enhanced dialyzer
designs have achieved only marginal success. Many experts believe that dialyzer
technology has reached its limit in this respect. A variation of high-flux
hemodialysis, known as hemodiafiltration, has existed for many years. However,
due to the complexity, cost and increased risks, this dialysis technique has not
gained significant acceptance worldwide. In addition, many larger toxins are not
effectively filtered by hemodiafiltration, despite its more open pore structure.
As a result, hemodiafiltration does not approach the quantity of toxins removed
by the BetaSorb™ device.
Treatment of Organ
Dysfunction in Brain-Dead Organ Donors
We are
not aware of any directly competitive products to address the application of our
technology for the mitigation of organ dysfunction and failure resulting from
severe inflammation following brain-death.
Clinical
Studies
Our first
clinical studies were conducted in patients with chronic renal failure. The
health of these patients is challenged by high levels of toxins circulating in
their blood but, unlike sepsis patients, they are not at imminent risk of death.
The toxins involved in chronic renal failure are completely different from those
involved in sepsis, eroding health gradually over time. The treatment of
patients with chronic renal failure is a significant target market for us,
although not the current focus of our efforts and resources. Our clinical
studies and product development work in this application functioned as a low
risk method of evaluating the safety of the technology in a clinical setting,
with direct benefit to development of the critical care applications on which we
are now focusing our efforts.
In
December 2006, we submitted a proposed pilot study for approval to the FDA with
respect to CytoSorb™, the first device we intend to bring to market. In the
first quarter of 2007, we received approval from the FDA to conduct a limited
study of five patients in the adjunctive treatment of sepsis. Based upon
management’s belief that proceeding with the approved limited study would add at
least one year to the approval process for the U.S., we made determination to
focus our efforts on obtaining regulatory approval in Europe before proceeding
with the FDA.
Since
we believe that the path to a CE Mark should be faster with the FDA approval, we
have targeted Europe for the initial market introduction of our CytoSorbTM. To
accomplish the European introduction, in July 2007, we prepared and filed a
request for a clinical trial with German regulators. We received approval of the
final study design in October, 2007. The clinical study allows for enrollment of
up to 100 patients with acute
respiratory distress syndrome or acute lung injury in the setting of sepsis. We
have recently made arrangements with ten hospital sites in Germany to
conduct the clinical studies, and to date, have enrolled twenty
seven (27) patients in the
study.
However,
there can be no assurance we will eventually obtain regulatory approval for our
CytoSorb™ or any other device from CE Mark. Even if we eventually obtain CE Mark
approval, there can be no assurance as to when such approval will be obtained,
because we cannot control the timing of responses from regulators to our
submissions. After we can obtain the CE Mark approval, there is no assurance
that we will resume application process with the FDA. If we do decide to
continue the process with FDA, we cannot guarantee that we will be able to
obtain the FDA approval eventually.
We have
not conducted any extensive clinical studies of our products with respect to the
treatment of any other indications, although data collected during the
“emergency and compassionate use” treatment of a single sepsis patient has been
encouraging to us. Because of the limited studies we have conducted, we are
subject to substantial risk that our technology will have little or no effect on
the treatment of any indications that we have targeted.
Government Research
Grants
Two
government research grants by the National Institutes of Health (NIH) and Health
and Human Services (HHS) have been awarded to investigators at the University of
Pittsburgh to explore the use of adsorbent polymers in the treatment of sepsis
and organ transplant preservation. Under “SubAward Agreements” with the
University of Pittsburgh, we have been developing polymers for use in these
studies.
A
grant of $1 million
was awarded to the University of Pittsburgh Medical Center in 2003. The project
seeks to improve the quantity and viability of organs donated for transplant by
using CytoSorb™ to detoxify the donor’s blood. The observational and dosing
phases of the study, involving 30 viable donors and eight non-viable donors,
respectively, have been completed. The next phase of this study, the treatment
phase, will involve viable donors. We are not currently focusing our efforts on
the commercialization of CytoSorb™ for application in organ
donors. The treatment phase will be contingent upon further
discussion with the FDA and HRSA regarding study design, as well as obtaining
additional funding.
In
addition, in September 2005, the University of Pittsburgh Medical Center was
awarded a grant of approximately $7 million from NIH entitled “Systems
Engineering of a Pheresis Intervention for Sepsis (SEPsIS)” to study the use of
adsorbent polymer technology in the treatment of severe sepsis. The study,
expected to last for a total of five years, commenced in September, 2005 and
remains in progress. Under a SubAward Agreement, we are working with researchers
at the University of Pittsburgh - Critical Care Medicine Department. Currently,
we believe that the only polymers being used in this study are polymers we have
developed specifically for use in the study, which are similar to the polymers
used in our devices. Under the SubAward Agreement, for each of 2006 and 2007, we
received approximately $102,000 for our efforts in support of the grant.
Additionally for 2008 we received an approximate $59,000 for our supporting
efforts. We continue to supply UPMC with new samples based on our adsorbent
polymer technology under the same terms as the initial SubAward Agreement, and
expect to do so for the duration of the study. UPMC has indicated to us that the
amounts budgeted for our participation under the study are approximately $78,000
and $163,000, respectively for the grant periods commencing September 2008 and
ending September 2010. The amounts are subject to change on an annual
basis by the NIH, and our continued participation in the study is subject to our
performance and an annual review by UPMC.
These
grants represent a substantial research cost savings to us and demonstrate the
strong interest of the medical and scientific communities in our
technology.
Regulation
In the
European Union, distributors of medical devices are required to comply with the
Medical Devices Directive and obtain CE Mark certification in order to market
medical devices. The CE Mark certification, granted following approval from an
independent Notified Body, is an international symbol of adherence to quality
assurance standards and compliance with applicable European Medical Devices
Directives. Distributor of medical devices may also be required to comply with
other foreign regulations such as Ministry of Health Labor and Welfare approval
in Japan. The time required to obtain these foreign approvals to market our
products may be longer or shorter than that required in the U.S., and
requirements for those approvals may differ from those required by the
FDA.
In the United States, our CytoSorb™ and
BetaSorb™ devices are classified as Class III (CFR 876.5870—Sorbent
Hemoperfusion System) and may require pre-market approval (PMA) the
FDA. In Europe, our devices are expected to be classified as class
IIb, and will conform to the ISO 13485 Quality Standard in support of our
planned applications to obtain CE Mark certification in
Europe.
The
process of obtaining clearance to market products is costly and time-consuming
in virtually all of the major markets in which we expect to sell products and
may delay the marketing and sale of our products. Countries around the world
have recently adopted more stringent regulatory requirements which are expected
to add to the delays and uncertainties associated with new product releases, as
well as the clinical and regulatory costs of supporting those
releases.
No
assurance can be given that any of our medical devices will be approved on a
timely basis, if at all. In addition, regulations regarding the development,
manufacture and sale of medical devices are subject to future change. We cannot
predict what impact, if any, those changes might have on our business. Failure
to comply with regulatory requirements could have a material adverse effect on
our business, financial condition and results of operations.
Sales and
Marketing
We plan
to initiate sales in several European countries which are known as early
adopters of new medical device technology. These countries primarily include
Italy, Germany and the United Kingdom. The European market is similar to the
U.S. market. We plan to initially operate through local distributors in each
European country where we launch sales operations. Only after establishment of a
limited network of local distributors and actual generation of sales, will we
formulate a broader distribution strategy on a global basis.
Intellectual Property and
Patent Litigation
The
medical device market in which we primarily participate is in large part
technology driven. As a result, intellectual property rights, particularly
patents and trade secrets, play a significant role in product development and
differentiation. However, intellectual property litigation to defend or create
market advantage is inherently complex, unpredictable and is expensive to
pursue. Litigation often is not ultimately resolved until an appeal process is
completed and appellate courts frequently overturn lower court patent
decisions.
Moreover,
competing parties frequently file multiple suits to leverage patent portfolios
across product lines, technologies and geographies and to balance risk and
exposure between the parties. In some cases, several competitors are parties in
the same proceeding, or in a series of related proceedings, or litigate multiple
features of a single class of devices. These forces frequently drive settlement
not only of individual cases, but also of a series of pending and potentially
related and unrelated cases. In addition, although monetary and injunctive
relief is typically sought, remedies are generally not determined until the
conclusion of the proceedings, and are frequently modified on appeal.
Accordingly, the outcomes of individual cases are difficult to time, predict or
quantify and are often dependent upon the outcomes of other cases in other
forums, both domestic and international.
We rely
on a combination of patents, trademarks, trade secrets and non-disclosure
agreements to protect our intellectual property. We hold 25 U.S. patents, some of
which have foreign counterparts, and additional patent applications pending
worldwide that cover various aspects of our technology. There can be no
assurance that pending patent applications will result in issued patents, that
patents issued to us will not be challenged or circumvented by competitors, or
that such patents will be found to be valid or sufficiently broad to protect our
technology or to provide us with a competitive advantage. Our portfolio of
patents and patent applications include:
·
|
U.S.
Pat. No. 5,545,131, which expires on November 30, 2014. This patent
concerns an artificial kidney containing a polymeric resin to filter
impurities from blood.
|
·
|
U.S.
Pat. Nos. 5,773,384, 5,904,663, 6,127,311, 6,136,424, 6,159,377 and
6,582,811, which expire on or before February 6, 2018. These patents
concern the use of macronet polymeric resins that are subsequently treated
to make them biocompatible for the removal of impurities from
physiological fluids.
|
·
|
U.S.
Pat. Nos. 6,087,300, 6,114,466, 6,133,393, 6,153,707, 6,156,851 and
6,303,702, which expire on or before February 6, 2018. These patents
concern the use of mesoporous polydivinylbenzene polymeric resins that are
subsequently treated to make them biocompatible for the removal of
impurities from physiological
fluids.
|
·
|
U.S.
Pat. No. 6,416,487, which expires on July 30, 2017. This patent concerns a
method of removing Beta-2 microglobulin using polymers with
surface-exposed vinyl groups modified for
biocompatibility.
|
·
|
U.S.
Pat. No. 6,878,127, which expires on April 20, 2021. This patent concerns
devices, systems and methods for reducing levels of pro-inflammatory or
anti-inflammatory stimulators or mediators in the
blood.
|
·
|
U.S.
Pat. No. 6,884,829, which expires on January 4, 2023. This patent concerns
a hemocompatible polymer and a one-step method of producing
it.
|
·
|
U.S.
Pat. App. Nos. 10/980,510, 10/981,055, 11/105,140 and 11/255,132. These
applications concern biocompatible devices, systems, and methods for
reducing levels of pro-inflammatory or anti-inflammatory stimulators or
mediators in the blood.
|
·
|
U.S.
Pat. App. No. 11/601,931. This application concerns size-selective
polymeric adsorbents for use in
hemoperfusion.
|
We also
rely on non-disclosure and non-competition agreements with employees,
consultants and other parties to protect, in part, trade secrets and other
proprietary technology. There can be no assurance that these agreements will not
be breached, that we will have adequate remedies for any breach, that others
will not independently develop equivalent proprietary information or that third
parties will not otherwise gain access to our trade secrets and proprietary
knowledge.
Several
years ago we engaged in discussions with the Dow Chemical Company, which had
indicated a strong interest in being our polymer manufacturer. After a Dow
representative on our Advisory Board resigned, Dow filed and received five
patents naming our former Advisory Board member as an inventor. These patents,
two of which subsequently lapsed for failure to pay maintenance fees, concern
the area of coating high divinylbenzene-content polymers to render them
hemocompatible, and using such coated polymers to treat blood or plasma. In
management’s view the Dow patents improperly incorporate our technology, are
based on our proprietary technology, and should not have been granted to Dow.
While we believe that our own patents would prevent Dow from producing our
products as they are currently envisioned, Dow could attempt to assert its
patents against us. To date, to our knowledge, Dow has not utilized their
patents for the commercial manufacture of products that would be competitive
with us, and we currently have no plans to challenge Dow’s patents. However, the
existence of these Dow patents could result in a potential dispute with Dow in
the future and additional expenses for us.
We may
find it necessary to initiate litigation to enforce our patent rights, to
protect our trade secrets or know-how and to determine the scope and validity of
the proprietary rights of others. Patent litigation can be costly and
time-consuming, and there can be no assurance that our litigation expenses will
not be significant in the future or that the outcome of litigation will be
favorable to us. Accordingly, we may seek to settle some or all of our pending
litigation described below. Settlement may include cross-licensing of the
patents which are the subject of the litigation as well as our other
intellectual property and may involve monetary payments to or from third
parties.
Our
future success is also dependent on the strength of our intellectual property,
trade secrets and know-how, which have been developed from years of research and
development. In addition to the two litigations discussed below which we have
recently settled, we may be exposed to additional future litigation by third
parties seeking to challenge the validity of our rights based on claims that our
technologies, products or activities infringe the intellectual property rights
of others or are invalid, or that we have misappropriated the trade secrets of
others.
“Alkermes”
Litigation
In
February 2008, Alkermes, Inc. commenced an action against us in the U.S.
District Court for the District of Massachusetts, alleging that our use of the
name MedaSorb infringes on Alkermes’ registered trademark “MEDISORB.” In the
action, Alkermes sought an injunction against our further use of the name
Medasorb. Pursuant to a Settlement Agreement dated June 18, 2008, we will
continue to use the name MedaSorb Technologies Corporation for the near term,
but its wholly-owned subsidiary, through which we conduct all of its operational
activities, has ceased using the “MedaSorb” name to avoid any potential
confusion with Alkermes’ similarly named product. Our wholly owned subsidiary
has been renamed CytoSorbents, Inc.
“Purolite”
Litigation
Since our
inception, we have sought to contract with large, established manufacturers to
supply commercial quantities of our adsorbent polymers. As a result, we have
disclosed, under confidentiality agreements, various aspects of our technology
with potential manufacturers. We believe that these disclosures, while necessary
for our business, have resulted in the attempt by potential suppliers to assert
ownership claims to our technology in an attempt to gain an advantage in
negotiating manufacturing rights.
We have
previously engaged in discussions with the Brotech Corporation and its
affiliate, Purolite International, Inc. (collectively “Purolite”), which had
demonstrated a strong interest in being our polymer manufacturer. For a period
of time beginning in December 1998, Purolite engaged in efforts to develop and
optimize the manufacturing process needed to produce our polymer products on a
commercial scale. However, the parties eventually decided not to proceed. In
2003, Purolite filed a lawsuit against us asserting, among other things,
co-ownership and co-inventorship of certain of our patents. On September 1,
2006, the United States District Court for the Eastern District of Pennsylvania
approved a Stipulated Order and Settlement Agreement under which we and Purolite
agreed to the settlement of the action. The Settlement Agreement provides us
with the exclusive right to use our patented technology and proprietary know how
relating to adsorbent polymers for a period of 18 years. Under the terms of the
Settlement Agreement, we have agreed to pay Purolite royalties of 2.5% to 5% on
the sale of certain of our products if and when those products are sold
commercially.
Technology,
Products and Applications
For
approximately the past half-century, the field of blood purification has been
focused on hemodialysis, a mature, well accepted medical technique primarily
used to sustain the lives of patients with permanent or temporary loss of kidney
function. It is widely understood by the medical community that dialysis has
inherent limitations in that its ability to remove toxic substances from blood
drops precipitously as the size of toxins increases. Our hemocompatible
adsorbent technology is expected to address this shortcoming by removing toxins
largely untouched by dialysis.
Our
products, CytoSorb™ and BetaSorb™ , are known in the medical field as
hemoperfusion devices. During hemoperfusion, blood is removed from the body via
a catheter or other blood access device, perfused through a filter medium where
toxic compounds are removed, and returned to the body.
We
believe that our polymer adsorbent technology may remove middle molecular weight
toxins, such as cytokines, circulating in the blood. We believe that our
technology may have many applications in the treatment of common, chronic and
acute healthcare complications including the treatment and/or prevention of
sepsis; the treatment of chronic kidney failure; the treatment of liver failure;
the prevention of post-operative complications of cardiopulmonary bypass
surgery; and the prevention of damage to organs donated by brain-dead donors
prior to organ harvest. These applications vary by cause and complexity as well
as by severity but share a common characteristic i.e. high concentrations of
toxins in the circulating blood.
Both
the CytoSorb™ and BetaSorb™ devices consist of a cartridge containing adsorbent
polymer beads, although the polymers used in the two devices are physically
different. The cartridges in both devices incorporate industry standard
connectors at either end of the device which connect directly to the
extra-corporeal circuit (bloodlines) in series with a dialyser, in the case of
the BetaSorb™ device, or as a stand alone device in the case of the CytoSorb™
device. Both devices will require no additional expensive equipment, and will
require minimal training.
The
extra-corporeal circuit consists of plastic blood tubing, our CytoSorb™ or
BetaSorb™ cartridge, as applicable, containing adsorbent polymer beads, pressure
monitoring gauges, and a blood pump to maintain blood flow. The patient’s blood
is accessed through a catheter inserted into his or her veins. The catheter is
connected to the extra-corporeal circuit and the blood pump draws blood from the
patient, pumps it through the cartridge and returns it back to the patient in a
closed loop system.
DESCRIPTION
OF EMPLOYEES AND PROPERTY
We
currently have seven (7) employees and operate a
7,375 sq. ft. facility near Princeton, New Jersey, housing research
laboratories, clinical manufacturing operations and administrative offices. In
the opinion of management, the leased properties are adequately insured, are in
good condition and suitable for the conduct of our business. We also collaborate
with numerous institutions, universities and commercial entities who conduct
research and testing of our products at their facilities Our principal place of
business is at 7 Deer Park Drive, Suite K, Monmouth Junction, New Jersey
08852.
DESCRIPTION
OF LEGAL PROCEEDINGS
There are
no legal proceedings pending or threatening against us.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
Common Stock trades in the over-the-counter-market on the OTC Bulletin Board
under the symbol “MSBT.” Our Common Stock began trading on such market on August
9, 2006. The quotations listed below reflect inter-dealer prices, without retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
|
|
Price
|
|
|
|
High
|
|
|
Low
|
|
2006
|
|
|
|
|
|
|
First
quarter
|
|
|
n/a |
|
|
|
n/a |
|
Second
quarter
|
|
|
n/a |
|
|
|
n/a |
|
Third
quarter (from August 9)
|
|
$ |
3.95 |
|
|
$ |
1.25 |
|
Fourth
quarter
|
|
$ |
1.73 |
|
|
$ |
0.57 |
|
|
|
Price
|
|
|
|
High
|
|
|
Low
|
|
2007
|
|
|
|
|
|
|
First
quarter
|
|
$ |
2.85 |
|
|
$ |
1.04 |
|
Second
quarter
|
|
$ |
1.45 |
|
|
$ |
0.40 |
|
Third
quarter
|
|
$ |
0.63 |
|
|
$ |
0.16 |
|
Fourth
quarter
|
|
$ |
0.44 |
|
|
$ |
0.14 |
|
|
|
Price
|
|
|
|
High
|
|
|
Low
|
|
2008
|
|
|
|
|
|
|
First
quarter
|
|
$ |
0.32 |
|
|
$ |
0.15 |
|
Second
quarter
|
|
$ |
0.23 |
|
|
$ |
0.10 |
|
Third
quarter
|
|
$ |
0.20 |
|
|
$ |
0.06 |
|
Fourth
quarter
|
|
$ |
0.17 |
|
|
$ |
0.03 |
|
2009
|
|
|
|
|
|
|
|
|
First
quarter
|
|
$ |
0.18 |
|
|
$ |
0.08 |
|
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require: (i)
that a broker or dealer approve a person’s account for transactions in penny
stocks and (ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person’s account for
transactions in penny stocks, the broker or dealer must (i) obtain financial
information and investment experience and objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading, and about commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
The
number of holders of record for our Common Stock as of February 27, 2009 was
approximately 340. This number excludes individual stockholders holding stock
under nominee security position listings.
