Cytosorbents Corp - Quarter Report: 2009 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
|
For the
quarterly period ended September 30,
2009
or
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For the
transition period from __________ to __________
Commission
file number: 000-51038
MedaSorb Technologies
Corporation
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
|
98-0373793
|
(State
or Other Jurisdiction of
Incorporation
Or Organization)
|
(I.R.S.
Employer Identification No.)
|
7 Deer Park Drive, Suite K,
Monmouth Junction, New Jersey 08852
(Address
of Principal Executive Offices)
(732) 329-8885
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. þ Yes
¨
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
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
definition of “accelerated filer, large accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨ (Do
not check if a
smaller
reporting company)
|
Smaller
reporting company þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes þ No
As of
November 13, 2009 there were 60,765,816 shares of the issuer’s common stock
outstanding.
MedaSorb
Technologies Corporation
(a
development stage company)
FORM
10-Q
TABLE
OF CONTENTS
Page
|
|
PART
I. FINANCIAL INFORMATION
|
|
Item
1. Financial Statements (September 30, 2009 and 2008 are
unaudited)
|
|
Consolidated
Balance Sheets
|
3
|
Consolidated
Statements of Operations
|
4
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit)
|
5
|
Consolidated
Statements of Cash Flows
|
6
|
Notes
to Consolidated Financial Statements
|
8
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
13
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
14
|
Item
4(T). Controls and Procedures
|
14
|
PART
II. OTHER INFORMATION
|
|
Item
1. Legal Proceedings
|
15
|
Item
1A. Risk Factors
|
15
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
15
|
Item
3. Defaults of Senior Securities
|
15
|
Item
4. Submission of Matters to a Vote of Security Holders
|
15
|
Item
5. Other Information
|
15
|
Item
6. Exhibits
|
15
|
2
PART
I — FINANCIAL INFORMATION
Item 1. Financial
Statements.
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
BALANCE SHEETS
September 30,
|
December
31,
|
|||||||
|
2009
|
2008
|
||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$
|
937,316
|
$
|
2,749,208
|
||||
Short-term
investments
|
—
|
199,607
|
||||||
Prepaid
expenses and other current assets
|
64,027
|
117,003
|
||||||
Total
current assets
|
1,001,343
|
3,065,818
|
||||||
Property
and equipment - net
|
28,871
|
52,057
|
||||||
Other
assets
|
257,553
|
269,310
|
||||||
Total
long-term assets
|
286,424
|
321,367
|
||||||
Total
Assets
|
$
|
1,287,767
|
$
|
3,387,185
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$
|
806,186
|
$
|
885,465
|
||||
Accrued
expenses and other current liabilities
|
109,649
|
92,239
|
||||||
Notes
payable
|
—
|
50,000
|
||||||
Total
current liabilities
|
915,835
|
1,027,704
|
||||||
Notes
payable
|
—
|
—
|
||||||
Total
long term liabilities
|
—
|
—
|
||||||
Total
liabilities
|
915,835
|
1,027,704
|
||||||
Stockholders’
Equity (Deficit):
|
||||||||
10%
Series B Preferred Stock, Par Value $0.001, 200,000 shares authorized at
September 30, 2009 and December 31, 2008, respectively; 58,052.54 and
55,558.64 shares issued and outstanding, respectively
|
58
|
55
|
||||||
10%
Series A Preferred Stock, Par Value $0.001, 12,000,000 shares authorized
at September 30, 2009 and December 31, 2008, respectively; 8,248,969 and
8,793,060 shares issued and outstanding, respectively
|
8,249
|
8,793
|
||||||
Common
Stock, Par Value $0.001, 500,000,000 Shares authorized at September 30,
2009 and December 31, 2008, respectively, 48,111,587 and 25,263,517 shares
issued and outstanding, respectively
|
48,112
|
25,264
|
||||||
Additional
paid-in capital
|
78,744,551
|
77,786,850
|
||||||
Deficit
accumulated during the development stage
|
(78,429,038
|
)
|
(75,461,481
|
)
|
||||
Total
stockholders' equity (deficit)
|
371,932
|
2,359,481
|
||||||
Total
Liabilities and Stockholders' Equity (Deficit)
|
$
|
1,287,767
|
$
|
3,387,185
|
See
accompanying notes to consolidated financial statements.
