Nevada
|
|
98-0373793
|
(State
or Other Jurisdiction of Incorporation or
Organization)
|
(I.R.S.
Employer identification
number)
|
Page
|
|||||
PART
I
|
|||||
Item
1. Business
|
3 | ||||
Item
1A. Risk Factors.
|
21 | ||||
Item
2. Properties
|
29 | ||||
Item
3. Legal Proceedings
|
30 | ||||
Item
4. Submission of Matters to a Vote of Security Holders
|
30 | ||||
PART
II
|
30 | ||||
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
|
30 | ||||
Item
6. Selected Financial Data
|
31 | ||||
Item
7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
31 | ||||
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
|
33 | ||||
Item
8. Financial Statements and Supplementary Data
|
33 | ||||
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
33 | ||||
Item
9A(T). Controls and Procedures
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33 | ||||
Item
9B. Other Information
|
34 | ||||
PART
III
|
34 | ||||
Item
10. Directors, Executive Officers and Corporate Governance
|
34 | ||||
Item
11. Executive Compensation
|
36 | ||||
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
41 | ||||
Item
13. Certain Relationships and Related Transactions and Director
Independence
|
43 | ||||
Item
14. Principal Accountant Fees and Services
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44 | ||||
Part
IV
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|||||
Item
15. Exhibits, Financial Statement Schedules
|
44 |
|
·
|
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),
|
¨
|
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.
|
06/30/06
Purchasers of
Series A Preferred Stock
|
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 |
1)
|
An
aging population
|
2)
|
Increased
incidence of antibiotic resistance
|
3)
|
Increase
in co-morbid conditions like cancer and
diabetes
|
4)
|
Increased
use of indwelling medical devices that are susceptible to
infections
|
·
|
improving
the viability of organs which can be harvested from brain-dead organ
donors, and
|
·
|
increasing
the likelihood of organ survival following
transplant.
|
·
|
reduce
ventilator and oxygen therapy
requirements;
|
·
|
reduce
length of stay in hospital intensive care units;
and
|
·
|
reduce
the total cost of patient
care.
|
·
|
improve
and maintain the general health of dialysis
patients;
|
·
|
improve
the quality of life of these
patients
|
·
|
reduce
the total cost of patient care;
and
|
·
|
increase
life expectancy.
|
|
·
|
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 in 2021 and U.S. Pat. No.7,312,023, which expires in 2024. These
patents concern 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 in 2022, U.S. Pat. No. 7,112,620 which expires in 2023 and U.S.
Pat. No. 7,201,962 which expires in 2025. These patents concern a
hemocompatible polymer and a one-step method of producing
it.
|
·
|
the receipt of regulatory
clearance of marketing claims for the uses that we are
developing;
|
·
|
the establishment and
demonstration of the advantages, safety and efficacy of the our polymer
technology;
|
·
|
pricing and reimbursement
policies of government and third-party payers such as insurance companies,
health maintenance organizations and other health plan
administrators;
|
·
|
our ability to attract corporate
partners, including medical device companies, to assist in commercializing
our products; and
|
·
|
our ability to market our
products.
|
·
|
satisfy their financial or
contractual obligations to
us;
|
·
|
adequately market our products;
or
|
·
|
not offer, design, manufacture or
promote competing products.
|
·
|
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.
|
·
|
required us to 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 by February 25, 2007 (240 days
following the closing); and
|
·
|
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 we fail to timely file
that registration statement with, or have it declared effective by, the
SEC.
|
·
|
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.
|
·
|
required us to file a
registration statement with the SEC on or before 180 days from the Initial
Closing to register the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock, and cause such registration statement to be
effective by February 21, 2009 (240 days following the Initial Closing) or
March 23, 2009 if the reasons for delay are solely due to SEC delay;
and
|
·
|
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 we fail to timely file
that registration statement with, or have it declared effective by, the
SEC.
|
Item
2.
|
Properties.
|
Item
3.
|
Legal
Proceedings.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders.