Dividends
We have
not paid any cash dividends on our Common Stock and do not anticipate declaring
or paying any cash dividends in the foreseeable future.
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,154,795 |
|
|
$ |
2,749,208 |
|
Short-term
investments
|
|
|
— |
|
|
|
199,607 |
|
Prepaid
expenses and other current assets
|
|
|
89,230 |
|
|
|
117,003 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,244,025 |
|
|
|
3,065,818 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
48,679 |
|
|
|
52,057 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
264,980 |
|
|
|
269,310 |
|
|
|
|
|
|
|
|
|
|
Total
long-term assets
|
|
|
313,659 |
|
|
|
321,367 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
2,557,684 |
|
|
$ |
3,387,185 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
767,926 |
|
|
$ |
885,465 |
|
Accrued
expenses and other current liabilities
|
|
|
75,141 |
|
|
|
92,239 |
|
Notes
payable
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
893,067 |
|
|
|
977,704 |
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
— |
|
|
|
50,000 |
|
Total
long term liabilities
|
|
|
— |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
893,067 |
|
|
|
1,027,704 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit):
|
|
|
|
|
|
|
|
|
10%
Series B Preferred Stock, Par Value $0.001, 200,000 shares authorized at
March 31, 2009 and December 31, 2008, respectively; 56,640.89 and
55,558.64 shares issued and outstanding, respectively
|
|
|
56 |
|
|
|
55 |
|
10%
Series A Preferred Stock, Par Value $0.001, 12,000,000 shares authorized
at March 31, 2009 and December 31, 2008, respectively; 8,563,100 and
8,793,060 shares issued and outstanding, respectively
|
|
|
8,563 |
|
|
|
8,793 |
|
Common
Stock, Par Value $0.001, 500,000,000 and 500,000,000 Shares authorized at
March 31, 2009 and December 31, 2008, 30,510,819 and 25,263,517 shares
issued and outstanding, respectively
|
|
|
30,511 |
|
|
|
25,264 |
|
Additional
paid-in capital
|
|
|
78,017,693 |
|
|
|
77,786,850 |
|
Deficit
accumulated during the development stage
|
|
|
(76,392,206
|
) |
|
|
(75,461,481
|
) |
Total
stockholders' equity (deficit)
|
|
|
1,664,617 |
|
|
|
2,359,481 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
|
$ |
2,557,684 |
|
|
$ |
3,387,185 |
|
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, 2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
44,780,318 |
|
|
|
488,555 |
|
|
|
355,127 |
|
Legal,
financial and other consulting
|
|
|
7,048,758 |
|
|
|
48,733 |
|
|
|
57,924 |
|
General
and administrative
|
|
|
22,537,781 |
|
|
|
228,334 |
|
|
|
233,524 |
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
68,311,374 |
|
|
|
765,622 |
|
|
|
646,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income)/expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
) |
|
|
— |
|
|
|
— |
|
Gain
on extinguishment of debt
|
|
|
(216,617
|
) |
|
|
— |
|
|
|
— |
|
Interest
expense (income), net
|
|
|
5,593,782 |
|
|
|
(5,471
|
) |
|
|
(525
|
) |
Penalties
associated with non-registration of Series
A Preferred Stock
|
|
|
361,495 |
|
|
|
— |
|
|
|
— |
|
Total
other (income)/expense, net
|
|
|
5,716,997 |
|
|
|
(5,471
|
) |
|
|
(525
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before benefit from income taxes
|
|
|
(74,028,371 |
) |
|
|
(760,151 |
) |
|
|
(646,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
from income taxes
|
|
|
(248,529
|
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(73,779,842
|
) |
|
|
(760,151
|
) |
|
|
(646,050 |
) |
Preferred
stock dividend
|
|
|
2,612,364 |
|
|
|
170,574 |
|
|
|
200,487 |
|
Net
loss available to common shareholders
|
|
$ |
(76,392,206 |
) |
|
$ |
(930,725 |
) |
|
$ |
(846,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
|
$ |
(0.03 |
) |
|
$ |
(0.
03 |
) |
Weighted
average number of shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock outstanding
|
|
|
|
|
|
|
29,072,876 |
|
|
|
25,044,932 |
|
See
accompanying notes to consolidated financial statements.
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
(DEFICIT)
Period
from
December
31, 2008 to
March
31, 2009
(Unaudited)
|
|
Members
Equity
|
|
|
Deferred
|
|
|
Common Stock
|
|
|
Preferred Stock B
|
|
|
Preferred Stock A
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
During the
Development
|
|
|
Total
Stockholders'
|
|
|
|
(Deficiency)
|
|
|
Com pensation
|
|
|
Shares
|
|
|
Par value
|
|
|
Shares
|
|
|
Par Value
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Stage
|
|
|
Equity (Deficit)
|
|
Balance
at December 31, 2008
|
|
$ |
— |
|
|
$ |
— |
|
|
|
25,263,517 |
|
|
$ |
25,264 |
|
|
|
55,558.64 |
|
|
$ |
55 |
|
|
|
8,793,060 |
|
|
$ |
8,793 |
|
|
$ |
77,786,850 |
|
|
$ |
(75,461,481 |
) |
|
$ |
2,359,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation – employees, consultants and directors
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,287 |
|
|
|
— |
|
|
|
65,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series A Preferred Stock as dividends
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
211,706 |
|
|
|
211 |
|
|
|
32,069 |
|
|
|
(32,280
|
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Stock as dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,382.94 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
138,293 |
|
|
|
(138,294
|
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series A and Series B into Common
|
|
|
|
|
|
|
|
|
|
|
5,247,302 |
|
|
|
5,247 |
|
|
|
(300.69
|
) |
|
|
|
|
|
|
(441,666
|
) |
|
|
(441
|
) |
|
|
(4,806 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(760,151
|
) |
|
|
(760,151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009
|
|
|
— |
|
|
|
— |
|
|
|
30,510,819 |
|
|
|
30,511 |
|
|
|
56,640.89 |
|
|
|
56 |
|
|
|
8,563,100 |
|
|
|
8,563 |
|
|
|
78,017,693 |
|
|
|
(76,392,206
|
) |
|
|
1,664,617 |
|
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, 2009
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(73,779,842 |
) |
|
$ |
(760,151 |
) |
|
$ |
(646,050 |
) |
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
|
|
|
2,353,380 |
|
|
|
12,614 |
|
|
|
25,925 |
|
Amortization
of debt discount
|
|
|
1,000,000 |
|
|
|
— |
|
|
|
— |
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
) |
|
|
— |
|
|
|
— |
|
Gain
on extinguishment of debt
|
|
|
(216,617
|
) |
|
|
— |
|
|
|
— |
|
Interest
expense paid with Series B Preferred Stock in connection with conversion
of notes payable
|
|
|
3,147 |
|
|
|
|
|
|
|
|
|
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
|
|
|
518,763 |
|
|
|
— |
|
|
|
— |
|
Expense
for issuance of options
|
|
|
1,318,782 |
|
|
|
65,287 |
|
|
|
118,704 |
|
Amortization
of deferred compensation
|
|
|
74,938 |
|
|
|
— |
|
|
|
— |
|
Penalties
in connection with non-registration event
|
|
|
361,496 |
|
|
|
— |
|
|
|
— |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(360,778
|
) |
|
|
27,773 |
|
|
|
12,769 |
|
Other
assets
|
|
|
(61,630
|
) |
|
|
5,003 |
|
|
|
(2,500
|
) |
Accounts
payable and accrued expenses
|
|
|
2,662,279 |
|
|
|
(134,637
|
) |
|
|
231,345 |
|
Accrued
interest expense
|
|
|
1,823,103 |
|
|
|
— |
|
|
|
— |
|
Dividend/penalty
payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(54,381,122
|
) |
|
|
(784,111
|
) |
|
|
(259,807
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
32,491 |
|
|
|
— |
|
|
|
— |
|
Purchases
of property and equipment
|
|
|
(2,226,932
|
) |
|
|
(6,411
|
) |
|
|
(1,330
|
) |
Patent
costs
|
|
|
(431,228
|
) |
|
|
(3,498
|
) |
|
|
(3,708
|
) |
Purchases
of short-term investments
|
|
|
(393,607
|
) |
|
|
— |
|
|
|
— |
|
Proceeds
from sale of short-term investments
|
|
|
393,607 |
|
|
|
199,607 |
|
|
|
— |
|
Loan
receivable
|
|
|
(1,632,168
|
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(4,257,837
|
) |
|
|
189,698 |
|
|
|
(5,038
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
400,490 |
|
|
|
— |
|
|
|
— |
|
Proceeds
from issuance of preferred stock
|
|
|
9,579,040 |
|
|
|
— |
|
|
|
— |
|
Equity
contributions - net of fees incurred
|
|
|
41,711,198 |
|
|
|
— |
|
|
|
— |
|
Proceeds
from borrowings
|
|
|
8,603,631 |
|
|
|
— |
|
|
|
100,000 |
|
Proceeds
from subscription receivables
|
|
|
499,395 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
60,793,754 |
|
|
|
— |
|
|
|
100,000 |
|
See
accompanying notes to consolidated financial statements.
Net
change in cash and cash equivalents
|
|
|
2,154,795 |
|
|
|
(594,413
|
) |
|
|
(164,845
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of period
|
|
|
— |
|
|
|
2,749,208 |
|
|
|
211,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
$ |
2,154,795 |
|
|
$ |
2,154,795 |
|
|
$ |
46,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
590,189 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable principal and interest conversion to equity
|
|
$ |
10,376,714 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$ |
1,609,446 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for stock subscribed
|
|
$ |
399,395 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
paid from proceeds in conjunction with issuance preferred
stock
|
|
$ |
768,063 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
$ |
2,612,364 |
|
|
$ |
170,574 |
|
|
$ |
200,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
effect of conversion of common stock to preferred stock prior to
merger
|
|
$ |
559 |
|
|
$ |
— |
|
|
$ |
— |
|
During
the three months ended March 31, 2009 and 2008, 300.69 and -0- Series B
Preferred Shares were converted into 830,636 and -0- Common shares,
respectively. During the three months ended March 31, 2009 and 2008,
441,666 and -0- Series A Preferred Shares were converted into 4,416,666 and -0-
Common shares, respectively. For the period from January 22,
1997 (date of inception) to March 31, 2009, 300.69 Series B Preferred Shares and
1,004,944 Series A Preferred Shares were converted into 830,636 and 5,040,408
Common Shares, respectively.
See
accompanying notes to consolidated financial statements.
MedaSorb
Technologies Corporation
Notes
to Consolidated Financial Statements
(UNAUDITED)
March
31, 2009
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the requirements of Form 10-Q 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 CytoSorbents, Inc. (f/k/a MedaSorb Technologies, Inc.), its
wholly-owned operating 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, 2009. 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, 2009 and the results of its operations and cash flows for the three
month periods ended March 31, 2009 and 2008, and for the period January 22, 1997
(date of inception) to March 31, 2009. 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, 2008 as included in the
Company’s Form 10-K filed with the Commission on April 10, 2009.
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, 2009 of $76,392,206. 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 25 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 March 31, 2009, 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, CytoSorbents, 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.
Short
Term Investments
Short-term
investments include short-term bank certificates of deposit with original
maturities of between three and twelve months. These short-term notes
are classified as held to maturity and are valued at cost, which
approximates fair value. These investments are considered Level 1
investments under SFAS 157.
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation
of property and equipment is provided for by the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lesser of their economic useful lives or the term of the
related leases. Gains and losses on depreciable assets retired or sold are
recognized in the statements of operations in the year of disposal. Repairs and
maintenance expenditures are expensed as incurred.
Patents
Legal
costs incurred to establish patents are capitalized. When patents are issued,
capitalized costs are amortized on the straight-line method over the related
patent term. In the event a patent is abandoned, the net book value of the
patent is written off.
Impairment
or Disposal of Long-Lived Assets
The
Company assesses the impairment of patents and other long-lived assets under
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. For long-lived assets to be held and used, the Company
recognizes an impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss based on
the difference between the carrying amount and fair value.
Research
and Development
All
research and development costs, payments to laboratories and research
consultants are expensed when incurred.
Income
Taxes
Income
taxes are accounted for under the asset and liability method prescribed by SFAS
No. 109, “Accounting for Income Taxes.” Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the tax
basis of assets and liabilities. Deferred tax assets and liabilities reflect the
tax rates expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely than
not that some or all of the deferred tax asset will not be realized. Under
Section 382 of the Internal Revenue Code the net operating
losses generated prior to the reverse merger may be limited due to
the change in ownership. Additionally, net operating losses generated subsequent
to the reverse merger may be limited in the event of changes 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. Significant estimates in these financials are
the valuation of options granted and the valuation of preferred shares issued as
stock dividends.
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 in an effort to minimize its
collection risk of these balances.
Financial
Instruments
The
carrying values of cash and
cash equivalents, short-term investments, accounts payable and other debt
obligations approximate 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.
The
Company also follows the guidance in EITF 96-18 “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” for equity instruments issued to
consultants.
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. (See Note 6)
Effects
of Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS
No. 141(R), “Business Combinations” (“SFAS 141(R)”). This Statement replaces
SFAS No. 141, “Business Combinations” (“SFAS 141”). This Statement retains the
fundamental requirements in SFAS 141 that the acquisition method of accounting
(which SFAS 141 called the purchase method) be used for all business
combinations and for an acquirer to be identified for each business combination.
This Statement also establishes principles and requirements for how the
acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase and c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS
141(R) will apply prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date. The provisions of SFAS 141(R) did not have a significant
impact on the Company's statements of operations or financial
position.
In March 2008, the FASB issued SFAS No.
161, “Disclosures about Derivative Instruments and Hedging Activities,” and
Amendment of FASB Statement No. 133. SFAS 161 amends SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities,” to amend and expand the
disclosure requirements of SFAS 133 to provide greater transparency about (i)
how and why an entity uses derivative instruments, (ii) how derivative
instruments and related hedge items are accounted for under SFAS 133 and its
related interpretations, and (iii) how derivative instruments and related hedged
items affect an entity's financial position, results of operations and cash
flows. To meet those objectives, SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative instruments and disclosures
about credit-risk-related contingent features in derivative agreements. SFAS 161
is effective for fiscal years and interim periods beginning after November 15,
2008. The provisions of SFAS 161 did not have a significant impact on the
Company's statements of operations or financial
position.
The
Company has outstanding Promissory Notes in the aggregate principal amount of
$50,000, due in September 2009, which bear interest at the rate of 10% per
annum. The holder of the Promissory notes has the option to convert, on an
all-or-none basis, the entire principal and outstanding interest of their Notes
into the Series B Preferred Stock issued in June 2008. In addition,
pursuant to the terms of such Promissory Notes, upon such conversion, each note
holder will receive five-year warrants to purchase that number of shares of
Common Stock equal to the quotient obtained by dividing (x) 25% of the principal
amount of the Promissory Note being converted, by (y) $0.0362, the purchase
price per share of Common Stock issuable upon conversion of the Series B
Preferred Stock.
4. STOCKHOLDERS' EQUITY
(DEFICIT)
During
the three months ended March 31, 2009 the Company recorded non-cash stock
dividends totaling $170,574 in connection with the issuance of 1,382.94 shares
of Series B Preferred Stock and 211,706 shares of Series A Preferred Stock as a
stock dividend to its preferred shareholders as of March 31, 2009. The Company
has estimated the fair value of the shares issued as stock dividends based upon
the last completed financing transaction involving the underlying common shares
in June 2008.
During
the three months ended March 31, 2009, the Company issued stock options to
employees, consultants and directors resulting in aggregate compensation expense
of $8,378, of which $584 and $7,794 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, 2009
is as follows:
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
Average
|
|
Average
|
|
|
|
|
Exercise
|
|
Remaining
|
|
|
Shares
|
|
per Share
|
|
Life (Years)
|
|
|
|
|
|
|
|
Outstanding,
January 1, 2009
|
|
18,158,846
|
|
$
|
1.05
|
|
9.1
|
Granted
|
|
5,118,858
|
|
$
|
0.123
|
|
9.7
|
Cancelled
|
|
—
|
|
$
|
—
|
|
—
|
Exercised
|
|
—
|
|
$ |
—
|
|
—
|
Outstanding
March 31, 2009
|
|
23,277,704
|
|
$
|
0.84
|
|
9.1
|
The fair
value of each stock option was valued using the Black Scholes pricing model
which takes into account as of the grant date the exercise price (ranging from
$0.084 to $0.168 per share) and expected life of the stock option ( ranging from
5-10 years), the current price of the underlying stock and its expected
volatility (approximately 25 percent), expected dividends (-0- percent) on the
stock and the risk free interest rate (2.7 percent) for the term of the stock
option.
At March
31, 2009, the aggregate intrinsic value of options outstanding and currently
exercisable amounted to approximately $10,500.
The
summary of the status of the Company’s non-vested options for the three months
ended March 31, 2009 is as follows:
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
Fair Value
|
|
|
|
|
|
|
|
Non-vested,
January 1, 2009
|
|
6,280,604
|
|
$
|
0.05
|
|
Granted
|
|
5,118,858
|
|
$
|
0.003
|
|
Cancelled
|
|
—
|
|
|
—
|
|
Vested
|
|
(3,163,762
|
)
|
$
|
0.053
|
|
Exercised
|
|
—
|
|
|
—
|
|
Non-vested,
March 31, 2009
|
|
8,235,700
|
|
$
|
.02
|
|
As of
March 31, 2009, approximately $258,499 of total unrecognized compensation cost
related to stock options is expected to be recognized over a weighted average
period of 1.2 years.
As of
March 31, 2009, the Company has the following warrants to purchase common stock
outstanding:
Number of Shares
|
|
Warrant
Exercise
|
|
Warrant
|
To be Purchased
|
|
Price per Share
|
|
Expiration Date
|
15,569
|
|
$
|
6.64
|
|
March
31, 2010
|
816,691
|
|
$
|
4.98
|
|
June
30, 2011
|
1,200,000
|
|
$
|
0.90
|
|
June
30, 2011
|
900,000
|
|
$
|
0.40
|
|
June
30, 2011
|
339,954
|
|
$
|
2.00
|
|
September
30, 2011
|
52,080
|
|
$
|
2.00
|
|
July
31, 2011
|
400,000
|
|
$
|
0.40
|
|
October
31, 2011
|
240,125
|
|
$
|
1.25
|
|
October
24, 2016
|
3,986,429
|
|
$
|
0.035
|
|
June
25,2013
|
As of
March 31, 2009, the Company has the following warrants to purchase Series A
Preferred Stock outstanding:
Number of
|
|
Warrant Exercise
|
|
Warrant
|
Shares to be
|
|
Price per
|
|
Expiration
|
Purchased
|
|
Preferred Share
|
|
Date
|
525,000
|
|
$
|
1.00
|
|
June
30, 2011
|
If the
holder of warrants for preferred stock exercises in full, the holder will
receive additional five-year warrants to purchase a total of 210,000 shares of
common stock at $0.40 per share.
As
of March 31, 2009, the Company has the following warrant to purchase Series B
Preferred Stock outstanding:
Number of
|
|
Warrant Exercise
|
|
Warrant
|
Shares to be
|
|
Price per
|
|
Expiration
|
Purchased
|
|
Preferred Share
|
|
Date
|
15,000
|
|
$
|
100.00
|
|
September
25, 2009
|
5. COMMITMENTS AND
CONTINGENCIES
Employment
Agreements
The
Company has employment agreements with certain key executives through December
2009. The agreements provide for annual base salaries of varying
amounts.