3
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF
OPERATIONS
Period
from
|
||||||||||||||||||||
January
22,1997
|
||||||||||||||||||||
(date
of
inception)
to
|
Nine
months ended
September
30,
|
Three
months ended
September
30,
|
||||||||||||||||||
September
30,
2009
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||||
Revenue
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||||
Expenses:
|
||||||||||||||||||||
Research
and development
|
45,894,399
|
1,602,636
|
1,376,921
|
532,705
|
594,358
|
|||||||||||||||
Legal,
financial and other consulting
|
7,228,256
|
228,231
|
272,774
|
100,459
|
115,310
|
|||||||||||||||
General
and administrative
|
22,938,038
|
628,591
|
678,547
|
207,402
|
160,663
|
|||||||||||||||
Change
in fair value of management and incentive units
|
(6,055,483
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||
Total
expenses
|
70,005,210
|
2,459,458
|
2,328,242
|
840,566
|
870,331
|
|||||||||||||||
Other
(income)/expenses:
|
||||||||||||||||||||
Gain
on disposal of property and equipment
|
(21,663
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||
Gain
on extinguishment of debt
|
(216,617
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||
Interest
(income)/expense, net
|
5,592,949
|
(6,304
|
)
|
36,236
|
492
|
(7,580
|
)
|
|||||||||||||
Penalties
associated with non-registration of Series A Preferred
Stock
|
361,495
|
—
|
—
|
—
|
—
|
|||||||||||||||
Total
other (income)/expense, net
|
5,716,164
|
(6,304
|
)
|
36,236
|
492
|
(7,580
|
)
|
|||||||||||||
Loss
before benefit from income taxes
|
(75,721,374
|
)
|
(2,453,154
|
)
|
(2,364,478
|
)
|
(841,058
|
)
|
(862,751
|
)
|
||||||||||
Benefit
from income taxes
|
(248,529
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||
Net
loss
|
(75,472,845
|
)
|
(2,453,154
|
)
|
(2,364,478
|
)
|
(841,058
|
)
|
(862,751
|
)
|
||||||||||
Preferred
Stock Dividend
|
2,956,193
|
514,403
|
735,218
|
174,638
|
154,077
|
|||||||||||||||
Net
Loss available to common shareholders
|
$
|
(78,429,038
|
)
|
$
|
(2,967,557
|
)
|
$
|
(3,099,696
|
)
|
$
|
(1,015,696
|
)
|
$
|
(1,016,828
|
)
|
|||||
Basic
and diluted net loss per common share
|
$
|
(0.08
|
)
|
$
|
(0.12
|
)
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
||||||||
Weighted
average number of shares of
|
||||||||||||||||||||
common
stock outstanding
|
35,693,072
|
25,073,756
|
42,029,900
|
24,697,913
|
See
accompanying notes to consolidated financial statements.
4
MEDASORB
TECHNOLOGIES CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
(DEFICIT)
Period
from
December
31, 2008 to
September
30, 2009
(Unaudited)
Members
Equity
|
Deferred
|
Common
Stock
|
Preferred
Stock B
|
Preferred
Stock A
|
Additional
Paid-In
|
Deficit
Accumulated
During
the
Development
|
Total
Stockholders'
Equity
|
|||||||||||||||||||||||||||||||||||||
(Deficiency)
|
Compensation
|
Shares
|
Par
value
|
Shares
|
Par
Value
|
Shares
|
Par
Value
|
Capital
|
Stage
|
(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
|
— | — | — | — | — | — | — | — | 179,105 | — | 179,105 | |||||||||||||||||||||||||||||||||
Issuance
of Series A Preferred Stock as dividends
|
— | — | — | — | — | — | 618,232 | 618 | 88,577 | (89,195 | ) | — | ||||||||||||||||||||||||||||||||
Issuance
of Series B Preferred Stock as dividends
|
— | — | — | — | 4,185.04 | 4 | — | — | 418,500 | (418,504 | ) | — | ||||||||||||||||||||||||||||||||
Conversion
of Series A and Series B into Common
|
— | — | 22,848,070 | 22,848 | (4,407.29 | ) | (4 | ) | (1,162,323 | ) | (1,162 | ) | (21,682 | ) | — | — | ||||||||||||||||||||||||||||
Exercise
of warrants
|
— | — | — | — | 2,140.10 | 2 | — | — | 214,008 | — | 214,010 | |||||||||||||||||||||||||||||||||
Warrant
modification as inducement to exercise
|
— | — | — | — | — | — | — | — | 14,885 | — | 14,885 | |||||||||||||||||||||||||||||||||
Conversion