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities.
|
Price
|
||||||||
High
|
Low
|
|||||||
2006
|
||||||||
Third
quarter (from August 9)
|
$ | 3.95 | $ | 1.25 | ||||
Fourth
quarter
|
$ | 1.73 | $ | 0.57 | ||||
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 | ||||
2008
|
||||||||
First
quarter
|
$ | 0.32 | $ | 0.15 | ||||
Second
quarter
|
$ | 0.23 | $ | 0.10 | ||||
Third
quarter
|
$ | 0.20 | $ | 0.07 | ||||
Fourth
quarter
|
$ | 0.17 | $ | 0.03 |
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
$0.035.
|
Item
6.
|
Selected
Financial Data.
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Item
8.
|
Financial
Statements and Supplementary
Data.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
Item 10.
|
Directors,
Executive Officers and Control Persons; Compliance with Section 16(a) of
the Exchange Act.
|
Name
|
Age
|
Position
|
||
Phillip Chan,
MD
|
38
|
President and Chief Executive
Officer, Director
|
||
Al
Kraus
|
64
|
Chairman of the
Board
|
||
Joseph Rubin, Esq.
|
70
|
|
Director
|
|
Edward R. Jones, MD,
MBA
|
60
|
Director
|
||
James
Gunton
|
42
|
Director
|
||
Vincent
Capponi
|
51
|
Chief Operating Officer
|
||
David
Lamadrid
|
38
|
|
Chief Financial
Officer
|
|
Robert Bartlett,
MD
|
69
|
Chief Medical
Officer
|
Item 11.
|
Executive
Compensation.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
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 $11,800 for certain other expenses pursuant to an
employment agreement.
|
Option
Awards
|
|||||||||||
Name
|
Number of
Securities Underlying
Unexercised Options
(#)
Exercisable
|
Number of Securities
Underlying Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
|
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
|
(1)
|
Fully
vested
|
(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.
|
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.
|
|
(2)
|
Fully
vested
|
|
(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.
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
SHARES
BENEFICIALLY
OWNED1
|
||||||
Number
|
Percent (%)
|
|||||
Beneficial
Owners of more than 5% of Common Stock (other than directors and executive
officers)
|
||||||
Margie
Chassman(2)
|
58,237,575
|
(2)
|
69.4
|
%
|
||
Guillermina
Montiel(3)
|
5,052,456
|
16.5
|
%
|
|||
Margery
Germain(4)
|
2,000,000
|
6.6
|
%
|
|||
Robert
Shipley (5)
|
16,871,553
|
36.0
|
%
|
|||
Directors
and Executive Officers
|
||||||
Al
Kraus(6)
|
10,057,001
|
25.7
|
%
|
|||
Phillip
Chan (7)
|
1,649,277
|
5.1
|
%
|
|||
David
Lamadrid (8)
|
2,379,567
|
7.3
|
%
|
|||
Vince
Capponi (9)
|
1,863,919
|
5.8
|
%
|
|||
Joseph
Rubin(10)
|
765,814
|
2.5
|
%
|
|||
Robert
Bartlett
|
—
|
*
|
||||
James
Gunton(11)
|
15,000
|
*
|
||||
Edward
R. Jones(12)
|
82,500
|
*
|
||||
All directors and executive
officers as a group (eight persons)(13)
|
16,813,078
|
37.4
|
%
|
*
|
Less than
1%.