Litigation
The
Company is involved in various claims and legal actions. Management
is of the opinion that these claims and legal actions have no merit, and their
ultimate outcome will not have a material adverse impact on the
consolidated financial position of the Company and/or the results of its
operations.
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 March 31, 2009.
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, 2009. 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.
Warrant
agreement
As
inducement to invest additional funds in the private placement of Series B
Preferred Stock, additional consideration was granted to the participants of the
Series B Preferred Stock offering in the event that litigation is commenced
against Medasorb prior to June 30, 2018, claiming patent infringement on certain
of the Company’s issued patents. In the event this litigation arises
the Company may be required to issue warrants to purchase in the aggregate up to
a maximum of ten million shares of Common Stock subject to certain
adjustments. Through March 31, 2009 no such litigation has arisen and
due to the deemed low probability of this potential outcome; the Company has not
booked a contingent liability for this agreement.
Basic
loss per share and diluted loss per share for the three months ended March 31,
2009 and 2008 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 31,228,552 and 9,076,921
incremental shares at March 31, 2009 and 2008, respectively, as well as shares
issuable upon conversion of Series A and Series B Preferred Stock and Preferred
Stock Warrants representing 239,010,409 and 7,205,996 incremental shares at
March 31, 2009 and 2008, respectively, as well as shares issuable upon potential
long-term Note conversion into Series B Preferred Stock and Common Warrants
representing approximately 1,726,519 shares have been excluded from the
computation of diluted loss per share as they are anti-dilutive.
During
April 2009 a total of 230,000 shares of Series A Preferred Stock were converted
into 2,300,000 shares of Common Stock.
FINANCIAL
STATEMENTS
|
|
Page
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-12
|
|
|
|
Consolidated
Balance Sheets at December 31, 2008 and December 31, 2007
|
|
F-14
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and 2007,
and from inception to December 31, 2008
|
|
F-15
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficiency) period from
inception to December 31, 2008
|
|
F-16
|
|
|
|
Consolidated
Statements of Cash Flows for the for the years ended December 31, 2008 and
2007, and from inception to December 31, 2008
|
|
F-17
|
|
|
|
Notes
to Financial Statements
|
|
F-19
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders,
MedaSorb
Technologies Corporation:
We have
audited the accompanying consolidated balance sheets of Medasorb Technologies
Corporation (a development stage company), as of December 31, 2008 and 2007, and
the related consolidated statements of operations, stockholders’ equity
(deficiency) and cash flows for the years then ended and the cumulative period
from January 1, 2001 to December 31, 2008. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Medasorb Technologies
Corporation as of December 31, 2008 and 2007 and the consolidated results
of their operations and their cash flows for the years then ended and
the cumulative period from January 1, 2001 to December 31, 2008 in conformity
with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has suffered recurring net losses and negative
cash flows from operations. These matters raise substantial doubt about its
ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/
WithumSmith+Brown, PC
New
Brunswick, New Jersey
April 8,
2009
Report
of Independent Public Accountants
To the
Board of Directors and Stockholders,
Medasorb
Corporation:
We have
audited the accompanying balance sheets of Medasorb Corporation (a development
stage company), as of December 31, 2000 and 1999, and the related statements of
operations, changes in members’ equity and cash flows for the period from
inception (January 22, 1997) through December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with auditing standards generally accepted in
the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Medasorb Corporation as of December
31, 2000 and 1999, and the results of its operations and its cash flows for the
period from inception (January 22, 1997) to December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
Arthur
Andersen, LLP
New York,
New York
December
27, 2001
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
BALANCE SHEETS
December 31,
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,749,208 |
|
|
$ |
211,613 |
|
Short-term
investments
|
|
|
199,607 |
|
|
|
0 |
|
Prepaid
expenses and other current assets
|
|
|
117,003 |
|
|
|
200,682 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,065,818 |
|
|
|
412,295 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
52,057 |
|
|
|
144,457 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
269,310 |
|
|
|
245,820 |
|
|
|
|
|
|
|
|
|
|
Total
long-term assets
|
|
|
321,367 |
|
|
|
390,277 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
3,387,185 |
|
|
$ |
802,572 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
885,465 |
|
|
$ |
775,342 |
|
Accrued
expenses and other current liabilities
|
|
|
92,239 |
|
|
|
131,526 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
977,704 |
|
|
|
906,868 |
|
|
|
|
|
|
|
|
|
|
Notes
Payable:
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
50,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total
Long Term Liabilities
|
|
|
50,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,027,704 |
|
|
|
906,868 |
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity/(Deficiency):
|
|
|
|
|
|
|
|
|
10%
Series B Preferred Stock, Par Value $0.001, 200,000 and -0- shares
authorized at December 31, 2008 and 2007, respectively; 55,558.64 and -0-
issued and outstanding , respectively
|
|
|
55 |
|
|
|
— |
|
10%
Series A Preferred Stock, Par Value $0.001, 12,000,000 shares authorized
at December 31, 2008 and 2007, 8,793,060 and 8,019,508 shares issued and
outstanding, respectively
|
|
|
8,793 |
|
|
|
8,019 |
|
Common
Stock, Par Value $0.001, 500,000,000 and 100,000,000 shares authorized at
December 31, 2008 and 2007, 25,263,517 and 25,044,932 shares issued and
outstanding, respectively
|
|
|
25,264 |
|
|
|
25,045 |
|
Additional
paid-in capital
|
|
|
77,786,850 |
|
|
|
71,400,849 |
|
Deficit
accumulated during the development stage
|
|
|
(75,461,481
|
) |
|
|
(71,538,209
|
) |
Total
stockholders’ equity/(deficiency)
|
|
|
2,359,481 |
|
|
|
(104,296
|
) |
Total
Liabilities and Stockholders' Equity (Deficiency)
|
|
$ |
3,387,185 |
|
|
$ |
802,572 |
|
The Notes
to Consolidated Financial Statements are an integral part of these
statements.
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Period from
|
|
|
|
|
|
|
|
|
|
January 22,1997
|
|
|
|
|
|
|
|
|
|
(date of inception) to
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
44,291,763 |
|
|
|
1,983,483 |
|
|
|
1,415,509 |
|
Legal,
financial and other consulting
|
|
|
7,000,025 |
|
|
|
351,357 |
|
|
|
389,155 |
|
General
and administrative
|
|
|
22,309,447 |
|
|
|
909,372 |
|
|
|
1,261,966 |
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
67,545,752 |
|
|
|
3,244,212 |
|
|
|
3,066,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
) |
|
|
— |
|
|
|
— |
|
Gain
on extinguishment of debt
|
|
|
(216,617
|
) |
|
|
— |
|
|
|
(10,009
|
) |
Interest
(income) expense, net
|
|
|
5,599,253 |
|
|
|
22,207 |
|
|
|
(67,362
|
) |
Penalties
associated with non-registration of Series A Preferred
Stock
|
|
|
361,495 |
|
|
|
— |
|
|
|
361,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other (income) expense, net
|
|
|
5,722,468 |
|
|
|
22,207 |
|
|
|
284,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before benefit from income taxes
|
|
|
73,268,220 |
|
|
|
3,266,419 |
|
|
|
3,350,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
from income taxes
|
|
|
(248,529 |
) |
|
|
(248,529 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(73,019,691
|
) |
|
|
(3,017,890
|
) |
|
|
(3,350,754
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
2,441,790 |
|
|
|
905,382 |
|
|
|
760,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$ |
(75,461,481 |
) |
|
$ |
(3,923,272 |
) |
|
$ |
(4,111,626 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
|
|
|
|
$ |
(0.16 |
) |
|
$ |
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common stock outstanding
|
|
|
|
|
|
|
25,121,377 |
|
|
|
24,848,562 |
|
The Notes
to Consolidated Financial Statements are an integral part of these
statements.
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Period
from January 22, 1997 (date of inception) to December 31, 2008
|
|
Members
Equity
|
|
|
Deferred
|
|
|
Common
Stock
|
|
|
Preferred
Stock B
|
|
|
Preferred
Stock A
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
During
the Development
|
|
|
Total
Stockholders'
|
|
|
|
(
De
ficiency)
|
|
|
C
om
pensation
|
|
|
S
ha
res
|
|
|
P
ar
value
|
|
|
S
ha
res
|
|
|
P
ar
Value
|
|
|
S
ha
res
|
|
|
P
ar
Value
|
|
|
C
ap
ital
|
|
|
S
ta
ge
|
|
|
E
qu ity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 22, 1997 (date of inception)
|
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
1,143,487 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
1,143,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
440,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
440,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
contribution
|
|
|
4,550,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
4,550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(5,256,012 |
) |
|
|
(5,256,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1997
|
|
|
6,133,487 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(5,256,012 |
) |
|
|
877,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
2,518,236 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
2,518,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultants
|
|
|
1,671 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
1,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(1,867,348 |
) |
|
|
(1,867,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1998
|
|
|
8,703,394 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(7,123,360 |
) |
|
|
1,580,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
1,382,872 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
1,382,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
88,363 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
88,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of deferred compensation
|
|
|
47,001 |
|
|
|
(47,001 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
— |
|
|
|
15,667 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
15,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
100,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(3,066,388 |
) |
|
|
(3,066,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1999
|
|
|
10,321,630 |
|
|
|
(31,334 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(10,189,748 |
) |
|
|
100,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
14,407,916 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
14,407,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
1,070,740 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
1,070,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued to consultants
|
|
|
468,526 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
468,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of deferred compensation
|
|
|
27,937 |
|
|
|
(27,937 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
— |
|
|
|
46,772 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
46,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(10,753,871 |
) |
|
|
(10,753,871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2000
|
|
|
26,296,749 |
|
|
|
(12,499 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(20,943,619 |
) |
|
|
5,340,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
13,411,506 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
13,411,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
161,073 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
161,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to employee
|
|
|
2,847 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
2,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(1,206,730 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(1,206,730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
— |
|
|
|
12,499 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
12,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(15,392,618 |
) |
|
|
(15,392,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2001
|
|
|
38,665,445 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(36,336,237 |
) |
|
|
2,329,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
6,739,189 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
6,739,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
156,073 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
156,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultant
|
|
|
176,250 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
176,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to employee
|
|
|
2,847 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
2,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(556,047 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(556,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of loan receivable in exchange for equity
|
|
|
(1,350,828 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(1,350,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(11,871,668 |
) |
|
|
(11,871,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
43,832,929 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(48,207,905 |
) |
|
|
(4,374,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
4,067,250 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
4,067,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
16,624 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
16,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
2,952,474 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
2,952,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultant
|
|
|
65,681 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
65,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(343,737 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(343,737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of loan receivable in exchange for equity
|
|
|
(281,340 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(281,340 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(6,009,283 |
) |
|
|
(6,009,283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
50,309,881 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(54,217,188 |
) |
|
|
(3,907,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
512,555 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
512,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
(2,396,291 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(2,396,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(80,218 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(80,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(1,096,683 |
) |
|
|
(1,096,683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
48,345,927 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(55,313,871 |
) |
|
|
(6,967,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
92,287 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
92,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
of accounts payable in exchange for equity
|
|
|
836,319 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
836,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes payable and accrued interest for
equity
|
|
|
51,565 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
51,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
(14,551 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(14,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(92,287 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(92,287 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
from LLC to "C" Corporation
|
|
|
(49,219,260 |
) |
|
|
— |
|
|
|
4,829,120 |
|
|
|
4,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,214,431 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(3,665,596 |
) |
|
|
(3,665,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
— |
|
|
|
— |
|
|
|
4,829,120 |
|
|
|
4,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,214,431 |
|
|
|
(58,979,467 |
) |
|
|
(9,760,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for stock subscribed
|
|
|
— |
|
|
|
— |
|
|
|
240,929 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
799,644 |
|
|
|
— |
|
|
|
799,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to investor group for price protection
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(100 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options to employees, consultants and directors
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
143,352 |
|
|
|
— |
|
|
|
143,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 10% Series A Preferred Stock for cash
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
5,300,000 |
|
|
|
5,300 |
|
|
|
5,530,143 |
|
|
|
(235,443 |
) |
|
|
5,300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of raising capital associated with issuance of preferred
stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(620,563 |
) |
|
|
— |
|
|
|
(620,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
held by original stockholders of Parent immediately prior to
merger
|
|
|
— |
|
|
|
— |
|
|
|
3,750,000 |
|
|
|
3,750 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(3,750 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible debt, related accrued interest and shares to induce
conversion into common stock
|
|
|
— |
|
|
|
— |
|
|
|
5,170,880 |
|
|
|
5,171 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
11,376,939 |
|
|
|
— |
|
|
|
11,382,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in consideration for funding
$1,000,000 convertible note payable per terms of merger
transaction
|
|
|
— |
|
|
|
— |
|
|
|
10,000,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
990,000 |
|
|
|
— |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for accounts payable and services
rendered
|
|
|
— |
|
|
|
— |
|
|
|
778,274 |
|
|
|
779 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
587,035 |
|
|
|
— |
|
|
|
587,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of common stock issued prior to reverse merger for 10% Series
A Preferred Stock
|
|
|
— |
|
|
|
— |
|
|
|
(240,929 |
) |
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
799,885 |
|
|
|
800 |
|
|
|
30,194 |
|
|
|
(30,753 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock dividends on 10% Series A Preferred Stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
303,700 |
|
|
|
303 |
|
|
|
303,397 |
|
|
|
(303,700 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock for redemption of convertible note
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
1,204,640 |
|
|
|
(205,640 |
) |
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants to consultants for services
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
9,883 |
|
|
|
— |
|
|
|
9,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants in exchange for accounts payable
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
192,311 |
|
|
|
— |
|
|
|
192,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,671,580 |
) |
|
|
(7,671,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
498,955 |
|
|
|
— |
|
|
|
498,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in settlement of accounts payable
|
|
|
— |
|
|
|
— |
|
|
|
11,501 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
22,991 |
|
|
|
— |
|
|
|
23,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock into common stock
|
|
|
— |
|
|
|
— |
|
|
|
405,157 |
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
(506,446 |
) |
|
|
(506 |
) |
|
|
101 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series A Preferred Stock as dividends and settlement of
dividends/penalties payable in connection with non-registration
event
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
1,122,369 |
|
|
|
1,122 |
|
|
|
1,121,246 |
|
|
|
(760,872 |
) |
|
|
361,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,350,754 |
) |
|
|
(3,350,754 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
— |
|
|
|
— |
|
|
|
25,044,932 |
|
|
|
25,045 |
|
|
|
|
|
|
|
|
|
|
|
8,019,508 |
|
|
|
8,019 |
|
|
|
71,400,849 |
|
|
|
(71,538,209 |
) |
|
|
(104,296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation - employees, consultants and directors
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
363,563 |
|
|
|
— |
|
|
|
363,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series A Preferred Stock as dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
830,384 |
|
|
|
831 |
|
|
|
277,087 |
|
|
|
(277,918 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Stock for
cash
and conversion of $175,000 of
convertible
debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,931.47 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
5,657,842 |
|
|
|
(364,747 |
) |
|
|
5,293,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of raising capital associated with issuance of Series B Preferred
Stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(215,398 |
) |
|
|
— |
|
|
|
(215,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series B Preferred Stock as dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,627.17 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
262,715 |
|
|
|
(262,717 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants upon conversion of convertible notes payable into Series B
Preferred Stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,354 |
|
|
|
|
|
|
|
40,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series A Preferred stock into common
|
|
|
— |
|
|
|
— |
|
|
|
218,585 |
|
|
|
219 |
|
|
|
— |
|
|
|
— |
|
|
|
(56,832 |
) |
|
|
(57 |
) |
|
|
(162 |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,017,890 |
) |
|
|
(3,017,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$ |
- |
|
|
$ |
- |
|
|
|
25,263,517 |
|
|
$ |
25,264 |
|
|
|
55,558.64 |
|
|
$ |
55 |
|
|
|
8,793,060 |
|
|
$ |
8,793 |
|
|
$ |
77,786,850 |
|
|
$ |
(75,461,481 |
) |
|
$ |
2,359,481 |
|
The Notes
to Consolidated Financial Statements are an integral part of these financial
statements.
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the Period from
|
|
|
|
|
|
|
|
|
|
January 22, 1997
|
|
|
|
|
|
|
|
|
|
(date of inception) to
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(73,019,691 |
) |
|
$ |
(3,017,890 |
) |
|
$ |
(3,350,754 |
) |
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as inducement to convert convertible notes payable and
accrued interest
|
|
|
3,351,961 |
|
|
|
— |
|
|
|
— |
|
Issuance
of common stock to consultants for services
|
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
Depreciation
and amortization
|
|
|
2,340,766 |
|
|
|
103,701 |
|
|
|
190,440 |
|
Amortization
of debt discount
|
|
|
1,000,000 |
|
|
|
— |
|
|
|
— |
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
) |
|
|
— |
|
|
|
— |
|
Gain
on extinguishment of debt
|
|
|
(216,617
|
) |
|
|
— |
|
|
|
(10,009
|
) |
Interest
expense paid with Series B Preferred Stock in connection with conversion
of notes payable
|
|
|
3,147 |
|
|
|
3,147 |
|
|
|
— |
|
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
|
|
|
518,763 |
|
|
|
40,354 |
|
|
|
— |
|
Expense
for issuance of options
|
|
|
1,253,495 |
|
|
|
363,563 |
|
|
|
498,955 |
|
Amortization
of deferred compensation
|
|
|
74,938 |
|
|
|
— |
|
|
|
— |
|
Penalties
in connection with non-registration event
|
|
|
361,496 |
|
|
|
— |
|
|
|
361,496 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(388,551
|
) |
|
|
83,679 |
|
|
|
(175,802
|
) |
Other
assets
|
|
|
(66,633
|
) |
|
|
(12,740
|
) |
|
|
— |
|
Accounts
payable and accrued expenses
|
|
|
2,796,916 |
|
|
|
70,837 |
|
|
|
(72,165
|
) |
Accrued
interest
|
|
|
1,823,103 |
|
|
|
— |
|
|
|
(70,000
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(53,597,011
|
) |
|
|
(2,365,349
|
) |
|
|
(2,627,839
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
32,491 |
|
|
|
— |
|
|
|
— |
|
Purchases
of property and equipment
|
|
|
(2,220,521
|
) |
|
|
— |
|
|
|
(21,427
|
) |
Patent
costs
|
|
|
(427,730
|
) |
|
|
(22,052
|
) |
|
|
(12,259
|
) |
Purchases
of short-term investments
|
|
|
(393,607
|
) |
|
|
(393,607
|
) |
|
|
— |
|
Proceeds
from maturities of short-term investments
|
|
|
194,000 |
|
|
|
194,000 |
|
|
|
|
|
Loan
receivable
|
|
|
(1,632,168
|
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(4,447,535
|
) |
|
|
(221,659
|
) |
|
|
(33,686
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
400,490 |
|
|
|
— |
|
|
|
— |
|
Proceeds
from issuance of preferred stock, net of related issuance
costs
|
|
|
9,579,040 |
|
|
|
4,899,603 |
|
|
|
— |
|
Equity
contributions - net of fees incurred
|
|
|
41,711,198 |
|
|
|
— |
|
|
|
— |
|
Proceeds
from borrowing
|
|
|
8,603,631 |
|
|
|
225,000 |
|
|
|
— |
|
Proceeds
from subscription receivables
|
|
|
499,395 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
60,793,754 |
|
|
|
5,124,603 |
|
|
|
— |
|
The Notes
to Consolidated Financial Statements are an integral part of these
statements.