of notes payable and accrued interest to Series B Preferred
Stock
|
— | — | — | — | 576.05 | 1 | — | — | 64,308 | (6,704 | ) | 57,605 | ||||||||||||||||||||||||||||||||
Net
loss
|
— | — | — | — | — | — | — | — | — | (2,453,154 | ) | (2,453,154 | ) | |||||||||||||||||||||||||||||||
Balance
at September 30, 2009
|
$ | — | $ | — | 48,111,587 | $ | 48,112 | 58,052.54 | $ | 58 | 8,248,969 | $ | 8,249 | $ | 78,744,551 | $ | (78,429,038 | ) | $ | 371,932 |
5
MEDASORB
TECHNOLOGIES
CORPORATION
(a
development stage company)
CONSOLIDATED
STATEMENTS OF
CASH
FLOWS
Period from
|
||||||||||||
|
January
22,1997
|
|||||||||||
|
(date of
inception) to
|
Nine
months
ended
|
Nine
months
ended
|
|||||||||
|
September
30, 2009
|
September
30,
2009
|
September
30,
2008
|
|||||||||
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$
|
(75,472,845
|
)
|
$
|
(2,453,154
|
)
|
$
|
(2,364,478
|
)
|
|||
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
|
2,379,029
|
38,263
|
77,775
|
|||||||||
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
|
—
|
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
|
533,648
|
14,885
|
40,354
|
|||||||||
Expense
for issuance of options
|
1,432,600
|
179,105
|
251,540
|
|||||||||
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
|
(335,575
|
)
|
52,976
|
46,581
|
||||||||
Other
assets
|
(56,393
|
)
|
10,240
|
(23,067
|
)
|
|||||||
Accounts
payable and accrued expenses
|
2,742,652
|
(54,264
|
)
|
25,637
|
||||||||
Accrued
interest expense
|
1,823,103
|
—
|
—
|
|||||||||
Net
cash used by operating activities
|
(55,808,960
|
)
|
(2,211,949
|
)
|
(1,942,511
|
)
|
||||||
Cash
flows from investing activities:
|
||||||||||||
Proceeds
from sale of property and equipment
|
32,491
|
—
|
—
|
|||||||||
Purchases
of property and equipment
|
(2,226,932
|
)
|
(6,411
|
)
|
—
|
|||||||
Patent
costs
|
(434,879
|
)
|
(7,149
|
)
|
(13,664
|
)
|
||||||
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)/provided by investing activities
|
(4,261,488
|
)
|
186,047
|
(13,664
|
)
|
|||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from issuance of common stock
|
400,490
|
—
|
—
|
|||||||||
Proceeds
from issuance of preferred stock
|
9,579,040
|
—
|
4,894,603
|
|||||||||
Proceeds
from exercise of warrants
|
214,010
|
214,010
|
||||||||||
Equity
contributions - net of fees incurred
|
41,711,198
|
—
|
—
|
|||||||||
Proceeds
from borrowings
|
8,603,631
|
—
|
225,000
|
|||||||||
Proceeds
from subscription receivables
|
499,395
|
—
|
—
|
|||||||||
Net
cash provided by financing activities
|
61,007,764
|
214,010
|
5,119,603
|
See
accompanying notes to consolidated financial statements.
6
Net
change in cash and cash equivalents
|
937,316
|
(1,811,892
|
)
|
3,163,428
|
||||||||
Cash
and cash equivalents - beginning of period
|
—
|
2,749,208
|
211,613
|
|||||||||
Cash
and cash equivalents - end of period
|
$
|
937,316
|
$
|
937,316
|
$
|
3,375,041
|
||||||
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
|
$
|
10,434,319
|
$
|
57,605
|
$
|
225,000
|
||||||
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
|
$
|
—
|
$
|
—
|
||||||
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
|
$
|
2,956,193
|
$
|
514,403
|
$
|
735,218
|
||||||
Net
effect of conversion of common stock to preferred stock prior to
merger
|
$
|
559
|
$
|
—
|
$
|
—
|
During
the nine months ended September 30, 2009 and 2008, 4,407.29 and -0- Series B
Preferred Shares were converted into 12,174,834 and -0- Common shares,
respectively. During the nine months ended September 30, 2009 and
2008, 1,162,323 and -0- Series A Preferred Shares were converted into 10,673,236
and -0- Common shares, respectively. For the period from
January 22, 1997 (date of inception) to September 30, 2009, 4,407.29 Series B
Preferred Shares and 1,725,601 Series A Preferred Shares were converted into
12,174,834 and 11,296,978 Common Shares, respectively.