|
1
|
Gives effect to the shares of
Common Stock issuable upon the exercise of all options exercisable within
60 days of March 31, 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 30,510,819 shares of Common
Stock outstanding as of March 31,
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, 27,959,035
shares of Common Stock issuable upon conversion of Series B Preferred
Stock, 2,940,331 shares of Common Stock ultimately issuable upon exercise
and conversion of warrants for Series B Preferred Stock, and 4,386,429
shares of Common Stock issuable upon exercise of warrants. Ms. Chassman
has waived her registration rights with respect to the Series A Preferred
Stock and warrants. Margie Chassman is married to David Blech. Mr. Blech
disclaims beneficial ownership of these shares. Since 1980 Mr. Blech has
been a founder of companies and venture capital investor in the
biotechnology sector. His initial venture investment, Genetic Systems
Corporation, which he helped found and served as treasurer and a member of
the board of directors, was sold to Bristol Myers in 1986 for $294 million
of Bristol Myers stock. Other companies he helped found include DNA Plant
Technology, Celgene Corporation, Neurogen Corporation, Icos Corporation,
Incyte Pharmaceuticals, Alexion Pharmaceuticals and Neurocrine
Biosciences. He was also instrumental in the turnaround of Liposome
Technology, Inc. and Biotech General Corporation. In 1990 Mr. Blech
founded D. Blech & Company, which, until it ceased doing business in
September 1994, was a registered broker-dealer involved in underwriting
biotechnology issues. In May 1998, David Blech pled guilty to two counts
of criminal securities fraud, and, in September 1999, he was sentenced by
the U.S. District Court for the Southern District of New York to five
years’ probation, which was completed in September 2004. Mr. Blech also
settled administrative charges by the Commission in December 2000 arising
out of the collapse in 1994 of D. Blech & Co., of which Mr. Blech was
President and sole stockholder. The settlement prohibits Mr. Blech from
engaging in future violations of the federal securities laws and from
association with any broker-dealer. In addition, the District Business
Conduct Committee for District No.10 of NASD Regulation, Inc. reached a
decision, dated December 3, 1996, in a matter styled District Business
Conduct Committee for District No. 10 v. David Blech, regarding the
alleged failure of Mr. Blech to respond to requests by the staff of the
National Association of Securities Dealers, Inc. (“NASD”) for documents
and information in connection with seven customer complaints against
various registered representatives of D. Blech & Co. The decision
found that Mr. Blech failed to respond to such requests in violation of
NASD rules and that Mr. Blech should, therefore, be censured, fined
$20,000 and barred from associating with any member firm in any capacity.
Furthermore, Mr. Blech was discharged in bankruptcy in the United States
Bankruptcy Court for the Southern District of New York in March
2000.
|
3
|
Includes
58,472 shares of Common Stock 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
ultimately issuable upon exercise and conversion of warrants for Series B
Preferred Stock, 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
297,900 shares of Common Stock issuable upon conversion of Series B
Preferred Stock, 84,448 shares of Common Stock ultimately issuable upon
exercise and conversion of warrants for Series B Preferred Stock, and
1,266,929 shares of Common Stock issuable upon exercise of stock
options.
|
8
|
Includes
1,870,833 shares of Common Stock issuable upon exercise of stock
options.
|
9
|
Includes
1,445,833 shares of Common Stock issuable upon exercise of stock
options.
|
10
|
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 387,740 shares of Common Stock issuable
upon exercise of warrants and stock options. Does not include shares of
Common Stock beneficially owned by Mr. Rubin’s spouse, as to which he
disclaims beneficial ownership.
|
11
|
These
shares are issuable upon exercise of stock options.
|
12
|
These
shares are issuable upon exercise of stock options.
|
13
|
Includes
an aggregate of 2,561 shares of Common Stock issuable upon conversion of
Series A Preferred Stock, 591,049 shares of Common Stock issuable upon
conversion of Series B Preferred Stock, 84,448 shares of Common Stock
ultimately issuable upon exercise and conversion of warrants for Series B
Preferred Stock, and 13,732,305 shares of Common Stock issuable upon
exercise of warrants and stock
options.
|
2008
|
2007
|
|||||||
Audit
fees
(1)
|
$ | 105,010 | $ | 80,347 | ||||
Audit
related fees
|
— | — | ||||||
Tax
fees
|
10,700 | — | ||||||
All
other fees
|
$ | — | $ | — | ||||
Total
fees
|
$ | 115,710 | $ | 80,347 |
(1)
|
Includes
fees paid for professional services rendered in connection with the audit
of annual financial statements and the review of quarterly financial
statements, and the review of such financial statements in the Company’s
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Registration
Statement on Form SB-2, S-1 and S-8, and Current Reports on Form
8-K.
|
Exhibit
No.