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For the Period from
|
|
|
|
|
|
|
|
|
January 22, 1997
|
|
|
|
|
|
|
|
|
(date of inception) to
|
|
|
Year ended
|
|
|
Year ended
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,749,208 |
|
|
|
2,537,595 |
|
|
|
(2,661,525
|
) |
Cash
and cash equivalents at beginning of period
|
|
|
— |
|
|
|
211,613 |
|
|
|
2,873,138 |
|
Cash
and cash equivalents at end of period
|
|
$ |
2,749,208 |
|
|
$ |
2,749,208 |
|
|
$ |
211,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
590,189 |
|
|
$ |
— |
|
|
$ |
78,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash financing activities:
|
|
|
|
|
|
|
|
|
Note
payable principal and interest conversion to equity
|
|
$ |
10,376,714 |
|
|
$ |
175,000 |
|
|
$ |
— |
|
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 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
paid from proceeds in conjunction with issuance of preferred
stock
|
|
$ |
768,063 |
|
|
$ |
147,500 |
|
|
$ |
— |
|
Preferred
stock dividends
|
|
$ |
2,441,790 |
|
|
$ |
905,382 |
|
|
$ |
760,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
effect of conversion of common stock to preferred stock prior to
merger
|
|
$ |
559 |
|
|
$ |
— |
|
|
$ |
— |
|
During
the years ended December 31, 2008 and 2007, 56,832 and 506,446 Series A
Preferred Shares were converted into 218,585 and 405,157 Common Shares,
respectively. For the period from January 22, 1997 (date of inception) to
December 31, 2008, 563,278 Series A Preferred Shares were converted into 623,742
Common Shares.
During
the years ended December 31, 2008 and 2007, -0- and 553,629 Series A Preferred
Shares were issued in connection with the non-registration event as settlement
of dividends/penalties payable, respectively, For the period from January 22,
1997 (date of inception) to December 31, 2008, 553,629 Series A Preferred Shares
were issued in connection with the non-registration event as settlement of
dividends/penalties payable.
The Notes
to Consolidated Financial Statements are an integral part of these
statements.
The
accompanying consolidated financial statements include the results of MedaSorb
Technologies Corporation (the “Parent”), formerly known as Gilder Enterprises,
Inc., and CytoSorbents, Inc. (f/k/a MedaSorb Technologies, Inc.) , its
wholly-owned operating subsidiary (the “Subsidiary”), collectively referred to
as “the Company.”
The
Company is a development stage company and has not yet generated any revenues.
Since inception, the Company's expenses relate primarily to research and
development, organizational activities, clinical manufacturing, regulatory
compliance and operational strategic planning. Although the Company has made
advances on these matters, there can be no assurance that the Company will
continue to be successful regarding these issues, nor can there be any assurance
that the Company will successfully implement its long-term strategic
plans.
The
accompanying 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 December 31, 2008 of $75,461,481.
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 matters raise substantial
doubt about the Company’s ability to continue as a going concern. These
consolidated financial statements do not include any adjustments related to the
outcome of this uncertainty.
The
Company has developed an intellectual property portfolio, including 25 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 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 December 31, 2008,
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, CytoSorbents, Inc.
(f/k/a 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 debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Short
Term Investments
Short-term
investments include short-term bank certificates of deposit with original
maturities of between three and twelve months. These
short-term investments are classified as held to maturity and are valued at
cost which approximates fair value. These investments are considered Level 1
investments under SFAS No. 157.
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation
of property and equipment is provided for by the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lesser of their economic useful lives or the term of the
related leases. Gains and losses on depreciable assets retired or sold are
recognized in the statements of operations in the year of disposal. Repairs and
maintenance expenditures are expensed as incurred.
Patents
Legal
costs incurred to establish patents are capitalized. When patents are issued,
capitalized costs are amortized on the straight-line method over the related
patent term. In the event a patent is abandoned, the net book value of the
patent is written off.
Impairment
or Disposal of Long-Lived Assets
The
Company assesses the impairment of patents and other long-lived assets under
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. For long-lived assets to be held and used, the Company
recognizes an impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss based on
the difference between the carrying amount and fair value.
Research
and Development
All
research and development costs, payments to laboratories and research
consultants are expensed when incurred.
Income
Taxes
Income
taxes are accounted for under the asset and liability method prescribed by SFAS
No. 109, “Accounting for Income Taxes.” Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the tax
basis of assets and liabilities. Deferred tax assets and liabilities reflect the
tax rates expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely than
not that some or all of the deferred tax asset will not be realized. Under
Section 382 of the Internal Revenue Code the net operating losses generated
prior to the reverse merger may be limited due to the change in ownership.
Additionally, net operating losses generated subsequent to the reverse merger
may be limited in the event of changes 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 in an effort to minimize its
collection risk of these balances.
Financial
Instruments
The
carrying values of cash and cash equivalents, short-term investments, accounts
payable and other debt obligations approximate their fair values due to their
short-term nature.
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. Refer to Note 10 for methodology for determining net loss per
share.
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 (R), the
fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model.
The
Company also follows the guidance in EITF 96-18 “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” for equity instruments issued
to consultants.
Effects
of Recent Accounting Pronouncements
Effective
January 1, 2008, the Company has adopted the provisions of 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. 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 provisions of SFAS 157 did not have a significant impact
on the Company’s statements of operations or financial position.
Effective
January 1, 2008, the Company has adopted the provisions of 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. The
provisions of SFAS 159 did not have a significant impact on the Company’s
statements of operations or financial position.
3.
|
PROPERTY
AND EQUIPMENT, NET:
|
Property
and equipment - net, consists of the following:
December
31,
|
|
2008
|
|
|
2007
|
|
Depreciation/
Amortization
Period
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
$ |
130,015 |
|
|
$ |
130,015 |
|
7
years
|
Equipment
and computers
|
|
|
1,731,242 |
|
|
|
1,731,242 |
|
3
to 7 years
|
Leasehold
improvements
|
|
|
462,980 |
|
|
|
462,980 |
|
Term
of
lease
|
|
|
|
2,324,237 |
|
|
|
2,324,237 |
|
|
Less
accumulated depreciation and amortization
|
|
|
2,272,180 |
|
|
|
2,179,780 |
|
|
Property
and Equipment, Net
|
|
$ |
52,057 |
|
|
$ |
144,457 |
|
|
Depreciation
expense for the years ended December 31, 2008 and 2007 amounted to $92,400 and
$180,530, respectively. Depreciation expense from inception to December 31, 2008
amounted to $2,299,268
Other
assets consist of the following:
December
31,
|
2008
|
|
2007
|
|
|
|
|
|
|
Intangible
assets, net
|
|
$ |
202,676 |
|
|
$ |
191,926 |
|
Security
deposits
|
|
|
66,634 |
|
|
|
53,894 |
|
Total
|
|
$ |
269,310 |
|
|
$ |
245,820 |
|
Intangible
assets consist of the following:
December
31,
|
|
2008
|
|
|
2007
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$ |
244,172 |
|
|
$ |
41,496 |
|
|
$ |
222,121 |
|
|
$ |
30,195 |
|
The
issued patents that are capitalized are being amortized over the patents
remaining legal life. Pending patents are not amortized. Amortization expense
amounted to $11,301 and $9,910 for the years ended December 31, 2008 and 2007,
respectively. Amortization expense from inception to December 31, 2008 amounted
to $41,496.
Amortization
expense is anticipated to be approximately $11,300 for the next five years ended
December 31, 2013.
5.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES:
|
Accounts
Payable and accrued expenses consist of the following:
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
Other
payable
|
|
$ |
316,556 |
|
|
$ |
334,800 |
|
Legal,
financial and consulting
|
|
|
367,379 |
|
|
|
242,891 |
|
Research
and development
|
|
|
293,769 |
|
|
|
329,177 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
977,704 |
|
|
$ |
906,868 |
|
The
Company has outstanding Promissory Notes in the aggregate principal amount of
$50,000, due in September 2009, which bear interest at the rate of 10% per
annum. The holder of the Promissory note has the option to convert,
on an all-or-none basis, the entire principal and outstanding interest of their
Notes into the Series B Preferred Stock issued in June 2008. In
addition, pursuant to the terms of such Promissory Notes, upon such conversion,
each Note holder will receive five-year warrants to purchase the number of
shares of Common Stock equal to the quotient obtained by dividing (x) 25% of the
principal amount of the Promissory Notes being converted, by (y) $0.0362, the
purchase price per share of Common Stock issuable upon conversion of the Series
B Preferred Stock. In addition, Promissory Notes in the aggregate
principal amount of $175,000 plus accrued interest were converted into the
Series B Preferred Stock in June 2008 (See Note 9).
From
inception through December 31, 2005, the Company incurred losses which, as a
limited liability company, were passed through to its members. Tax losses
amounted to approximately $2,600,000 and $2,900,000 for the years ended December
31, 2008 and December 31, 2007, respectively. The Company’s net operating loss
carryforward amounts to approximately $8,100,000 and expires through 2028. These
loss carryforwards are subject to limitation in future years should certain
ownership changes occur. A full valuation allowance equal to the deferred tax
asset has been recorded due to the uncertainty that the Company will have the
ability to utilize such asset.
During
the year ended December 31, 2008, the Company sold a portion of its New Jersey
Net Operating Loss tax carryforward to an industrial company under provisions in
the New Jersey tax code. The Company realized approximately $249,000
from the sale of a portion of its New Jersey Net Operating Loss
carryforwards.
For the
years ended December 31, 2008 and December 31, 2007, respectively, the Company’s
effective tax rate differs from the federal statutory rate principally due to
net operating losses offset by certain non-deductible expenses for which no
benefit has been recorded.
A
reconciliation of the Federal statutory rate to the Company’s effective tax rate
for the years ended December 31, 2008 and December 31, 2007 is as
follows:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Federal
statutory rate
|
|
|
(34.0 |
)% |
|
|
(34.0 |
)% |
Decrease
resulting from:
|
|
|
|
|
|
|
|
|
Non-deductible
expenses
|
|
|
4.6 |
|
|
|
4.9 |
|
Operating
losses
|
|
|
29.4 |
|
|
|
29.1 |
|
Effective
tax rate
|
|
|
— |
% |
|
|
— |
% |
8.
|
COMMITMENTS
AND CONTINGENCIES:
|
The
Company is obligated under non-cancelable operating leases for office space and
equipment expiring at various dates through February 2010. The aggregate minimum
future payments under these leases are approximately as follows:
Year
ending December 31,
|
2009
|
|
$
|
161,000
|
|
|
2010
|
|
|
26,000
|
|
Total
|
|
|
$
|
187,000
|
|
The
preceding data reflects existing leases and does not include replacements upon
their expiration. In the normal course of business, operating leases are
normally renewed or replaced by other leases.
Rent
expense for the years ended December 31, 2008 and 2007 amounted to approximately
$251,000 and $253,000, respectively.
Employment
Agreements
The
Company has employment agreements with certain key executives through December
2009. The agreements provide for annual base salaries of varying
amounts.
Litigation
The
Company is involved in various claims and legal actions. Management is of the
opinion that these claims and legal actions have no merit, and their
ultimate outcome will not have a material adverse impact on the
consolidated financial position of the Company and/or the results of its
operations.
Royalty
Agreements
In an
agreement dated August 11, 2003 an existing investor agreed to make a $4 million
equity investment in the Company. These amounts were received by the Company in
2003. In connection with this agreement the Company granted the investor a
future royalty of 3% on all gross revenues received by the Company from the sale
of its CytoSorb device. The Company has not generated any revenue from this
product and has not incurred any royalty costs through December 31, 2008. 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 December 31, 2008. The
amount of future revenue subject to the Settlement 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.
As
inducement to invest additional funds in the private placement of Series B
Preferred Stock, additional consideration was granted to the participants of the
Series B Preferred Stock offering in the event that litigation is commenced
against MedaSorb prior to June 30, 2018, claiming patent infringement on certain
of the Company’s issued patents. In the event this litigation arises
the Company may be required to issue warrants to purchase in the aggregate up to
a maximum of ten million shares of Common Stock subject to certain
adjustments. Through December 31, 2008 no such litigation has arisen
and due to the deemed low probability of this potential outcome, the Company has
not booked a contingent liability for this agreement.
In June
2008, the Company completed an initial closing of a $4.45 million private
placement, which included the conversion of Promissory Notes in the aggregate
principal amount of $175,000 plus accrued interest. In connection with this
transaction, the Company issued 44,531.47 shares of Series B Preferred Stock.
The Company also issued a 5 year warrant to purchase 3,986,429 shares of Common
Stock at an exercise price of $0.035 per share to the holder of the Promissory
Notes in connection with their conversion into the private placement. In August
2008 the Company completed a closing of an $840,000 private placement. In
connection with this transaction, the Company issued 8,400 shares of Series B
Preferred Stock. The purchasers of the Series B Preferred Stock at the initial
closing in June 2008 are entitled to purchase an additional $1.5 million of
Series B Preferred Stock at the same price of $100 per share (their stated
value) for a period of 15 months following the initial closing date. The Series
B Preferred Shares are initially convertible into common stock at a rate of
$0.035 per share subject to certain adjustments. As part of this transaction,
the Company incurred approximately $215,000 in costs of raising capital during
the twelve months ended December 31, 2008. Pursuant to an agreement signed with
the private placement investors, the Company filed an amendment to increase the
conversion price of the Series B Preferred Stock from $0.035 to $0.0362 per
share of Common Stock. The Company has 100 million shares authorized of
preferred stock. Of this amount the Company has designated 12 million shares as
10% Series A Preferred Stock and 200,000 shares as 10% Series B Preferred
Stock. The balance of authorized preferred shares is currently
undesignated.
10%
Series A Preferred Stock
Each
share of Series A Preferred Stock has a stated value of $1.00, and is
convertible at the holder’s option into that number of shares of Common Stock
equal to the stated value of such share of Series A Preferred Stock divided by
an initial conversion price of $1.25. Upon the occurrence of a stock split,
stock dividend, combination of the Common Stock into a smaller number of shares,
issuance of any of shares of Common Stock or other securities by
reclassification of the Common Stock, merger or sale of substantially all of the
Company’s assets, the conversion rate will be adjusted so that the conversion
rights of the Series A Preferred Stock stockholders will be equivalent to the
conversion rights of the Series A Preferred Stock stockholders prior to such
event. In addition, in the event the Company sells shares of Common Stock (or
the equivalent thereof) at a price of less than $1.25 per share, the conversion
price of the shares of Series A Preferred Stock will be reduced to such lower
price. In addition, in the event the Company sells shares of Common Stock (or
the equivalent thereof) at a price of less than $2.00 per share, the exercise
price of the warrants issued to the holders of the Series A Preferred Stock will
be reduced to such lower price. As of the “Qualified Closing” of our Series B
Preferred Stock private placement in August of 2008, these investors’ agreed to
a modification of their rights and pricing and gave up their anti-dilution
protection – see Qualified Closing description in Series B Preferred Stock
section.
The
Series A Preferred Stock bears a dividend of 10% per annum payable quarterly, at
the Company’s election in cash or additional shares of Series A Preferred Stock
valued at the stated value thereof; provided, however, that the Company must pay
the dividend in cash if an “Event of Default” as defined in the Certificate of
Designation designating the Series A Preferred Stock has occurred and is then
continuing. In addition, upon an Event of Default, the dividend rate increases
to 20% per annum. An Event of Default includes, but is not limited to, the
following:
|
·
|
the
occurrence of “Non-Registration Events”;
|
|
·
|
an
uncured breach by the Company of any material covenant, term or condition
in the Certificate of Designation or any of the related transaction
documents; and
|
|
·
|
any
money judgment or similar final process being filed against the Company
for more than $100,000.
|
In the
event of the Company’s dissolution, liquidation or winding up, the holders of
the Series A Preferred Stock will receive, in priority over the holders of
Common Stock, a liquidation preference equal to the stated value of such shares
plus accrued dividends thereon.
The
Series A Preferred Stock is not redeemable at the option of the holder but may
be redeemed by the Company at its option following the third anniversary of the
issuance of the Series A Preferred Stock for 120% of the stated value thereof
plus any accrued but unpaid dividends upon 30 days' prior written notice, during
which time the Series A Preferred Stock may be converted, provided a
registration statement is effective under the Securities Act with respect to the
Common Stock into which such Preferred is convertible and an Event of Default is
not then continuing.
Holders
of Series A Preferred Stock do not have the right to vote on matters submitted
to the holders of Common Stock.
The
registration rights provided for in the subscription agreements entered into
with the purchasers of the Series A Preferred Stock: 1) required that the
Company file a registration statement with the SEC on or before 120 days from
the closing to register the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock and exercise of the warrants, and cause such
registration statement to be effective within 240 days following the closing;
and 2) entitles each of these investors to liquidated damages in an amount equal
to two percent (2%) of the purchase price of the Series A Preferred Stock if the
Company fails to timely file that registration statement with, or have it
declared effective by, the SEC.
The
transaction documents entered into with the purchasers of the Series A Preferred
Stock also provide for various penalties and fees for breaches or failures to
comply with provisions of those documents, such as the timely payment of
dividends, delivery of stock certificates upon conversion of the Series A
Preferred Stock or exercise of the warrants, and obtaining and maintaining an
effective registration statement with respect to the shares of Common Stock
underlying the Series A Preferred Stock and warrants sold in the
offering.
The
Company has recorded non-cash stock dividends in connection with the issuance of
Series A Preferred Stock as a stock dividend to its preferred shareholders as of
December 31, 2008. Prior to February 26, 2007 and after May 7, 2007, the
dividend rate was 10% per annum. 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 increased from 10% per annum to 20% per annum, and
(iii) such purchasers were entitled to liquidated 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, as modified by the Settlement Agreement described below,
the Company’s financial statements for the year ending December 31, 2007 also
reflect an aggregate charge of $361,496. 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 entered into in August 2007 with the June 30, 2006
purchasers of the Series A Preferred Stock, 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 were paid with additional shares of Series A
Preferred Stock at its stated value of $1.00 per share in lieu of cash. The
settlement, did not result in a gain or loss on extinguishment of debt
for the year ended December 31, 2007. 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.
During
the years ended December 31, 2008 and 2007, the Company issued 830,384 and
760,873 shares of Series A Preferred Stock respectively as payment of stock
dividends at the stated value of $1.00 per share. During the year ended December
31, 2007, the Company issued 361,496 shares of Series A Preferred Stock as
settlement of the cash dividends and penalties payable to the purchasers under
the agreement. The shares were valued at $361,495 and included as a charge
to operations under other (income) expenses for the year ended December 31,
2007.
In
accordance with Emerging Issues Task Force (EITF) 00-27, the Company allocates
the proceeds associated with the issuance of preferred stock based on the
relative fair value of the preferred stock and warrants. Additionally, the
Company evaluates if the embedded conversion option results in a beneficial
conversion feature by comparing the relative fair value allocated to the
preferred stock to the market value of the underlying common stock subject to
conversion. In connection with the preferred stock issuances during the year
ended December 31, 2006, the Company received total proceeds of $7,099,885. The
Company allocated the total proceeds in accordance with EITF 00-27 based on the
related fair value as follows: $6,776,667 was allocated to the preferred stock
and $323,218 to the warrants. Additionally, the embedded conversion option
resulted in a beneficial conversion feature in the amount of $148,618. In
accordance with EITF 98-5, the value assigned to the warrants resulting from the
relative fair value calculation as well as the value of the beneficial
conversion feature is recorded as a preferred stock dividend and is presented in
the consolidated statements of operations. In addition, the Company considers
the guidance of EITF 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Common Stock,” and SFAS
133, “Accounting for Derivative Instruments and Hedging Activities (as
amended),” and concluded that the conversion feature embedded in the preferred
stock only provides for physical settlement and there are no net settlement
features. Accordingly, the Company has concluded that the conversion feature is
not considered a derivative under EITF 00-19 and SFAS 133.