See
accompanying notes to consolidated financial statements.
7
MedaSorb
Technologies Corporation
Notes
to Consolidated Financial Statements
(UNAUDITED)
September
30, 2009
1. BASIS OF
PRESENTATION
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
September 30, 2009 and the results of its operations and cash flows for the nine
and three month periods ended September 30, 2009 and 2008, and for the period
January 22, 1997 (date of inception) to September 30, 2009. Results for the nine
and three months ended are not necessarily indicative of results that may be
expected for the entire year. The unaudited condensed consolidated financial
statements should be read in conjunction with the audited financial statements
of the Company and the notes thereto as of and for the year ended December 31,
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 September 30, 2009 of $78,429,038.
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. These matters raise substantial doubt about the
Company’s ability to continue as a going concern. 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 26 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 September 30, 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.
8
Development
Stage Corporation
The
accompanying consolidated financial statements have been prepared in accordance
with the provisions of 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 2 investments
under accounting standards for fair value measurements.
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
accounting standards 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
accounting standards for 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 accounting standards for 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 these accounting standards, 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 of accounting standards for 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.
9
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 an amendment to an existing accounting standard
which provides guidance related to business combinations. The amendment retains
its fundamental requirements that the acquisition method of accounting be used
for all business combinations and for an acquirer to be identified for each
business combination. This amendment 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. This amendment 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 this amendment did not have a
significant impact on the Company's statements of operations or financial
position.
In March
2008, the FASB issued a new accounting standard which provides guidance related
to disclosures about derivative instruments and hedging activities and amends an
existing accounting standard to expand the disclosure requirements 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 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, the new
accounting standard 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. The new
accounting standard is effective for fiscal years and interim periods beginning
after November 15, 2008. The provisions of the new accounting standard did not
have a significant impact on the Company's statements of operations or financial
position.
In May
2009, the FASB issued a new accounting standard related to subsequent events,
which provides guidance on events that occur after the balance sheet date but
prior to the issuance of the financial statements. The new accounting standard
distinguishes events requiring recognition in the financial statements and those
that may require disclosure in the financial statements. Furthermore, the new
accounting standard requires disclosure of the date through which subsequent
events were evaluated. The new accounting standard is effective for interim and
annual periods after June 15, 2009. The Company adopted the new accounting
standard for the quarter ended June 30, 2009, and have evaluated subsequent
events through November 13, 2009.
In June
2009, the FASB issued a new accounting standard which provides guidance related
to the FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles – a replacement of a previously issued standard.
The new accounting standard stipulates the FASB Accounting Standards
Codification is the source of authoritative U.S. GAAP recognized by the FASB to
be applied by nongovernmental entities. The new accounting standard is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009. The implementation of this standard did not have a material
impact on the Company's statements of operations or financial
position.
3. CONVERTIBLE NOTES
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.
In
September 2009 the holder of these Promissory Notes elected to convert in full
principal and accrued interest totaling $57,605 into equity per the terms of
these notes. Accordingly, the Company issued this investor 576.05
shares of Series B Preferred stock and a five-year warrant to purchase 397,825
shares of Common Stock with an exercise price of $0.0362 per share.
In
accordance with accounting standards for convertible securities with beneficial
conversion features, 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 issuance per the Note conversion during September 2009, the Company
recorded total proceeds of $57,605. The Company allocated the total proceeds
based on the related fair value as follows: $54,253 was allocated to the
preferred stock and $3,352 to the warrants. Additionally, the embedded
conversion option resulted in a beneficial conversion feature in the amount of
$3,352. 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
accounting standards for accounting for derivative financial instruments indexed
to, and potentially settled in, a company’s own common stock and derivative
instruments and hedging activities 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.
4. STOCKHOLDERS' EQUITY
(DEFICIT)
During
the nine months ended September 30, 2009 the Company recorded non-cash stock
dividends totaling $507,699 in connection with the issuance of 4,185.04 shares
of Series B Preferred Stock and 618,232 shares of Series A Preferred Stock as a
stock dividend to its preferred shareholders as of September 30, 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 nine months ended September 30, 2009, 4,407.29 Series B Preferred Shares
were converted into 12,174,834 Common shares. During the nine months
ended September 30, 2009, 1,162,323 Series A Preferred Shares were converted
into 10,673,236 Common shares.