|
Description
|
|
31.1
|
Certification
of Philip Chan pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of David Lamadrid pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Philip Chan pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of David Lamadrid pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
MEDASORB
TECHNOLOGIES CORPORATION
|
||
By:
|
/s/
Phillip Chan
|
|
Phillip
Chan
|
||
Chief
Executive Officer
|
Signature
|
Title
|
Date
|
||
/s/
Phillip Chan
|
Chief
Executive Officer (Principal
|
April
10, 2009
|
||
Phillip
Chan
|
Executive
Officer) and Director
|
|||
/s/
David Lamadrid
|
Chief
Financial Officer (Principal
|
April
10, 2009
|
||
David
Lamadrid
|
Accounting
and Financial Officer)
|
|||
/s/
Al Kraus
|
Chairman
of the Board
|
April
10, 2009
|
||
Al
Kraus
|
||||
/s/
Joseph Rubin
|
Director
|
April
10, 2009
|
||
Joseph
Rubin, Esq.
|
||||
/s/
Edward R. Jones
|
Director
|
April
10, 2009
|
||
Edward
R. Jones
|
||||
/s/
James Gunton
|
Director
|
April
10, 2009
|
||
James
Gunton
|
||||
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets at December 31, 2008 and December 31, 2007
|
F-4
|
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and 2007,
and from inception to December 31, 2008
|
F-5
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficiency) period from
inception to December 31, 2008
|
F-6
|
|
Consolidated
Statements of Cash Flows for the for the years ended December 31, 2008 and
2007, and from inception to December 31, 2008
|
F-7
|
|
Notes
to Financial Statements
|
F-9
|
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 |
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 |
Members
Equity
|
Deferred
|
Common
Stock
|
Preferred
Stock B
|
Preferred
Stock A
|
Additional
Paid-In
|
Deficit
Accumulated
During
the Development |
Total
Stockholders'
|
|||||||||||||||||||||||||||||||||||||
(De
ficiency)
|
Com
pensation
|
Sha
res
|
Par
value
|
Sha
res
|
Par
Value
|
Sha
res
|
Par
Value
|
Cap
ital
|
Sta
ge
|
Equ
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 |
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 | — |
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 | $ | — | $ | — |
1.
|
BASIS
OF PRESENTATION
|
2.
|
PRINCIPAL
BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
|
3.
|
PROPERTY
AND EQUIPMENT, NET:
|
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 |
4.
|
OTHER
ASSETS:
|
December
31,
|
2008
|
2007
|
||||||
Intangible
assets, net
|
$ | 202,676 | $ | 191,926 | ||||
Security
deposits
|
66,634 | 53,894 | ||||||
Total
|
$ | 269,310 | $ | 245,820 |
December
31,
|
2008
|
2007
|
||||||||||||||
Gross
|
Accumulated
|
Gross
|
Accumulated
|
|||||||||||||
Amount
|
Amortization
|
Amount
|
Amortization
|
|||||||||||||
Patents
|
$ | 244,172 | $ | 41,496 | $ | 222,121 | $ | 30,195 |
5.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES:
|
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 |
6.
|
CONVERTIBLE
NOTES:
|
7.
|
INCOME
TAXES:
|
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:
|
2009
|
$
|
161,000
|
|||
2010
|
26,000
|
||||
Total
|
$
|
187,000
|
9.
|
STOCKHOLDERS'
EQUITY
|
·
|
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.
|
·
|
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.
|
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 |
|
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 |
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
|
Number of
|
Warrant Exercise
|
Warrant
|
|||
Shares to be
|
Price per
|
Expiration
|
|||
Purchased
|
Preferred Share
|
Date
|
|||
525,000
|
$
|
1.00
|
June 30, 2011
|
Number of
|
Warrant Exercise
|
Warrant
|
|||
Shares to be
|
Price per
|
Expiration
|
|||
Purchased
|
Preferred Share
|
Date
|
|||
15,000
|
$
|
100.00
|
September
25, 2009
|
10.
|
NET
LOSS PER SHARE
|
11.
|
SUBSEQUENT
EVENTS
|