10
% Series B Cumulative Convertible Preferred Stock
Each
share of Series B Preferred Stock has a stated value of $100.00, and is
convertible at the holder’s option into that number of shares of Common Stock
equal to the stated value of such share of Series B Preferred Stock divided by
an initial conversion price of $0.035, subject to certain adjustments.
Additionally, upon the occurrence of a stock split, stock dividend, combination
of the Common Stock into a smaller number of shares, issuance of any of shares
of Common Stock or other securities by reclassification of the Common Stock,
merger or sale of substantially all of the Company’s assets, the conversion rate
will be adjusted so that the conversion rights of the Series B Preferred Stock
stockholders will be equivalent to the conversion rights of the Series B
Preferred Stock stockholders prior to such event.
The
Series B Preferred Stock bears a dividend of 10% per annum payable quarterly;
provided, that if an “Event of Default” as defined in the Certificate of
Designation designating the Series B Preferred Stock has occurred and is then
continuing, the dividend rate increases to 20% per annum. An Event of Default
includes, but is not limited to, the following:
|
·
|
the
occurrence of “Non-Registration Events”;
|
|
·
|
an
uncured breach by the Company of any material covenant, term or condition
in the Certificate of Designation or any of the related transaction
documents; and
|
|
·
|
any
money judgment or similar final process being filed against the Company
for more than $100,000.
|
Dividends
on the Series B Preferred Stock will be made in additional shares of Series B
Preferred Stock, valued at the stated value thereof. Notwithstanding the
foregoing, during the first three-years following the initial closing, upon the
approval of the holders of a majority of the Series B Preferred Stock, including
the lead investor, NJTC, if it then owns 25% of the shares of Series B Preferred
Stock initially purchased by it (the “Required Amount”), the Company may pay
dividends in cash instead of additional shares of Series B Preferred Stock, and
after such three-year period, the holders of a majority of the Series B
Preferred Stock, including NJTC if it then owns the Required Amount, may require
that such payments be made in cash.
In the
event of the Company’s dissolution, liquidation or winding up, the holders of
the Series B Preferred Stock will receive, in priority over the holders of
Series A Preferred Stock and Common Stock, a liquidation preference equal to the
stated value of such shares plus accrued dividends thereon.
Holders
of Series B Preferred Stock have the right to vote on matters submitted to the
holders of Common Stock on an as converted basis.
The
Company has agreed to file a registration statement under the Securities Act
covering the Common Stock issuable upon conversion of the Series B Preferred
Stock within 180 days following the initial closing and to cause it to become
effective within 240 days of such closing. The Company also granted the
investors demand and piggyback registration rights with respect to such Common
Stock. The investors in the private placement are entitled to liquidated damages
in an amount equal to two percent (2%) of the purchase price of the Series B
Preferred Stock if the Company fails to timely file that registration statement
with, or have it declared effective by, the SEC. The Company has
received a waiver from a majority of the Series B holders for the
non-registration event and the timing of the Series B registration does not
create a cross-default of the Series A Preferred Series.
Following
the fifth anniversary of the initial closing, the holders of a majority of the
Series B Preferred Stock, including NJTC (if it then holds 25% of the shares of
Series B Preferred Stock initially purchased by it) may elect to require the
Company to redeem all (but not less than all) of their shares of Series B
Preferred Stock at the original purchase price for such shares plus all accrued
and unpaid dividends whether or not declared, provided the market price of the
Company’s Common Stock is then below the conversion price of the Series B
Preferred Stock.
Pursuant
to the Certificate of Designation designating the Series B Preferred Stock, for
so long as NJTC holds the Required Amount, NJTC is entitled to elect (i) two
directors to the Company’s Board of Directors, which shall initially consist of
six members, and (ii) two members to the Company’s compensation committee, which
shall consist of at least three members. Within twelve months following the
initial closing, the Company agreed to reduce the number of Directors on the
Company’s Board of Directors to five members. Following the initial
closing, two affiliates of NJTC joined the Company’s Board of Directors and
compensation committee pursuant to the foregoing provision.
The
transaction documents entered into with the purchasers of the Series B Preferred
Stock also provide for various penalties and fees for breaches or failures to
comply with provisions of those documents, such as the timely payment of
dividends, delivery of stock certificates upon conversion of the Series B
Preferred Stock or exercise of the warrants, and obtaining and maintaining an
effective registration statement with respect to the shares of Common Stock
underlying the Series B Preferred Stock and warrants sold in the
offering.
In
accordance with Emerging Issues Task Force (EITF) 00-27, the Company allocates
the proceeds associated with the issuance of preferred stock based on the
relative fair value of the preferred stock and warrants. Additionally, the
Company evaluates if the embedded conversion option results in a beneficial
conversion feature by comparing the relative fair value allocated to the
preferred stock to the market value of the underlying common stock subject to
conversion. In connection with the preferred stock issuances during the year
ended December 31, 2008, the Company received total proceeds of $5,293,147. The
Company allocated the total proceeds in accordance with EITF 00-27 based on the
related fair value as follows: $5,110,773 was allocated to the preferred stock
and $182,374 to the warrants. Additionally, the embedded conversion option
resulted in a beneficial conversion feature in the amount of $182,374. In
accordance with EITF 98-5, the value assigned to the warrants resulting from the
relative fair value calculation as well as the value of the beneficial
conversion feature is recorded as a preferred stock dividend and is presented in
the consolidated statements of operations. In addition, the Company considers
the guidance of EITF 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Common Stock,” and SFAS
133, “Accounting for Derivative Instruments and Hedging Activities (as
amended),” and concluded that the conversion feature embedded in the preferred
stock only provides for physical settlement and there are no net settlement
features. Accordingly, the Company has concluded that the conversion feature is
not considered a derivative under EITF 00-19 and SFAS 133.
During
the twelve months ended December 31, 2008 the Company recorded non-cash stock
dividends totaling $277,919 in connection with the issuance of 830,384 shares of
Series A Preferred Stock and stock dividends totaling $262,717 in connection
with the issuance of 2,627.17 shares of Series B Preferred Stock as a stock
dividend to its preferred shareholders as of December 31, 2008. The Company has
estimated the fair value of the shares issued as stock dividends based upon the
last completed financing transaction involving the underlying common shares,
which occurred in June 2008.
Pursuant
to agreements with the June 30, 2006 purchasers of Series A Preferred Stock that
waived rights to anti-dilution price protection upon the completion of the
Series B offering, the Company reduced the conversion price for these holders of
Series A Preferred Stock from $1.25 per share of Common to prices ranging from
$0.10 to $0.45 per share of Common. The June 30, 2006 purchasers of Series A
Preferred Stock also received reductions in their corresponding warrant exercise
prices from $2.00 per share of Common Stock to exercise prices ranging from
$0.40 to $0.90 per share of Common Stock.
Stock
Option Plans
As of
December 31, 2008, the Company had a Long Term Incentive Plan (“2006 Plan”) to
attract, retain, and provide incentives to employees, officers, directors, and
consultants. The Plan generally provides for the granting of stock, stock
options, stock appreciation rights, restricted shares, or any combination of the
foregoing to eligible participants.
A total
of 40,000,000 shares of common stock are reserved for issuance under the 2006
Plan. As of December 31, 2008 there were outstanding options to purchase
17,268,367 shares of common stock reserved under the plan. Additionally, as of
December 31, 2008 there were options to purchase 890,479 shares of Common Stock
that were issued outside of the 2006 Plan.
The 2006
Plan as well as grants issued outside of the Plan are administered by the Board
of Directors. The Board is authorized to select from among eligible
employees, directors, advisors and consultants those individuals to whom
incentives are to be granted and to determine the number of shares to be subject
to, and the terms and conditions of the options. The Board is also
authorized to prescribe, amend and rescind terms relating to options granted
under the Plans. Generally, the interpretation and construction of any
provision of the Plans or any options granted hereunder is within the discretion
of the Board.
The Plan
provides that options may or may not be Incentive Stock Options (ISOs) within
the meaning of Section 422 of the Internal Revenue Code. Only employees of
the Company are eligible to receive ISOs, while employees and non-employee
directors, advisors and consultants are eligible to receive options which are
not ISOs, i.e. “Non-Qualified Options.” Because the Company has not yet
obtained shareholder approval of the 2006 Plan, all options granted thereunder
to date are “Non-Qualified Options” and until such shareholder approval is
obtained, all future options issued under the 2006 Plan will also be
“Non-Qualified Options.”
Stock-based
Compensation
Effective
January 1, 2006, the Company implemented the fair value recognition provisions
of SFAS 123(R) and guidance of SAB 107 for all share-based compensation.
Share-based employee, director, and consultant compensation in the amounts of
approximately $109,000 and $37,000 for the year ended December 31, 2008 and
2007 and $254,000 and $31,300 for the year ended December 31, 2008 and
2007, are included in the net loss of $3,017,890 and $3,350,754, respectively
under the captions research and development and general and
administrative.
The
summary of the stock option activity for the year ended December 31, 2008 is as
follows:
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
Average
|
|
Remaining
|
|
|
|
|
Exercise
|
|
Contractual
|
|
|
Shares
|
|
per Share
|
|
Life (Years)
|
|
Outstanding,
January 1, 2008
|
|
|
2,098,502 |
|
|
$ |
9.41 |
|
|
|
7.7 |
|
Granted
|
|
|
16,133,578 |
|
|
|
0.075 |
|
|
|
9.4 |
|
Cancelled
|
|
|
(73,234
|
) |
|
|
26.42 |
|
|
|
0.0 |
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding,
December 31, 2008
|
|
|
18,158,846 |
|
|
$ |
1.05 |
|
|
|
9.1 |
|
The
weighted-average grant date fair value for options granted during the years
ended December 31, 2008 and 2007 amounted to approximately $0.03 and $0.63 per
share, respectively.
At
December 31, 2008, the aggregate intrinsic value of options outstanding and
options currently exercisable amounted to $10,474.
The
summary of the status of the Company’s non-vested options for the year ended
December 31, 2008 is as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Non-vested,
January 1, 2008
|
|
|
173,330 |
|
|
$ |
0.80 |
|
Granted
|
|
|
16,133,578 |
|
|
$ |
0.033 |
|
Cancelled
|
|
|
— |
|
|
$ |
— |
|
Vested
|
|
|
(10,026,304 |
) |
|
$ |
0.034 |
|
Exercised
|
|
|
— |
|
|
|
— |
|
Non-vested,
December 31, 2008
|
|
|
6,280,604 |
|
|
$ |
0.05 |
|
As of
December 31, 2008, approximately $306,709 of total unrecognized compensation
cost related to stock options is expected to be recognized over a weighted
average period of 1.18 years.
As of
December 31, 2008, the Company has the following warrants to purchase common
stock outstanding:
Number of Shares
|
|
Warrant Exercise
|
|
Warrant
|
To be Purchased
|
|
Price per Share
|
|
Expiration Date
|
15,569
|
|
$
|
6.64
|
|
March
31, 2010
|
816,691
|
|
$
|
4.98
|
|
June
30, 2011
|
1,200,000
|
|
$
|
0.90
|
|
June
30, 2011
|
900,000
|
|
$
|
0.40
|
|
June
30, 2011
|
339,954
|
|
$
|
2.00
|
|
September 30, 2011
|
52,080
|
|
$
|
2.00
|
|
July
31, 2011
|
400,000
|
|
$
|
0.40
|
|
October
31, 2011
|
240,125
|
|
$
|
1.25
|
|
October
24, 2016
|
3,986,429
|
|
$
|
0.035
|
|
June
25,
2013
|
As of
December 31, 2008, the Company has the following warrant to purchase Series A
Preferred Stock outstanding:
Number of
|
|
Warrant Exercise
|
|
Warrant
|
Shares to be
|
|
Price per
|
|
Expiration
|
Purchased
|
|
Preferred Share
|
|
Date
|
525,000
|
|
$
|
1.00
|
|
June 30, 2011
|
If the
holder of warrants for preferred stock exercises in full, the holder will
receive additional 5 year warrants to purchase a total of 210,000 shares of
common stock at $0.40 per share.
As of
December 31, 2008, the Company has the following warrant to purchase Series B
Preferred Stock outstanding:
Number of
|
|
Warrant Exercise
|
|
Warrant
|
Shares to be
|
|
Price per
|
|
Expiration
|
Purchased
|
|
Preferred Share
|
|
Date
|
15,000
|
|
$
|
100.00
|
|
September
25, 2009
|
Equity
Instruments Issued for Services Rendered
During
the years ended December 31, 2008 and 2007 the Company issued stock options,
warrants and shares of common stock in exchange for services rendered to the
Company. The fair value of each stock option and warrant was valued using the
Black Scholes pricing model which takes into account as of the grant date the
exercise price (ranging from $0.035 to $1.90 per share) and expected life of the
stock option or warrant (5-10 years), the current price of the underlying stock
and its expected volatility (approximately 26 percent), expected dividends (-0-
percent) on the stock and the risk free interest rate (ranging from 2.25 to 4.5
percent) for the term of the stock option or warrant. Shares of common stock are
valued at the quoted market price on the date of grant. The fair value of each
grant was charged to the related expense in the statement of operations for the
services received.
Basic
earnings per share and diluted earnings per share for the years ended December
31, 2008 and 2007 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 approximately
26,109,694 and 3,964,419 incremental shares, respectively, as well as shares
issuable upon conversion of Series A & B Convertible Preferred Stock and
Preferred Stock Warrants representing approximately 239,767,931 incremental
shares, as well as shares issuable upon potential long-term Note conversion into
Series B Preferred Stock and Common warrants representing approximately
1,726,519 shares have been excluded from the computation of diluted
EPS as they are anti-dilutive.
In
January 2009, the Company issued options to purchase 2,753,858 shares of Common
Stock to an eligible employee, a director, and a consultant exercisable at
$0.084 per share and options to purchase 2,365,000 shares of Common Stock to
eligible employees and a consultant exercisable at $0.168 per
share.
During
January and February 2009 a total of 441,666 shares of Series A Preferred Stock
were converted into 4,416,666 shares of Common Stock, and a total of 300.69
shares of Series B Preferred Stock were converted into 830,636 shares of Common
Stock.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. We believe
the following critical accounting policies have significant effect in the
preparation of our consolidated financial statements.
Development
Stage Corporation
The
Company’s 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."
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.
Research
and Development
All
research and development costs, payments to laboratories and research
consultants are expensed when incurred.
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.
The
Company also follows the guidance in EITF 96-18 “Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” for equity instruments issued
to consultants.
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 regulatory 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
and physiologic fluids.
We are
focusing 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 systematic inflammatory
response syndrome. CytoSorb™ has been designed to prevent or reduce the
accumulation of high concentrates of cytokines in the bloodstream associated
with sepsis. It is intended for short term use as an adjunctive device to the
standard treatment of sepsis. To date, we have manufactured the CytoSorb™ device
on a limited basis for testing purposes, including for use in clinical studies.
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
December 2006, we submitted a proposed pilot study for approval to the FDA with
respect to CytoSorb™, the first device we intend to bring to market. In the
first quarter of 2007, we received approval from the FDA to conduct a limited
study of five patients in the adjunctive treatment of sepsis. Based on
management’s belief that proceeding with the approved limited study would add at
least one year to the approval process for the United States, we made a
determination to focus our efforts on obtaining regulatory approval in Europe
before proceeding with the FDA.
We
estimate that the market potential in Europe for our products is substantially
equivalent to that in the U.S. Given the opportunity to conduct a much larger
clinical study in Europe, and management’s belief that the path to a CE Mark
should be faster than FDA approval, we have targeted Europe for the initial
market introduction of our CytoSorb™ product. To accomplish the European
introduction, in July 2007 we prepared and filed a request for a clinical trial
with German regulators.
We
received approval from the German Ethics Committee in October of 2007 to conduct
a clinical study of up to 80 patients with acute respiratory distress syndrome
or acute lung injury in the setting of sepsis. At December 31, 2008 we had
initiated and opened for enrollment seven (7) hospital units to participate in
our clinical study and had identified an additional six (6) sites that may be
added to our study to accelerate enrollment. As of March 2009 we have increased
the number of hospital units participating in our study to ten
(10).
In April
2009, we submitted a protocol revision to expand the options for
anti-coagulation that the clinical sites may use, and to increase the total
number of patients that may be enrolled from 80 to 100 patients. This
revision has been approved by the German Ethics Committee. We believe that the
revised protocol will enable more potential sites to participate in the study,
and may help accelerate patient enrollment through greater access to potential
candidates. Further, while we do not anticipate enrolling more than 80
patients, we now have the flexibility to enroll up to 100 patients if
needed.
Additionally,
we have updated blood sampling and handling procedures to minimize non-device
related artifacts that may potentially arise if the samples are not processed
appropriately.
To date
we have enrolled twenty two (22) patients in the clinical study, which have been
randomized yielding eleven (11) treated and eleven (11) control (non-treated)
patients. We hope to enroll approximately sixty (60) additional patients.
While we do not anticipate enrolling the entire 100 patients that we are now
entitled to enroll, the approved increase allows us some flexibility in the
event any of the enrolled patients are not able to complete the study due to
withdrawal or inability to complete post treatment follow-up. In conducting the
German Clinical study we have utilized our CytoSorb™ device in over 75
treatments to date with no Serious Adverse Events attributable to the
device.
We expect
to complete the patient enrollment by the end of 2009. Concurrent with the
clinical study, we expect to commence the CE Mark submission process. Assuming a
successful outcome of the study, management believes it will take an additional
6-9 months following its submission for CE Mark approval to receive the European
regulatory approval. Assuming availability of adequate and timely funding, and a
successful outcome to the study, management anticipates obtaining CE Mark
approval in the first half of 2010, at the earliest.
The
clinical protocol for our European clinical study has been designed to allow us
to gather information to support future U.S. studies. In the event we receive
the CE Mark and are able to successfully commercialize our products in the
European market, we will review our plans for the United States to determine
whether to conduct clinical trials in support of 510K or PMA
registration.
However,
there can be no assurance we will eventually obtain regulatory approval for our
CytoSorb™ or any other device from CE Mark. Even if we eventually obtain CE Mark
approval, there can be no assurance as to when such approval will be obtained,
because we cannot control the timing of responses from regulators to our
submissions. After we can obtain the CE Mark approval, there is no assurance
that we will resume application process with the FDA. If we do decide to
continue the process with FDA, we cannot guarantee that we will be able to
obtain the FDA approval eventually.
Our
research and development costs were, $1,983,483 and $1,415,509, for the years
ended December 31, 2008 and 2007 respectively, and $488,555 and $355,127 for the
three months ended March 31, 2009 and 2008, respectively. We have experienced
substantial operating losses since inception. As of March 31, 2009, we had an
accumulated deficit of $76,392,206 which included losses from operations of
$760,151 for the three month period ended March 31, 2009. In comparison, we had
losses from operations of $646,050 for the three month period ended March 31,
2008. Historically, our losses have resulted principally from costs incurred in
the research and development of our polymer technology, and general and
administrative expenses, which together were $2,892,855 and $2,677,475 for the
years ended December 31, 2008 and 2007 respectively, and $716,889 and $588,651
for the three months ended March 31, 2009 and 2008,
respectively.
Liquidity and Capital
Resources
Since
inception, our operations have been financed through the private placement of
our debt and equity securities. At March 31, 2009 we had cash of $2,154,795. As
of December 31, 2008 we had cash on hand of $2,749,208, and current liabilities
of $893,067. Our decrease in cash from December 31, 2008 is a result of ordinary
business expenses and we did not generate any
revenues. Notwithstanding the closing of the private placement in
2008, we will require additional funding before we are able to commercialize our
products and will continue to seek funding for the long term needs of the
Company. There can be no assurance that financing will be available on
acceptable terms or at all. If adequate funds are unavailable, we may have to
suspend, delay or eliminate one or more of our research and development programs
or product launches or marketing efforts or cease operations.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There
have been no changes in or disagreements with our accountants on accounting or
financial disclosure matters.