During
the nine months ended September 30, 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.
During
the nine months ended September 30, 2009, the Company incurred stock-based
compensation expense due to the amortization of unvested stock
options. The aggregate expense for the nine months ended September
30, 2009 is $170,727, of which $73,895 and $96,832 is presented in research and
development expenses and general and administrative expenses,
respectively.
The
summary of the stock option activity for the nine months ended September 30,
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
|
9.2
|
||||||||
Cancelled
|
—
|
$
|
—
|
—
|
||||||||
Exercised
|
—
|
$
|
—
|
—
|
||||||||
Outstanding
September 30, 2009
|
23,277,704
|
$
|
0.84
|
8.6
|
10
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
September 30, 2009, the aggregate intrinsic value of options outstanding and
currently exercisable amounted to approximately $12,200.
The
summary of the status of the Company’s non-vested options for the nine months
ended September 30, 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
|
(4,589,075
|
)
|
$
|
0.041
|
||||
Exercised
|
—
|
—
|
||||||
Non-vested,
September 30, 2009
|
6,810,387
|
$
|
.02
|
As of
September 30, 2009, approximately $144,700 of total unrecognized compensation
cost related to stock options is expected to be recognized over a weighted
average period of 0.90 years.
As of
September 30, 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
|
||||
397,825 |
$
|
0.0362
|
September
30,
2014
|
As of
September 30, 2009, the Company has the following warrants to purchase Series A
Preferred Stock outstanding:
|
|
Warrant
Exercise
|
|
|
|||
Number of
|
|
Price per
|
|
Warrant
|
|||
Shares to be
Purchased
|
|
Preferred
Share
|
|
Expiration
Date
|
|||
525,000 |
$
|
1.00
|
June
30, 2011
|
If the
holder of warrants for preferred stock exercises in full, the holder will
receive additional five-year warrants to purchase a total of 210,000 shares of
common stock at $0.40 per share.
In
September 2009 the Company extended the expiration date of its warrants for
Series B Preferred stock by 10 calendar days and offered an additional warrant
for common stock as inducement for the Series B warrant holders to exercise
their warrants. The additional warrant offered to participants in the
exercise of Series B warrants was a twelve (12) month option to purchase one (1)
dollar in Common Stock at an exercise price of $0.107 per share, for every one
(1) dollar of Series B warrants they exercise. For this modification
of the Series B warrant the Company recorded a non-cash charge of approximately
$15,000. The warrants were granted subsequent to the close of the
third quarter and accordingly, a non-cash charge of approximately $2 will be
recorded in the fourth quarter of 2009.
As of
September 30, 2009 Series B warrant holders had exercised warrants to purchase
2,140.1 shares of Series B which had an exercise price of $100 per
share. From this exercise of these warrants the Company received net
cash proceeds of $214,010.
As of
September 30, 2009, the Company has the following warrants to purchase Series B
Preferred Stock outstanding:
|
|
Warrant
Exercise
|
|
|
|||
Number of
|
|
Price per
|
|
Warrant
|
|||
Shares to be
Purchased
|
|
Preferred
Share
|
|
Expiration
Date
|
|||
12,859.9 |
$
|
100.00
|
October
5, 2009
|
11
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 currently not involved, but may at times be involved in various
claims and legal actions. Management is currently of the opinion that
these claims and legal actions would have no merit, and any 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 September 30,
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 September 30, 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 September 30, 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.
6.
NET LOSS PER SHARE
Basic
loss per share and diluted loss per share for the nine and three month periods
ended September 30, 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 31,626,377
and 25,073,756 incremental shares at September 30, 2009 and 2008, respectively,
as well as shares issuable upon conversion of Series A and Series B Preferred
Stock and Preferred Stock Warrants representing 232,547,948 and 182,285,696
incremental shares at September 30, 2009 and 2008, respectively, have been
excluded from the computation of diluted loss per share as they are
anti-dilutive.
7.
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events occurring after the balance sheet
through the date of November 13, 2009, which is the date the
financial statements were issued.