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table sets forth our directors and executive officers, their ages and
the positions they hold:
Name
|
|
Age
|
|
Position
|
Phillip
Chan, MD, Ph.D.
|
|
38
|
|
Chief
Executive Officer and Director
|
Vincent
Capponi
|
|
50
|
|
Chief
Operating Officer
|
David
Lamadrid
|
|
38
|
|
Chief
Financial Officer
|
Robert
Bartlett, MD
|
|
69
|
|
Chief
Medical Officer
|
Al
Kraus
|
|
64
|
|
Chairman
of the Board of Directors
|
Edward
R. Jones, MD, MBA
|
|
60
|
|
Director
|
Joseph
Rubin, Esq.
|
|
70
|
|
Director
|
James
Gunton
|
|
42
|
|
Director
|
Phillip Chan, MD, PhD Dr. Chan
became a director of MedaSorb in 2008 and since January 2009 is also Chief
Executive Officer. Prior to MedaSorb, Dr. Chan led healthcare life science
investments as Partner for the NJTC Venture Fund. Dr. Chan co-founded
Andrew Technologies, a medical device company developing novel surgical
instruments for plastic surgery and continues as a Board Director. He is a
Board-certified Internal Medicine physician with a strong background in clinical
medicine and research. Dr. Chan received his MD and PhD from the Yale University
School of Medicine and completed his Internal Medicine residency at Beth Israel
Deaconess Medical Center at Harvard. He also holds a BS in cell and molecular
biology from Cornell University.
Vincent
Capponi. Mr. Capponi joined MedaSorb as Vice President of Operations in
2002 and became its Chief Operating Officer in July 2005. He has more than 20
years of management experience in medical device, pharmaceutical and imaging
equipment at companies including Upjohn, Sims Deltec and Sabratek. Prior to
joining MedaSorb in 2002, Mr. Capponi held several senior management positions
at Sabratek and its diagnostics division GDS, and was interim president of GDS
diagnostics in 2001. From 1998 to 2000, Mr. Capponi was Senior Vice President
and Chief Operating Officer for Sabratek and Vice President Operations from 1996
to 1998. He received his MS in Chemistry and his BS in Chemistry and
Microbiology from Bowling Green State University.
David
Lamadrid. Mr. Lamadrid has been with MedaSorb since 2000 and has
served as its Chief Financial Officer since October 2002. He has over 15 years
of business experience in finance and operations. Prior to joining MedaSorb in
2000, Mr. Lamadrid was a financial analyst at Chase Manhattan Bank working in
the Middle Market Banking Group. Mr. Lamadrid received his MBA from New York
University, a BS in Finance from St. John’s University, and an AAS in Accounting
from S.U.N.Y. Rockland.
Robert Bartlett,
M.D. Dr. Bartlett is Professor Emeritus of Surgery at the University of
Michigan Health System. Prior to becoming Professor Emeritus in 2005,
Dr. Bartlett was Director of the Surgical Intensive Care Unit, Chief of the
Trauma/Clinical Care Division and Director of the Extracorporeal Life Support
Program at the University of Michigan Medical Center. Dr. Bartlett
was the pioneer in the development of the extracorporeal membrane oxygenation
machine (ECMO), used to oxygenate blood in critically ill patients
worldwide. He received his MD from the University of Michigan Medical
School, cum laude. He completed his general surgery residency at
Peter Bent Brigham Hospital in Boston, and was Chief resident in thoracic
surgery. Dr. Bartlett was also a NIH Trainee in Academic Surgery at
Harvard Medical School, and was previously faculty at the University of
California, Irvine. Dr. Bartlett is the recipient of 26 separate
research grants, 14 from the National Institute of Health, including an RO1
grant for the development of a totally artificial lung. He has also
received numerous national and international awards for his contributions to
critical care medicine.
Al Kraus.
Mr. Kraus has been a director of MedaSorb since 2003 and up until the end
of 2008 was the Company’s President and CEO. Mr. Kraus currently
serves as Chairman of the Board of Directors. Mr. Kraus has more than
twenty-five years’ experience managing companies in the dialysis, medical device
products, personal computer and custom software industries. Prior to joining us,
from 2001 to 2003, Mr. Kraus was President and CEO of NovoVascular Inc., an
early stage company developing coated stent technology. From 1996 to 1998, Mr.
Kraus was President and CEO of Althin Healthcare and from 1998 to 2000, of
Althin Medical Inc., a manufacturer of products for the treatment of end stage
renal disease. While CEO of Althin, he provided strategic direction and
management for operations throughout the Americas. From 1979 to 1985, Mr. Kraus
was U.S. Subsidiary Manager and Chief Operating Officer of Gambro Inc., a
leading medical technology and healthcare company. Mr. Kraus was the Chief
Operating Officer of Gambro when it went public in the United States in an
offering led by Morgan Stanley.
Edward R. Jones,
MD, MBA. Dr.
Jones has been a director of ours since April 2007. Dr. Jones is an attending
physician at the Albert Einstein Medical Center and Chestnut Hill Hospital as
well as Clinical Professor of Medicine at Temple University Hospital. Dr. Jones
has published or contributed to the publishing of 30 chapters, articles, and
abstracts on the subject of treating kidney-related illnesses. He is a
sixteen-year member of the Renal Physicians Association, the Philadelphia County
Medical Society and a past board member of the National Kidney Foundation of the
Delaware Valley. Dr. Jones has been elected to serve as the next President of
the Renal Physicians Association starting in 2009.
Joseph Rubin,
Esq. Mr.
Rubin became a director of MedaSorb in 1997. Mr. Rubin is a founder and Senior
Partner of Rubin, Bailin, and Ortoli, LLP an international and domestic
corporate and commercial law firm in New York City, where he has practiced law
since 1986. Mr. Rubin also teaches at the Columbia University School of
International and Public Affairs, where he is also Executive Director of the
International Technical Assistance Program for Public Affairs (ITAP). Mr. Rubin
was Adjunct Professor at the Columbia University Graduate School of Business
from 1973 to 1994, and taught at Columbia Law School in 1996. Mr. Rubin received
his law degree from Harvard Law School, and his B.A., MIA, and M.Phil degrees in
political science and international relations from Columbia
University.
James Gunton, Mr. Gunton
became a director of MedaSorb in 2008. He is a cofounder of the NJTC Venture
Fund. Mr. Gunton has been investing in privately-held growth technology
companies for fifteen years. Before co-founding in 2001 the $80 million NJTC
Venture Fund, Jim was a manager at Oracle Corporation in the Silicon Valley. He
represents NJTC Venture Fund at nine portfolio companies and is a former
Governor of the National Association of Small Business Investment Companies. Jim
earned a BS from Stanford University and an MBA with distinction from Duke
University.
Audit
Committee Financial Expert
The Board
of Directors does not have an Audit Committee, and therefor does not have an
“audit committee financial expert.”
EXECUTIVE
COMPENSATION
The
following table shows for the fiscal year ended December 31, 2008, compensation
awarded to or paid to, or earned by, our Chief Executive Officer, our Chief
Operating Officer, our Chief Financial Officer, and our Chief Medical Officer
(the “Named Executive Officers”).
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Option
Awards (1)
($)
|
|
Total
($)
|
Al
Kraus
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer
|
|
|
2008
|
|
216,351
|
|
-0-
|
|
|
108,381
|
(2)
|
324,732
|
|
|
|
2007
|
|
216,351
|
|
-0-
|
|
|
251,446
|
(3)
|
467,797
|
|
|
|
2006
|
|
201,257
|
|
-0-
|
|
|
69,555
|
(4)
|
270,812
|
Vincent
Capponi,
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Operating Officer
|
|
|
2008
|
|
195,527
|
|
150
|
|
|
155,795
|
(5)
|
351,472
|
|
|
|
2007
|
|
195,527
|
|
-0-
|
|
|
-0-
|
|
195,527
|
|
|
|
2006
|
|
178,441
|
|
200
|
|
|
40,297
|
(6)
|
218,939
|
David
Lamadrid,
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
|
2008
|
|
157,630
|
(12)
|
150
|
|
|
196,555
|
(7)
|
354,335
|
|
|
|
2007
|
|
145,801
|
|
-0-
|
|
|
137,781
|
(8)
|
283,582
|
|
|
|
2006
|
|
135,629
|
|
200
|
|
|
-0-
|
|
135,829
|
Dr.
James Winchester
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Medical Officer
|
|
|
2008
|
|
120,000
|
|
-0-
|
|
|
24,760
|
(9)
|
144,760
|
|
|
|
2007
|
|
120,000
|
|
-0-
|
|
|
2,431
|
(10)
|
122,431
|
|
|
|
2006
|
|
120,000
|
|
-0-
|
|
|
40,297
|
(11)
|
160,297
|
|
(1)
|
The
value of option awards granted to the Named Executive Officers has been
estimated pursuant to SFAS No. 123(R) for the options described in the
footnotes below, except that for purposes of this table, we have assumed
that none of the options will be forfeited. The Named Executive Officers
will not realize the estimated value of these awards in cash until these
awards are vested and exercised or sold. For information regarding our
valuation of option awards, see “Stock-Based Compensation” in Note 2 of
our financial statements for the period ended December 31, 2008.
|
|
(2)
|
Reflects
options to purchase 7,119,328 shares of Common Stock at an exercise price
of $0.035 per share, which were granted on June 25, 2008 and expire June
25, 2018.
|
|
(3)
|
Reflects
options to purchase 400,000 shares of Common Stock at an exercise price of
$1.26 per share, which were granted on February 8, 2007 and expire
February 8, 2017 and options to purchase 80,122 shares of Common Stock at
an exercise price of $0.22 per share, which were granted on December 31,
2007 and expire December 31,
2017.
|
|
(4)
|
Reflects
options to purchase 413,920 shares of Common Stock, all of which are
currently exercisable at an exercise price of $6.64 per share. Options to
purchase 332,094 of these shares were granted on September 30, 2006 and
expire on September 30, 2016, and options to purchase 81,826 of these
shares were granted on December 31, 2006 and expire on December 31,
2016.
|
|
(5)
|
Reflects
options to purchase 1,100,000 shares of Common Stock at an exercise price
of $0.25 per share, which were granted on January 16, 2008 and expire on
January 16, 2018. This option vested and became exercisable as to 366,666
shares on the date of grant, vested and became exercisable as to 366,667
shares on January 16, 2009; and vests and becomes exercisable as to
366,667 shares on January 16, 2010. Reflects options to
purchase 2,250,000 shares of Common Stock at an exercise price of $0.035
per share, which were granted on June 25, 2008 and expire on June 25,
2018. This option vested and became exercisable as to 562,500 shares on
the date of grant, vests and becomes exercisable as to 562,500 shares on
June 25, 2009, vests and becomes exercisable as to 562,500
shares on June 25, 2010, and vests and becomes exercisable as to 562,500
shares on June 25, 2011.
|
|
(6)
|
Reflects
options to purchase 50,000 shares of Common Stock at an exercise price of
$1.65 per share, which were granted on December 31, 2006 and expire on
December 31, 2016. This option vested and became exercisable as to 16,667
shares on the date of grant, vested and became exercisable as to 16,667
shares on December 31, 2007; and vested and became exercisable as to
16,666 shares on December 31, 2008.
|
|
(7)
|
Reflects
options to purchase 1,400,000 shares of Common Stock at an exercise price
of $0.25 per share, which were granted on January 16, 2008 and expire on
January 16, 2018. This option vested and became exercisable as to 466,667
shares on the date of grant, vested and became exercisable as to 466,667
shares on January 16, 2009; and vests and becomes exercisable as to
466,666 shares on January 16, 2010. Reflects options to
purchase 2,750,000 shares of Common Stock at an exercise price of $0.035
per share, which were granted on June 25, 2008 and expire on June 25,
2018. This option vested and became exercisable as to 687,500 shares on
the date of grant, vests and becomes exercisable as to 687,500 shares on
June 25, 2009, vests and becomes exercisable as to 687,500 shares on June
25, 2010, and vests and becomes exercisable as to 687,500 shares on June
25, 2011.
|
|
(8)
|
Reflects
options to purchase 150,000 shares of Common Stock at an exercise price of
$1.90 per share which were granted on January 16, 2007 and expire on
January 16, 2017. This option vested and became exercisable as to 50,000
shares on the date of grant, vested and became exercisable as to 50,000
shares on January 16, 2008; and vested and became exercisable as to 50,000
shares on January 16,
2009.
|
|
(9)
|
Reflects
options to purchase 175,000 shares of Common Stock at an exercise price of
$0.25 per share, which were granted on January 16, 2008 and expire on
January 16, 2018. This option vested and became exercisable as to 58,333
shares on the date of grant, vested and became exercisable as to 58,333
shares on January 16, 2009; and vests and becomes exercisable as to 58,334
shares on January 16, 2010. Reflects options to purchase
356,250 shares of Common Stock at an exercise price of $0.035 per share,
which were granted on June 25, 2008 and expire on June 25, 2018. This
option vested and became exercisable as to 89,063 shares on the date of
grant, vests and becomes exercisable as to 89,063 shares on June 25, 2009,
vests and becomes exercisable as to 89,062 shares on June 25, 2010, and
vests and becomes exercisable as to 89,062 shares on June 25,
2011.
|
|
(10)
|
Reflects
options to purchase 25,000 shares of Common Stock at an exercise price of
$0.22 per share, which were granted on December 31, 2007 and expire on
December 31, 2017. This option vested and became exercisable as to 8,334
shares on the date of grant, vested and became exercisable as to 8,333
shares on December 31, 2008; and vest and become exercisable as to 8,333
shares on December 31, 2009.
|
|
(11)
|
Reflects
options to purchase 50,000 shares of Common Stock at an exercise price of
$1.65 per share, which were granted on December 31, 2006 and expire on
December 31, 2016. This option vested and became exercisable as to 16,667
shares on the date of grant, vested and become exercisable as to 16,667
shares on December 31, 2007; and vested and become exercisable as to
16,666 shares on December 31,
2008.
|
|
(12)
|
Amount
includes payments in the approximate amount of $11,800 for certain other
expenses pursuant to an employment
agreement.
|
Outstanding
Equity Awards at Fiscal Year End
The
following table shows for the fiscal year ended December 31, 2008, certain
information regarding outstanding equity awards at fiscal year end for the Named
Executive Officers.
Outstanding
Equity Awards At December 31, 2008
|
|
Option
Awards
|
Name
|
|
Number of
Securities Underlying
Unexercised Options
(#)
Exercisable
|
|
|
Number of Securities
Underlying Unexercised
Options
(#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration Date
|
Al
Kraus
|
|
|
332,094 |
|
|
|
|
|
|
6.64 |
(1) |
9/30/16
|
|
|
|
81,826 |
|
|
|
|
|
|
6.64 |
(1) |
12/31/16
|
|
|
|
400,000 |
|
|
|
|
|
|
1.26 |
(1) |
02/08/17
|
|
|
|
80,122 |
|
|
|
|
|
|
0.22 |
(1) |
12/31/17
|
|
|
|
7,119,329 |
|
|
|
|
|
|
0.035 |
(1) |
06/25/18
|
Vincent
Capponi
|
|
|
50,000 |
|
|
|
|
|
|
1.65 |
(2) |
12/31/16
|
|
|
|
366,666 |
|
|
|
733,334 |
|
|
|
0.25 |
(3) |
01/16/18
|
|
|
|
562,500 |
|
|
|
1,687,500 |
|
|
|
0.035 |
(4) |
06/25/18
|
David
Lamadrid
|
|
|
100,000 |
|
|
|
50,000 |
|
|
|
1.90 |
(5) |
01/16/17
|
|
|
|
466,666 |
|
|
|
933,334 |
|
|
|
0.25 |
(6) |
01/16/18
|
|
|
|
687,500 |
|
|
|
2,062,500 |
|
|
|
0.035 |
(7) |
06/25/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
James Winchester
|
|
|
50,000 |
|
|
|
|
|
|
|
1.65 |
(8) |
12/31/16
|
|
|
|
16,667 |
|
|
|
8,333 |
|
|
|
0.22 |
(9) |
12/31/17
|
|
|
|
58,333 |
|
|
|
116,667 |
|
|
|
0.25 |
(10) |
01/16/18
|
|
|
|
89,063 |
|
|
|
267,187 |
|
|
|
0.035 |
(11) |
06/25/18
|
|
(2)
|
Vests
and becomes exercisable as to (i) 16,667 shares on December 31, 2006; (ii)
16,667 shares on December 31, 2007; and (iii) 16,666 shares on December
31, 2008.
|
|
(3)
|
Vests
and becomes exercisable as to (i) 366,666 shares on January 16, 2008; (ii)
366,667 shares on January 16, 2009; and (iii) 366,667 shares on January
16, 2010.
|
|
(4)
|
Vests
and becomes exercisable as to (i) 562,500 shares on June 25, 2008; (ii)
562,500 shares on June 25, 2009; (iii) 562,500 shares on June 25, 2010;
and (iv) 562,500 shares on June 25,
2011.
|
|
(5)
|
Vests
and becomes exercisable as to (i) 50,000 shares on January 16, 2007; (ii)
50,000 shares on January 16, 2008; and (iii) 50,000 shares on January 16,
2009.
|
|
(6)
|
Vests
and becomes exercisable as to (i) 466,666 shares on January 16, 2008; (ii)
466,667 shares on January 16, 2009; and (iii) 466,667 shares on January
16, 2010.
|
|
(7)
|
Vests
and becomes exercisable as to (i) 562,500 shares on June 25, 2008; (ii)
562,500 shares on June 25, 2009; (iii) 562,500 shares on June 25, 2010;
and (iv) 562,500 shares on June 25,
2011.
|
|
(8)
|
Vests
and becomes exercisable as to (i) 16,667 shares on December 31, 2006; (ii)
16,667 shares on December 31, 2007; and (iii) 16,666 shares on December
31, 2008.
|
|
(9)
|
Vests
and becomes exercisable as to (i) 8,333 shares on December 31, 2007; (ii)
8,333 shares on December 31, 2008; and (iii) 8,334 shares on December 31,
2009.
|
|
(10)
|
Vests
and becomes exercisable as to (i) 58,333 shares on January 16, 2008; (ii)
58,333 shares on January 16, 2009; and (iii) 58,334 shares on January 16,
2010.
|
|
(11)
|
Vests
and becomes exercisable as to (i) 89,063 shares on June 25, 2008; (ii)
89,063 shares on June 25, 2009; (iii) 89,062 shares on June 25, 2010; and
(iv) 89,062 shares on June 25,
2011.
|
Director
Compensation
The
following table shows for the fiscal year ended December 31, 2008 certain
information with respect to the compensation of all non-employee directors of
the Company.
Director
Compensation for Fiscal 2008
Name
|
|
|
|
|
Fees Earned or
Paid
in
Cash
($)
|
|
|
Option
Awards
($)
(1)
|
|
|
Total
($)
|
|
William
R. Miller
|
|
|
(10 |
) |
|
|
20,000 |
|
|
|
11,430 |
(2)(3) |
|
|
31,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Rubin
|
|
|
|
|
|
|
8,000 |
|
|
|
855 |
(2)(4) |
|
|
8,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kurt
Katz
|
|
|
(11 |
) |
|
|
4,000 |
|
|
|
770 |
(2)(5) |
|
|
4,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward
R. Jones
|
|
|
|
|
|
|
8,000 |
|
|
|
855 |
(2)(6) |
|
|
8,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
F. Whalen
|
|
|
(12 |
) |
|
|
3,000 |
|
|
|
285 |
(2)(7) |
|
|
3,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip
Chan, MD
|
|
|
(13 |
) |
|
|
4,000 |
|
|
|
85 |
(2)(8) |
|
|
4,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Gunton
|
|
|
(14 |
) |
|
|
4,000 |
|
|
|
85 |
(2)(9) |
|
|
4,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Al
Kraus
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
value of option awards granted to directors has been estimated pursuant to
SFAS No. 123(R) for the options described in the footnotes below, except
that for purposes of this table, we have assumed that none of the options
will be forfeited. The directors will not realize the estimated value of
these awards in cash until these awards are vested and exercised or sold.
For information regarding our valuation of option awards, see “Stock-Based
Compensation” in Note 2 of our financial statements for the period ended
December 31, 2008.
|
|
(3)
|
At
December 31, 2008, in connection with his service as a director we had
issued Mr. Miller the following: options to purchase 200,000 shares of our
Common Stock at an exercise price of $1.65 per share, which were granted
on January 1, 2007 and expire on January 1, 2007; options to purchase
100,000 shares of our Common Stock at an exercise price of $0.25 per
share, which were granted on January 16, 2008 and expire on January 16,
2018, and options to purchase 25,000 shares of our Common Stock at an
exercise price of $0.035 per share, which were granted on June 25, 2008
and expire on June 25, 2018.
|
|
(4)
|
At
December 31, 2008, in connection with his service as a director we had
issued Mr. Rubin the following: options to purchase 21,098 shares of our
Common Stock at an exercise price of $31.52 per share, which were granted
on June 30, 2006 and expire on December 13, 2010; options to purchase
5,274 shares of our Common Stock at an exercise price of $21.57 per share,
which were granted on June 30, 2006 and expire on January 26, 2012;
options to purchase 3,014 shares of our Common Stock at an exercise price
of $21.57 per share, which were granted on June 30, 2006 and expire on
December 11, 2012; options to purchase 753 shares of our Common Stock at
an exercise price of $21.57 per share, which were granted on June 30, 2006
and expire on December 28, 2013; options to purchase 1,507 shares of our
Common Stock at an exercise price of $6.64 per share, which were granted
on June 30, 2006 and expire on December 29, 2014; options to purchase
10,000 shares of our Common Stock at an exercise price of $1.25 per share,
which were granted on June 30, 2006 and expire on January 30, 2016;
options to purchase 15,069 shares of our Common Stock at an exercise price
of $1.25 per share, which were granted on June 30, 2006 and expire on June
12, 2016; options to purchase 5,000 shares of our Common Stock at an
exercise price of $1.25 per share, which were granted on August 1, 2006
and expire on August 1, 2016; options to purchase 10,000 shares of our
Common Stock at an exercise price of $0.22 per share, which were granted
on December 31, 2007 and expire on December 31, 2017; options to purchase
45,000 shares of our Common Stock at an exercise price of $0.035 per
share, which were granted on June 25, 2008 and expire on June 25, 2018;
and options to purchase 30,000 shares of our Common Stock at an exercise
price of $0.08 per share, which were granted on December 31, 2008 and
expire on December 31, 2018.
|
|
(5)
|
At
December 31, 2008, in connection with his service as a director we had
issued on behalf of Mr. Katz the following : options to purchase 16,200
shares of our Common Stock at an exercise price of $31.52 per share, which
were granted on June 30, 2006 and expire on December 13, 2010; options to
purchase 5,274 shares of our Common Stock at an exercise price of $21.57
per share, which were granted on June 30, 2006 and expire on January 26,
2012; options to purchase 3,014 shares of our Common Stock at an exercise
price of $21.57 per share, which were granted on June 30, 2006 and expire
on December 11, 2012; options to purchase 753 shares of our Common Stock
at an exercise price of $21.57 per share, which were granted on June 30,
2006 and expire on December 28, 2013; options to purchase 1,507 shares of
our Common Stock at an exercise price of $6.64 per share, which were
granted on June 30, 2006 and expire on December 29, 2014; options to
purchase 10,000 shares of our Common Stock at an exercise price of $1.25
per share, which were granted on June 30, 2006 and expire on January 30,
2016; options to purchase 15,069 shares of our Common Stock at an exercise
price of $1.25 per share, which were granted on June 30, 2006 and expire
on June 12, 2016; options to purchase 5,000 shares of our Common Stock at
an exercise price of $1.25 per share, which were granted on August 1, 2006
and expire on August 1, 2016; options to purchase 10,000 shares of our
Common Stock at an exercise price of $0.22 per share, which were granted
on December 31, 2007 and expire on December 31, 2017; options to purchase
45,000 shares of our Common Stock at an exercise price of $0.035 per
share, which were granted on June 25, 2008 and expire on June 25, 2018;
and options to purchase 15,000 shares of our Common Stock at an exercise
price of $0.08 per share, which were granted on December 31, 2008 and
expire on December 31, 2018. All of these options have been issued to a
trust established by Mr. Katz for the benefit of his
children.
|
|
(6)
|
At
December 31, 2008, in connection with his service as a director we had
issued Dr. Jones the following: options to purchase 7,500 shares of our
Common Stock at an exercise price of $0.22 per share, which were granted
on December 31, 2007 and expire on December 31, 2017; options to purchase
45,000 shares of our Common Stock at an exercise price of $0.035 per
share, which were granted on June 25, 2008 and expire on June 25, 2018;
and options to purchase 30,000 shares of our Common Stock at an exercise
price of $0.08 per share, which were granted on December 31, 2008 and
expire on December 31, 2018.
|
|
(7)
|
At
December 31, 2008, in connection with his service as a director we had
issued Mr. Whalen the following: options to purchase 5,000 shares of our
Common Stock at an exercise price of $0.22 per share, which were granted
on December 31, 2007 and expire on December 31, 2017; options to purchase
15,000 shares of our Common Stock at an exercise price of $0.035 per
share, which were granted on June 25, 2008 and expire on June 25, 2018;
and options to purchase 10,000 shares of our Common Stock at an exercise
price of $0.08 per share, which were granted on December 31, 2008 and
expire on December 31, 2018.
|
|
(8)
|
At
December 31, 2008, in connection with his service as a director we had
issued Dr. Chan the following: options to purchase 15,000 shares of our
Common Stock at an exercise price of $0.08 per share, which were granted
on December 31, 2008 and expire on December 31,
2018.
|
|
(9)
|
At
December 31, 2008, in connection with his service as a director we had
issued Mr. Gunton the following: options to purchase 15,000 shares of our
Common Stock at an exercise price of $0.08 per share, which were granted
on December 31, 2008 and expire on December 31,
2018.
|
|
(10)
|
Effective
December, 31 2008, Mr. Miller resigned his position as a member of the
Board of Directors.
|
|
(11)
|
Effective
July, 23 2008, Mr. Katz resigned his position as a member of the Board of
Directors.
|
|
(12)
|
Effective
April, 25 2008, Mr. Whalen resigned his position as a member of the Board
of Directors.
|
|
(13)
|
Effective
July 24, 2008, Dr. Chan was appointed to the Company’s Board of Directors
and Compensation Committee. Effective January 1, 2009, Dr. Chan
entered into an employment agreement becoming interim Chief Executive
Officer of the Company. In January 2009, Dr. Chan resigned his
position as a member on the Compensation
Committee.
|
|
(14)
|
Effective
July, 24 2008, Mr. Gunton was appointed to the Company’s Board of
Directors and Compensation
Committee.
|
|
(15)
|
During
2008 Mr. Kraus was an employee Director and was not eligible to receive
compensation for Director services. Effective December 31, 2008, Mr. Kraus
resigned his position as Chief Executive Officer of the Company, remaining
as a member of the Board of Directors. In January 2009, Mr. Kraus agreed
to serve as Chairman of the Board of
Directors.
|
In 2007,
we approved arrangements under which each non-employee director receives a fee
of $2,000 for each Board meeting attended in person and a fee of $1,000 for each
Board meeting participated in by telephone. In addition, our Board approved a
policy under which each non-employee director will be eligible to be issued
options to purchase up to 10,000 shares of our Common Stock on December 31, 2007
based on attendance at quarterly Board meetings held during 2007. Such options
will be exercisable at the closing price of our Common Stock on the date of
grant. Our directors are also reimbursed for actual out-of-pocket expenses
incurred by them in connection with their attendance at meetings of the Board of
Directors.
In
connection with his appointment as Chairman of the Board, we agreed to
compensate Mr. Miller at the rate of $20,000 per annum, and on January 1, 2007
we issued Mr. Miller a ten year option to purchase 200,000 shares of our Common
Stock at a price of $1.65 per share (the last reported sales price on the OTC
Bulletin Board on December 29, 2006). In January 2008 we issued Mr. Miller an
additional option to purchase 100,000 shares of Common Stock at an exercise
price of $0.25 per share.
In 2008,
the Board approved the issuance to each non-employee director, with the
exception of the Chairman, options to purchase up to 30,000 shares of Common
Stock on December 31, 2008 based on attendance at quarterly Board meetings held
during 2008.
In
connection with his appointment as Chairman of the Board in January 2009, we
agreed to compensate Mr. Kraus at the rate of $20,000 per annum, and on January
8, 2009 we issued Mr. Kraus a ten year option to purchase 200,000 shares of our
Common Stock at a price of $0.084 per share. Additionally for
services performed as Chief Executive Office of the company through December 31,
2008, the Board approved a 10 year option to purchase 450,000 shares of our
Common Stock at a price of $0.168 per share on January 28, 2009.
In 2009,
the Board approved the issuance to each non-employee director, with the
exception of the Chairman, options to purchase up to 100,000 shares of Common
Stock on December 31, 2009 based on attendance at quarterly Board meetings held
during 2009.
Employment
Agreement with Named Officers
We
entered into employment agreements with the named officers as described below.
The agreements provide for annual base salaries for varying amounts and
different stock upon plans.
Phillip
Chan
Effective
January 1, 2009, we entered into a new employment agreement with Dr. Phillip
Chan, pursuant to which his employment will terminate on December 31, 2009.
Pursuant to this employment agreement, we agree to pay Phillip Chan an initial
annual base compensation of $216,351 payable in equal semimonthly installments
in accordance with our usual practice. This base compensation shall be subject
to semiannual review by our Compensation Committee, but his compensation may not
be reduced from then current level. He is eligible for employee stock options
which will be adjusted on the same basis as all other shareholders to account
for any stock split, stock dividends, combination or
recapitalization.
Al Kraus
We
entered into an employment agreement with Al Kraus on June 18, 2008, pursuant to
which his employment terminated on December 31, 2008. Pursuant to the employment
agreement, we agree to pay Al Kraus an annual base compensation of $216,351
payable in equal semimonthly installments in accordance with our usual practice.
The base compensation shall be subject to annual review (but his compensation
may not be reduced from then current level) by the Compensation Committee. In
addition, in accordance with the Employment Agreement, we agree to grant Al
Kraus stock options for the number of shares of Common Stock that will enable
him to continue hold 5% of the outstanding shares of our Common Stock if we
obtain additional equity capital of Four Million Dollars, including any form of
financing or investment that can convert to equity, determined and granted upon
close of the Series B financing date at the market price per share on the date
the options are granted. In the event more than $4 million is raised in a single
financing, such anti-dilution protection will only give effect to the first $4
million raised in such financing. Conversely, if less than $4 million is raised
in a single financing, such anti-dilution protection will continue to apply to
successive financings until an aggregate of $4 million has been raised following
December 31, 2007, giving effect only to the first $4 million raised following
December 31, 2007. Options issued to employee shall be deemed fully vested on
issuance. It is also understood that the Employee's Options will be adjusted on
the same basis as all other stock holders to account for any stock split, stock
dividend, combination or recapitalization.
Al Kraus
has resigned from his position as President and Chief Executive Officer
effective as of December 31, 2008.
Effective
January 7, 2009, we entered into a new agreement with Al Kraus, pursuant to
which he became Chairman of the Board of Directors for a two year term
terminating on January 7, 2011. Pursuant to this agreement, we agree to pay Al
Kraus compensation at a rate of $20,000 per year, payable in equal payments at
the end of each fiscal quarter. He is eligible for stock options
which will be adjusted on the same basis as all other shareholders to account
for any stock split, stock dividends, combination or
recapitalization.
Vincent
Capponi
We
entered into an employment agreement with Vincent Capponi on June 18, 2008,
pursuant to which his employment terminated on December 31, 2008. Pursuant to
this employment agreement, we agree to pay Vincent Capponi an initial annual
base compensation of $195,767 payable in equal semimonthly installments in
accordance with our usual practice. This base compensation shall be subject to
annual review by our Compensation Committee, but his compensation may not be
reduced from then current level. He is eligible for employee stock options which
will be adjusted on the same basis as all other shareholders to account for any
stock split, stock dividends, combination or recapitalization.
Effective
January 1, 2009, we entered into a new employment agreement with Vincent
Capponi, pursuant to which his employment will terminate on December 31, 2009.
Pursuant to this employment agreement, we agree to pay Vincent Capponi an
initial annual base compensation of $205,303 payable in equal semimonthly
installments in accordance with our usual practice. This base compensation shall
be subject to semiannual review by our Compensation Committee, but his
compensation may not be reduced from then current level. He is eligible for
employee stock options which will be adjusted on the same basis as all other
shareholders to account for any stock split, stock dividends, combination or
recapitalization.
David
Lamadrid
We
entered into an employment agreement with David Lamadrid on June 18, 2008,
pursuant to which his employment terminated on December 31, 2008. Pursuant to
this employment agreement, we agree to pay David Lamadrid an initial annual base
compensation of $145,801 payable in equal semimonthly installments in accordance
with our usual practice. This base compensation shall be subject to annual
review by our Compensation Committee, but his compensation may not be reduced
from then current level. He is eligible for employee stock options which will be
adjusted on the same basis as all other shareholders to account for any stock
split, stock dividends, combination or recapitalization.
Effective
January 1, 2009, we entered into a new employment agreement with David Lamadrid,
pursuant to which his employment will terminate on December 31, 2009. Pursuant
to this employment agreement, we agree to pay David Lamadrid an initial annual
base compensation of $175,000 payable in equal semimonthly installments in
accordance with our usual practice. This base compensation shall be subject to
semiannual review by our Compensation Committee. He is eligible for employee
stock options which will be adjusted on the same basis as all other shareholders
to account for any stock split, stock dividends, combination or
recapitalization.
Robert
Bartlett
Effective
January 1, 2009, we entered into a new consulting agreement with Dr. Robert
Bartlett, pursuant to which his consulting will terminate on December 31, 2009.
Pursuant to this consulting agreement, we agree to pay Dr. Robert Bartlett
consulting fees at an annualized rate of $50,000 payable in equal monthly
installments of $4,166.67 per month. He is eligible for stock options which will
be adjusted on the same basis as all other shareholders to account for any stock
split, stock dividends, combination or recapitalization.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
In
October 2005, MedaSorb Delaware entered into an Investment Agreement with Margie
Chassman pursuant to which she advanced us $1,000,000. At the time of the
advance, Ms. Chassman was not a stockholder of, or otherwise affiliated with,
MedaSorb Delaware. The advance bore interest at the rate of 6% per annum.
Pursuant to the terms of the Investment Agreement, on October 28, 2006, the
$1,000,000 advance was converted into 1,000,000 shares of Series A Preferred
Stock (convertible into 800,000 shares of Common Stock) and warrants to purchase
400,000 shares of Common Stock at a price of $2.00 per share. On the date of
conversion, the last reported sales price of our Common Stock was $1.44, so that
the aggregate market value of the 800,000 shares of Common Stock underlying the
Series A Preferred Stock issued on October 28, 2006 was $1,152,000, and the
aggregate market value of the 400,000 shares of Common Stock underlying the
Warrants issued on October 28, 2006, which had an aggregate exercise price of
$800,000, was $576,000.
The
Investment Agreement provided that Ms. Chassman would be issued 10 million
shares of common stock in consideration for funding the loan, and further
provided that she would assist in arranging a “Qualified Merger” and that she
would “invest or arrange for others to invest” between $3 to $11.5 million. This
assistance consisted primarily of consultations between MedaSorb Delaware and
Ms. Chassman’s husband, David Blech. Mr. Blech introduced MedaSorb Delaware to
potential placement agents, investors and merger partners including the company
(Gilder Enterprises, Inc.) that MedaSorb Delaware ultimately merged with. Mr.
Blech also introduced us to the four institutional investors that purchased
$5.25 million of our securities on June 30, 2006. Mr. Blech also assisted us in
structuring these transactions. Of the four investors, two had co-invested with
Ms. Chassman in other transactions, and the other two were introduced by the
investors that had previously invested with Ms. Chassman. A description of Mr.
Blech and his background can be found in footnote 2 to the Principal
Stockholders table. We have been informed that Ms. Chassman has operated a small
graphic design business for at least fifteen years and, for at least the last
seven years, has invested in numerous early stage biotechnology and information
technology companies. Ms. Chassman has also informed us that her portfolio of
investments, exclusive of her investment in MedaSorb, is currently worth in
excess $25,000,000.
In
consideration for funding the $1 million advance, in addition to the securities
into which such loan was converted on October 28, 2006 as described above, Ms.
Chassman and her designees were issued an aggregate of
10 million shares of Common Stock prior to the merger; such shares are included
in the 20,340,929 shares of common stock of MedaSorb Delaware outstanding
immediately prior to the June 30, 2006 merger. Upon issuance, the shares were
valued at $12,500,000 based on the conversion price of the 5,250,000 shares of
Series A Preferred Stock sold on that date. These shares of Common Stock are
subject to a 12-month lock-up agreement expiring June 30, 2007 and a voting
agreement entitling us to voting rights with respect to such shares until the
earlier to occur of a transfer of those shares to an unrelated third party or
June 30, 2008.
Following
transfers effected by Ms. Chassman, the 10,000,000 shares of Common Stock are
currently held as follows:
Stockholder
|
|
Shares of
Common
Stock
|
|
Margie
Chassman
|
|
|
4,795,000
|
|
Margery
Germain
|
|
|
2,000,000
|
|
Central
Yeshiva Beth Joseph
|
|
|
1,000,000
|
|
Wood
River Trust
|
|
|
1,050,000
|
|
Spring
Charitable Remainder Trust
|
|
|
1,150,000
|
|
Miriam
Fisher
|
|
|
5,000
|
|
The
shares held by Ms. Germain include 300,000 shares held directly by her minor
children. Wood River Trust is a trust formed for the benefit of Evan Blech, the
son of Ms. Chassman and Mr. Blech. The trustees of Wood River Trust are Harvey
Kesner and Michael C. Doyle. Ms. Chassman and Mr. Blech are the income
beneficiaries of Spring Charitable Remainder Trust, and its remainder
beneficiary is a charitable organization yet to be designated. Andrew Levinson
is the trustee of the Spring Charitable Remainder Trust.
In
connection with our June 30, 2006 sale of Series A Preferred Stock and warrants
to four institutional investors which generated gross proceeds of $5.25 million,
to induce those investors to make the investment, Margie Chassman pledged to
those investors securities of other publicly traded companies. The pledged
securities consist of a $400,000 promissory note of Xechem International, Inc.
convertible into Xechem common stock at $.005 per share, and 250,000 shares of
the common stock of Novelos Therapeutics, Inc. Based on the market value of the
Xechem common stock ($.07 per share) and the Novelos common stock ($1.03) per
share, on June 30, 2006, the aggregate fair market value of the pledged
securities at the date of pledge was approximately $5,857,500.