In
October 2009 investors exercised warrants to purchase an additional 11,217.42
shares of Series B Preferred Stock. From this exercise of warrants
the Company received net cash proceeds of $1,096,742.
In
October 2009, in connection with the total exercise of Series B warrants, the
Company granted twelve (12) month warrants to purchase a total of 12,483,665
shares of Common Stock with an exercise price of $0.107 per
share. This Common Stock warrant issuance was part of an inducement
for Series B warrant holders to exercise their warrants (See Note
4).
During
October and November 2009 a total of 1,603,630 shares of Series A Preferred
Stock were converted into 6,518,152 shares of Common Stock, and a total of
2,221.26 shares of Series B Preferred Stock were converted into 6,136,077 shares
of Common Stock.
12
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
These
unaudited condensed consolidated financial statements and management’s
discussion should be read in conjunction with the audited financial statements
of the Company and the notes thereto as of and for the year ended December 31,
2008 as included in the Company’s Form 10-K filed with the Securities and
Exchange Commission (the “Commission”) on April 10, 2009.
Forward-looking
statements
Statements contained in this
Quarterly Report on Form 10-Q, other than the historical financial information,
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All such forward-looking statements
involve known and unknown risks, uncertainties or other factors which may cause
actual results, performance or achievement of the Company to be materially
different from any future results, performance or achievement expressed or
implied by such forward-looking statements. Primary risk factors include, but
are not limited to: ability to successfully develop
commercial operations; the ability to obtain adequate financing in the future
when needed; dependence on key personnel; acceptance of the Company's medical
devices in the marketplace; obtaining government approvals, including required
FDA approvals; compliance with governmental regulations; reliance on research
and testing facilities of various universities and institutions; product
liability risks; limited manufacturing experience; limited marketing, sales and
distribution experience; market acceptance of the Company's products;
competition; unexpected changes in technologies and technological advances; and
other factors detailed in the Company's Current Report on Form 10-K filed with
the Commission on April 10, 2009.
Plan
of Operations
We are a
development stage company and expect to remain so for at least the next several
quarters. 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. 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 our CytoSorb™ device. 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 decided to target Europe as the
introductory market for 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.
We are
currently approved by the German Ethics Committee to conduct a clinical study of
up to 100 patients with acute respiratory distress syndrome or acute lung injury
in the setting of sepsis. By 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 November 2009 the number of hospital units
participating in our study has increased to twelve (12).
To date
patient enrollment has been slower than originally
anticipated. The Company has taken a number of steps to improve
recruitment, the most significant of which is the increase in the number of our
clinical trial sites. With more sites actively seeking to enroll
patients, we expect the patient enrollment rate to increase going forward.
Concurrent with the clinical study, we have commenced preparation for the CE
Mark submission process. Assuming a successful outcome of the
study, the Company intends to apply for CE Mark
approval.
The
primary endpoint of our clinical trial is cytokine reduction and is the basis of
a planned CE Mark application to approve our device for clinical use in
Europe. After reviewing the initial cytokine data from the first 22
patients enrolled in the protocol, our medical advisors recommended revisions to
our protocol to minimize non-device related artifacts that may potentially arise
if the samples are not processed or handled appropriately. The
revisions to the protocol also include a provision for testing of our targeted
endpoints in plasma instead of serum and changes in cytokine processing and
analysis. These changes are intended to optimize the accuracy of our
cytokine data for CE Mark submission. The proposed protocol changes
and rationale for change were submitted to the German Ethics Committee and
approved. Given these changes, cytokine data will not be
statistically comparable between these 22 patients and those enrolled
subsequently in the study. While the company will continue to
review all patient data in the aggregate, including secondary and exploratory
endpoints, the primary use of the data from the first 22 patients will be used
to support the planned CE Mark application from a safety
perspective. Cytokine data from all patients enrolled
subsequent to these 22 patients, as well as safety data on all patients enrolled
in the study, will be used for submission to the CE Mark
authority. The Company has recruited thirty nine (39) patients
in the clinical study to date. Management continues to
anticipate that a total of approximately 80 patients, including these 22 initial
patients, will be required to complete our study. The Company
has the flexibility to enroll up to a total of 100 patients.
13
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 a 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.