In the
event those investors have suffered a loss on their investment in our securities
as of June 30, 2007 (as determined by actual sales by those investors or the
market price of our Common Stock on such date), the investors may sell all or a
portion of the pledged securities so that the investors receive proceeds from
such sale in an amount equal to their loss on their investment in our
securities. No assurance can be given that the sale of the pledged securities
will provide these investors with sufficient proceeds to cover the full extent
of their loss, if any, on their investment. In consideration of her pledge to
these investors, we paid Ms. Chassman (i) $525,000 in cash (representing 10% of
the cash amount raised from the institutional investors), and (ii) five-year
warrants to purchase
·
|
525,000
shares of Series A Preferred Stock (representing 10% of the Series A
Preferred Stock purchased by those investors),
and
|
·
|
warrants
to purchase 210,000 shares of Common Stock at an exercise price of $2.00
per share (representing 10% of the Series A Preferred Stock purchased by
those investors),
|
for an
aggregate exercise price of $525,000.
In August
2003, in order to induce Guillermina Vega Montiel, a principal stockholder of
ours, to make a $4 million investment in MedaSorb Delaware, we granted Ms.
Montiel a perpetual royalty equal to three percent of all gross revenues
received by us from sales of CytoSorbTM in the
applications of sepsis, cardiopulmonary bypass surgery, organ donor,
chemotherapy and inflammation control. In addition, for her investment, Ms.
Montiel received 1,230,770 membership units of MedaSorb Delaware, which at the
time was a limited liability company. Those membership units ultimately became
185,477 shares of our Common Stock following our June 30, 2006
merger.
Separate
from the $1 million advance provided by Ms. Chassman, from time to time
beginning in 2003 through June 30, 2006, MedaSorb Delaware issued convertible
notes to various investors in the aggregate principal amount of $6,549,900. The
notes bore interest at a rate of 12 percent per annum and were convertible into
common stock at prices ranging from $3.32 per share to $6.64 per share (as
adjusted for the merger and conversion of MedaSorb Delaware from a limited
liability company to a corporation). Some of the convertible notes were issued
together with warrants. On June 30, 2006, these convertible notes, in the
aggregate principal amount of $6,549,900, together with $1,480,249 in accrued
interest, were converted into 5,170,880 shares of Common Stock and five-year
warrants to purchase a total of 816,691 shares of Common Stock at a price of
$4.98 per share. The 5,170,880 shares of Common Stock issued upon conversion
includes 3,058,141 shares issued to the note holders as an inducement for them
to convert the convertible notes. The inducement shares were valued at
$3,351,961, and such amount is included as a charge to interest expense in our
Consolidated Statements of Operations for the nine months ended September 30,
2006. Guillermina Vega Montiel, a principal stockholder of ours, held
approximately $4,120,000 in principal amount of the convertible notes, which
together with $679,800 of accrued interest, converted into 4,354,189 of the
shares of Common Stock issued as a result of the conversion.
Joseph
Rubin is a director of ours and performs legal services from time to time. At
December 31, 2007, MedaSorb Delaware owed Mr. Rubin’s firm approximately $2,500
in respect of legal services provided by his firm to MedaSorb
Delaware.
Director
Independence
Members
of our Board of Directors, other than Joseph Rubin, who performs legal services
for us as disclosed above, Phillip Chan, our Chief Executive Officer, and James
Gunton, partners at the NJTC Venture Fund, are independent under the standards
set forth in Nasdaq Marketplace Rule 4200(a)(15).
PRINCIPAL
STOCKHOLDERS
The
following table sets forth information known to us with respect to the
beneficial ownership of Common Stock held of record as of June 9, 2009, by (1)
all persons who are owners of 5% or more of our Common Stock, (2) each of our
named executive officers (see “Summary Compensation
Table”), (3) each director, and (4) all of our executive officers and
directors as a group. Each of the stockholders can be reached at our principal
executive offices located at 7 Deer Park Drive, Suite K, Monmouth Junction, New
Jersey 08852.
|
|
Shares Beneficially Owned
(1)
|
|
Names
and Address of Directors, Officers and 5% Stockholders
|
|
Number
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Margie
Chassman (2)
|
|
|
58,237,575 |
|
|
|
62.9
|
% |
|
|
|
|
|
|
|
|
|
Guillermina
Montiel (3)
|
|
|
5,052,456 |
|
|
|
12.9
|
% |
|
|
|
|
|
|
|
|
|
Margery
Germain (4)
|
|
|
2,000,000 |
|
|
|
5.1
|
% |
|
|
|
|
|
|
|
|
|
Robert
Shipley (5)
|
|
|
16,871,553 |
|
|
|
30.4
|
% |
|
|
|
|
|
|
|
|
|
Directors and Executive
Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Al
Kraus (6)
|
|
|
10,057,001 |
|
|
|
21.1
|
% |
|
|
|
|
|
|
|
|
|
David
Lamadrid (7)
|
|
|
3,067,067 |
|
|
|
7.4
|
% |
|
|
|
|
|
|
|
|
|
Vince
Capponi (8)
|
|
|
2,426,419 |
|
|
|
5.9
|
% |
|
|
|
|
|
|
|
|
|
Joseph
Rubin (9)
|
|
|
765,814 |
|
|
|
1.9
|
% |
|
|
|
|
|
|
|
|
|
Robert
Bartlett
|
|
|
— |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
Phillip
Chan (10)
|
|
|
1,649,277 |
|
|
|
4.0
|
% |
|
|
|
|
|
|
|
|
|
Edward
R. Jones (11)
|
|
|
82,500 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
Jim
Gunton (12)
|
|
|
15,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
All directors and executive
officers as a group (nine persons) (13)
|
|
|
18,063,078 |
|
|
|
33.0
|
% |
*
|
Less
than 1%.
|
1
|
Gives
effect to the shares of Common Stock issuable upon the exercise of all
options exercisable within 60 days of June 9, 2009 and other rights
beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect
to shares. Unless otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares
beneficially owned. Percentage ownership is calculated based on 39,112,969
shares of Common Stock outstanding as of June 9,
2009.
|
2
|
Based
on information reflected in a Schedule 13G filed by Ms. Chassman with the
SEC on November 20, 2006, and includes 5,460,000 shares of Common Stock
ultimately issuable upon exercise and conversion of the Series A Preferred
Stock and warrants underlying the warrant we issued Ms. Chassman upon the
closing of our Series A Preferred Stock private placement, 12,696,780
shares of Common Stock issuable upon conversion of Series A Preferred
Stock, 4,386,429 shares of Common Stock issuable upon exercise of
warrants, 27,959,035 shares of Common Stock issuable upon conversion of
Series B Preferred Stock, and 2,940,331 shares of Common Stock issuable
upon conversion of Series B Preferred Stock which are issuable upon
exercise of warrants. Margie Chassman is married to David Blech. Mr. Blech
disclaims beneficial ownership of these shares. Since 1980 Mr. Blech has
been a founder of companies and venture capital investor in the
biotechnology sector. His initial venture investment, Genetic Systems
Corporation, which he helped found and served as treasurer and a member of
the board of directors, was sold to Bristol Myers in 1986 for $294 million
of Bristol Myers stock. Other companies he helped found include DNA Plant
Technology, Celgene Corporation, Neurogen Corporation, Icos Corporation,
Incyte Pharmaceuticals, Alexion Pharmaceuticals and Neurocrine
Biosciences. He was also instrumental in the turnaround of Liposome
Technology, Inc. and Biotech General Corporation. In 1990 Mr. Blech
founded D. Blech & Company, which, until it ceased doing business in
September 1994, was a registered broker-dealer involved in underwriting
biotechnology issues. In May 1998, David Blech pled guilty to two counts
of criminal securities fraud, and, in September 1999, he was sentenced by
the U.S. District Court for the Southern District of New York to five
years’ probation, which was completed in September 2004. Mr. Blech also
settled administrative charges by the Commission in December 2000 arising
out of the collapse in 1994 of D. Blech & Co., of which Mr. Blech was
President and sole stockholder. The settlement prohibits Mr. Blech from
engaging in future violations of the federal securities laws and from
association with any broker-dealer. In addition, the District Business
Conduct Committee for District No.10 of NASD Regulation, Inc. reached a
decision, dated December 3, 1996, in a matter styled District Business
Conduct Committee for District No. 10 v. David Blech, regarding the
alleged failure of Mr. Blech to respond to requests by the staff of the
National Association of Securities Dealers, Inc. (“NASD”) for documents
and information in connection with seven customer complaints against
various registered representatives of D. Blech & Co. The decision
found that Mr. Blech failed to respond to such requests in violation of
NASD rules and that Mr. Blech should, therefore, be censured, fined
$20,000 and barred from associating with any member firm in any capacity.
Furthermore, Mr. Blech was discharged in bankruptcy in the United States
Bankruptcy Court for the Southern District of New York in March
2000.
|
3
|
Includes
58,472 shares issuable upon exercise of stock options.
|
4
|
Includes
1,700,000 shares of Common Stock held directly by Ms. Germain and 300,000
shares of Common Stock held by her minor children.
|
5
|
Includes
410,129 shares of Common Stock issuable upon conversion of Series A
Preferred Stock, 11,915,884 shares of Common Stock issuable upon
conversion of Series B Preferred Stock, 3,378,232 shares of Common Stock
issuable upon conversion of Series B Preferred Stock which are issuable
upon exercise of warrants, and 661,293 shares of Common Stock issuable
upon exercise of warrants and options.
|
6
|
Includes
8,663,370 shares of Common Stock issuable upon exercise of stock
options.
|
7
|
Includes
2,558,333 shares of Common Stock issuable upon exercise of stock
options.
|
8
|
Includes
2,008,333 shares of Common Stock issuable upon exercise of stock
options.
|
9
|
Includes
2,561 shares of Common Stock issuable upon conversion of Series A
Preferred Stock, 293,149 shares of Common Stock issuable upon conversion
of Series B Preferred Stock and 387,840 shares of Common Stock issuable
upon exercise of warrants and stock options. Does not include shares of
Common Stock beneficially owned by Mr. Rubin’s spouse, as to which he
disclaims beneficial ownership.
|
10
|
Includes
297,900 shares of Common Stock issuable upon conversion of Series B
Preferred Stock, 84,448 shares of Common Stock issuable upon conversion of
Series B Preferred Stock which are issuable upon exercise of warrants and
1,266,929 shares of Common Stock issuable upon exercise of stock
options.
|
11
|
These
shares are issuable upon exercise of stock options.
|
12
|
These
shares are issuable upon exercise of stock options.
|
13
|
Includes
an aggregate of 15,660,363 shares of Common Stock issuable upon exercise
of stock options and warrants and conversion of Series A Preferred Stock
and conversion of Series B Preferred Stock and exercise and conversion of
Series B Preferred Stock
warrants.
|
EQUITY
COMPENSATION PLAN INFORMATION
The
following table summarizes outstanding options as of December 31, 2008, after
giving effect to the merger and subsequent grants. The Registrant had no
options outstanding prior to the merger, and all of the options below were
issued either in connection with the merger to former option holders of MedaSorb
or subsequently as new grants to employees, directors, and
consultants.
|
|
Number of securities to be
issued upon exercise of
outstanding options
|
|
|
Weighted-average
exercise price of
outstanding options
|
|
|
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
first column)
|
|
Equity compensation plans
approved by stockholders
|
|
|
0 |
|
|
|
n/a |
|
|
|
400,000 |
(1) |
Equity
compensation plans not approved by stockholders
|
|
|
18,158,846 |
|
|
$ |
1.05 |
|
|
|
21,841,154 |
(2) |
Total
|
|
|
18,158,846 |
(3) |
|
$ |
1.05 |
(3) |
|
|
22,241,154 |
|
|
(1)
|
Represents
options that may be issued under our 2003 Stock Option
Plan.
|
|
(2)
|
Represents
options that may be issued under our 2006 Long-Term Incentive
Plan.
|
|
(3)
|
Represents
options to purchase (i) 118,667 shares of Common Stock at a price of
$41.47 per share, (ii) 232,051 shares of Common Stock at a price of $31.52
per share, (iii) 35,488 shares of Common Stock at a price of
$21.57 per share, (iv) 15,944 shares of Common Stock at a price of
$19.91 per share, (v) 439,740 shares of Common Stock at a price of $6.64
per share, (vi) 173,000 shares of Common Stock at a price of $1.90 per
share, (vii) 306,000 shares of Common Stock at a price of $1.65 per share,
(viii) 400,000 shares of Common Stock at a price of $1.26 per share, (ix)
166,756 shares of Common Stock at a price of $1.25 per share, (x)
3,014,000 shares of Common Stock at a price of $0.25, (xi) 137,622 shares
of Common Stock at a price of $0.22, (xii) 115,000 shares of Common Stock
at a price of $0.08, and (xiii) 13,004,578 shares of Common Stock at a
price of $0.035.
|
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and current reports and other information with the SEC. You
may read and copy any reports, statements or other information we file at the
SEC’s public reference rooms in Washington D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at http://www.sec.gov.
We have
filed a registration statement on Form S-1 under the Securities Act with the SEC
covering the Common Stock to be offered by the selling stockholders. As
permitted by the rules and regulations of the SEC, this document does not
contain all information set forth in the registration statement and exhibits
thereto, all of which are available for inspection as set forth above. For
further information, please refer to the registration statement, including the
exhibits thereto. Statements contained in this document relating to the contents
of any contract or other document referred to herein are not necessarily
complete, and reference is made to the copy of that contract or other document
filed as an exhibit to the registration statement or other document, and each
statement of this type is qualified in all respects by that
reference.
No person
is authorized to give any information or make any representation not contained
in this document. You should not rely on any information provided to you that is
not contained in this document. This prospectus does not constitute an offer to
sell or a solicitation of an offer to purchase the securities described herein
in any jurisdiction in which, or to any person to whom, it is unlawful to make
the offer or solicitation. Neither the delivery of this document nor any
distribution of shares of Common Stock made hereunder shall, under any
circumstances, create any implication that there has not been any change in our
affairs as of any time subsequent to the date hereof.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
estimated expenses of this offering in connection with the issuance and
distribution of the securities being registered, all of which are to be paid by
the Registrant, are as follows:
Registration
Fee
|
|
$
|
50
|
.22
|
Legal
Fees and Expenses
|
|
|
10,000
|
|
Accounting
Fees and Expenses
|
|
|
20,000
|
|
Printing
|
|
|
1,000
|
|
Miscellaneous
Expenses
|
|
|
2,000
|
|
Total
|
|
$
|
33,050
|
.22
|
Item
14. Indemnification of Directors and Officers.
Our
directors and officers are indemnified as provided by the Nevada Revised
Statutes and our bylaws. We have been advised that in the opinion of the
Securities and Exchange Commission indemnification for liabilities arising under
the Securities Act of 1933 is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities is asserted by one of our
directors, officers, or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our legal counsel the matter
has been settled by controlling precedent, submit the question of whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court's decision.
Item
15. Recent Sales of Unregistered Securities.
On June
25, 2008, we sold (i) 44,531.47 shares of our Series B Preferred Stock, at a
price of $100 per share and (ii) a security (the “Additional Security”)
to purchase additional shares of Series B Preferred Stock within 15 months
following the Initial Closing at $100 per share, to a group of ten accredited
investors led by NJTC Venture Fund SBIC, L.P. (“NJTC”). On August 25,
2008, we sold 8,400 shares of our Series B Preferred Stock, at a price of $100
per share to a group of seven accredited investors. The 52,931.47 shares of
Series B Preferred Stock are initially convertible into 146,219,530 shares our
common stock, par value $.001 per share (“Common Stock”). In addition, in
connection with the private placement, $175,000 in principal amount of
indebtedness plus accrued interest was converted into 1,781.47 additional shares
of Series B Preferred Stock. These securities were issued in a
private offering exempt from registration pursuant to Section 4(2) and
Regulation D (Rule 506) under the Securities Act of 1933, as amended (the
“Securities
Act”).
Item
16. Exhibits.
The
following exhibits are filed with this document:
Exhibit
No.
|
|
Description
|
3.1
|
|
Certificate
of Amendment to Articles of Incorporation (1)
|
4.1
|
|
Form
of Subscription Agreement, dated June 25, 2008, by and among MedaSorb
Technologies Corporation and the purchasers party thereto.
(2)
|
4.2
|
|
Certificate
of Designations of Series B 10% Cumulative Convertible Preferred Stock,
$.001 Par Value Per Share (2)
|
4.3
|
|
Amendment
to Certificate of Designations of Series A 10% Cumulative Convertible
Preferred Stock, $.001 Par Value Per Share (2)
|
4.4
|
|
Agreement
and Consent, dated as of June 25, 2008 among MedaSorb Technologies
Corporation and the holders of Series A 10% Cumulative Convertible
Preferred Stock party thereto (2)
|
5.1
|
|
Legal
Opinion of Anslow & Jaclin, LLP filed herewith.
|
10.1
|
|
Employment
Agreement, dated as of June 18, 2008, between Al Kraus and MedaSorb
Technologies Corporation (2)
|
10.2
|
|
Employment
Agreement, dated as of June 18, 2008, between Vincent Capponi and MedaSorb
Technologies Corporation (2)
|
10.3
|
|
Employment
Agreement, dated as of June 18, 2008, between David Lamadrid and MedaSorb
Technologies Corporation (2)
|
10.4
|
|
Employment
Agreement, dated as of January 1, 2009, between Vincent Capponi and
MedaSorb Technologies Corporation (3)
|
10.5
|
|
Employment
Agreement, dated as of January 1, 2009, between David Lamadrid and
MedaSorb Technologies Corporation (3)
|
23.1
|
|
Consent
of WithumSmith + Brown, A Professional Corporation
|
23.2
|
|
Consent
of Anslow & Jaclin, LLP refer to exhibit
5.1
|
|
(1)
|
Referred
to and Incorporated by reference to the Registrant’s Registration
Statement on Form SB-2 filed on March 29, 2004.
|
|
(2)
|
Referred
to and Incorporated by reference to the Registrant’s Form 8-k filed on
July 1, 2008.
|
|
(3)
|
Referred
to and Incorporated by reference to the Registrant’s Form 8-k filed on
February 4, 2009.
|
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i) Include
any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of the securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement;
(iii) Include
any additional or changed material information on the plan of
distribution;
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.
(3) To
file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar
as indemnification arising under the Securities Act may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and authorized this registration statement
to be signed on its behalf by the undersigned in Monmouth Junction, State of New
Jersey, on June 19, 2009 .
|
MEDASORB
TECHNOLOGIES
CORPORATION
(Registrant)
|
|
|
|
By:
|
/s/ Phillip
Chan
|
|
Phillip
Chan Chief Executive
Officer
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Phillip Chan
|
|
Chief
Executive Officer (Principal
|
|
June
19, 2009
|
Phillip
Chan, MD, PhD
|
|
Executive
Officer) and Director
|
|
|
|
|
|
|
|
/s/
David Lamadrid
|
|
Chief
Financial Officer (Principal
|
|
June
19, 2009
|
David
Lamadrid
|
|
Accounting
and Financial Officer)
|
|
|
|
|
|
|
|
/s/
Al Kraus
|
|
Chairman
of the Board
|
|
June
19, 2009
|
Al
Kraus
|
|
|
|
|
|
|
|
|
|
/s/
Joseph Rubin, Esq.
|
|
Director
|
|
June
19, 2009
|
Joseph
Rubin, Esq.
|
|
|
|
|
|
|
|
|
|
/s/
Edward Jones
|
|
Director
|
|
June
19, 2009
|
Edward
Jones, MD
|
|
|
|
|
|
|
|
|
|
/s/
James Gunton
|
|
Director
|
|
June
19, 2009
|
James
Gunton
|
|
|
|
|