Our
research and development costs were, $1,602,636 and $1,376,921, for the nine
months ended September 30, 2009 and 2008 respectively and $532,705 and $594,358
for the three months ended September 30, 2009 and 2008, respectively. We have
experienced substantial operating losses since inception. As of September 30,
2009, we had an accumulated deficit of $78,429,038 which included losses
of $841,058 and $2,453,154 for the three and nine month periods ended
September 30, 2009. In comparison, we had losses of $862,751 and $2,364,478 for
the three and nine month periods ended September 30, 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 $740,107 and $2,231,227 for the three and nine month periods
ended September 30, 2009 and $755,021 and $2,055,468 for three and nine month
periods ended September 30, 2008.
Off-balance Sheet
Arrangements
We have
no off-balance sheet arrangements.
Liquidity and Capital
Resources
Since
inception, our operations have been financed through the private placement of
our debt and equity securities. At December 31, 2008 we had cash of $2,749,208.
As of September 30, 2009 we had cash on hand of $937,316, and current
liabilities of $915,835. In October 2009 an
additional $1,096,742 was received by the Company from investors exercising
warrants to purchase Series B Preferred Stock.
We
believe that we have sufficient cash to fund our operations into
the second quarter of 2010, following which we will need additional funding
before we can complete our clinical studies and commercialize our
products. We 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.
Our
Annual Report dated December 31, 2008 was prepared assuming we will continue as
a going concern, and the auditors’ report on those financial statements
expresses substantial doubt about our ability to continue as a going
concern.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
Not
applicable to smaller reporting companies.
Item 4(T). Controls and
Procedures.
Management's
annual report on internal control over financial reporting
Management
of Medasorb is responsible for establishing and maintaining adequate internal
control over financial reporting under the supervision of the President and
Chief Executive Officer and the Chief Financial Officer. Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Management
evaluated the design and operation of our internal control over financial
reporting as of September 30, 2009, based on the framework and criteria
established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and has concluded that such
internal control over financial reporting is effective. There are no material
weaknesses that have been identified by management.
An
evaluation was performed, under the supervision of, and with the participation
of, our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-(e) to
the Securities and Exchange Act of 1934). Based on that evaluation, the
Company’s management, including our Chief Executive Officer and Chief Financial
Officer, concluded that the Company’s disclosure controls and procedures were
adequate and effective, as of September 30, 2009, to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934, is recorded, processed, summarized,
and reported within the time periods specified in the Commission’s rules and
forms, and that such information is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
We do not
expect that our disclosure controls and procedures or internal control over
financial reporting will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable assurance
that the objectives of the system are met and cannot detect all deviations.
Because of the inherent limitations in all control systems, no evaluation of
control can provide absolute assurance that all control issues and instances of
fraud or deviations, if any, within the Company have been detected.
This
report does not include an attestation report of the company's registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this report.
Changes
in internal control over financial reporting
There
were no significant changes in our internal controls over financial reporting
that occurred subsequent to our evaluation of our internal control over
financial reporting for the nine months ended September 30, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
14
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
In
February 2008, Alkermes, Inc. commenced an action against us in the United
States 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, the
Company will continue to use the name MedaSorb Technologies Corporation for the
near term, but its wholly-owned subsidiary, through which the Company conducts
all of its operational activities, has ceased using the “MedaSorb” name to avoid
any potential confusion with Alkermes’ similarly named product. The
operating subsidiary has been renamed CytoSorbents, Inc. as of November
2008.
Item
1A. Risk Factors
Not
required to be provided by smaller reporting companies.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
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. A copy of the Resolution of the Series B
Preferred Shareholders to Waive the Registration Penalty is attached as Exhibit
10.1 hereto.
Item
5. Other Information
None.
Item
6. Exhibits.
Number
|
Description
|
|
31.1
|
Certification
of Phillip Chan, Chief Executive Officer of the Registrant, pursuant to
Rules 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
31.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant to
Rules 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of
1934
|
|
32.1
|
Certification
of Phillip Chan, Chief Executive Officer of the Registrant, pursuant to
Rules 13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|
|
32.2
|
Certification
of David Lamadrid, Chief Financial Officer of the Registrant, pursuant to
Rules 13a-14(B) and 15(d)-14(b) of the Securities Exchange Act of
1934
|
15
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
MEDASORB
TECHNOLOGIES
CORPORATION
|
||
Dated:
November 13, 2009
|
By:
|
/s/ David Lamadrid
|
Name:
David Lamadrid
|
||
Title:
Chief Financial Officer
|
||
(On
behalf of the registrant and as
principal accounting
officer)
|
16