Full Press Release Details
MEDASORB TECHNOLOGIES, LLC)
development stage company)
development stage company)
| Reports of Independent Registered Public Accounting Firms | 1-2 |
| Financial Statements: | |
| Balance Sheets | 3 |
| Statements of Operations | 4 |
| Statements of Changes in Stockholders' Equity (Deficiency) | 5-9 |
| Statements of Cash Flows | 10-11 |
| Notes to Financial Statements | 12-24 |
Professional Corporation
Public Accountants and Consultants
Brunswick, New Jersey 08901 USA
1614 . fax 732 828 5156
Offices in New Jersey
of Independent Registered Public Accounting Firm
Board of Directors and Stockholders,
audited the accompanying balance sheets of Medasorb Corporation (a development
stage company), as of December 31, 2005 and 2004, and the related statements
operations, stockholders' equity and cash flows for the years then ended and the
cumulative period from January 1, 2001 to December 31, 2005. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Medasorb Corporation as of December
31, 2005 and 2004 and the results of its operations and cash flows for the
then ended and the cumulative period from January 1, 2001 to December 31,
in conformity with accounting principles generally accepted in the United
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring net losses and negative cash
flows from operations and has a working capital deficiency. These matters
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
WithumSmith+Brown P.C.
Brunswick, New Jersey
of Independent Public Accountants
Board of Directors and Stockholders,
audited the accompanying balance sheets of Medasorb Corporation (a development
stage company), as of December 31, 2000 and 1999, and the related statements
operations, changes in members' equity and cash flows for the period from
inception (January 22, 1997) through December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
conducted our audits in accordance with auditing standards generally accepted
the United States. Those standards require that we plan and perform the audit
obtain reasonable assurance about whether the financial statements are free
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Medasorb Corporation as of December
31, 2000 and 1999, and the results of its operations and its cash flows for
period from inception (January 22, 1997) to December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
| MEDASORB CORPORATION |
| (a development stage company) |
| BALANCE SHEETS |
| December 31, | 2005 | 2004 | ||||
| ASSETS | ||||||
| Current Assets: | ||||||
| Cash and cash equivalents | $ | 707,256 | $ | 16,749 | ||
| Prepaid expenses and other current assets | 19,261 | 61,159 | ||||
| Total current assets | 726,517 | 77,908 | ||||
| Property and equipment - net | 553,657 | 820,321 | ||||
| Other assets | 181,307 | 349,898 | ||||
| Total long-term assets | 734,964 | 1,170,219 | ||||
| Total Assets | $ | 1,461,481 | $ | 1,248,127 | ||
| LIABILITIES AND STOCKHOLDERS'/MEMBERS' DEFICIENCY | ||||||
| Current Liabilities: | ||||||
| Accounts payable | $ | 1,802,788 | $ | 2,284,050 | ||
| Accrued expenses and other current liabilities | 412,646 | 167,038 | ||||
| Accrued interest | 1,056,960 | 298,933 | ||||
| Stock subscribed | 399,395 | -- | ||||
| Convertible notes payable | 3,429,899 | 1,346,050 | ||||
| Total current liabilities | 7,101,688 | 4,096,071 | ||||
| Long-term liabilities: | ||||||
| Convertible notes payable | 4,120,000 | 4,120,000 | ||||
| Total liabilities | 11,221,688 | 8,216,071 | ||||
| Stockholders' Deficiency: | ||||||
| Common Stock, Par Value $0.001, 300,000,000 shares | ||||||
| authorized, 4,829,120 shares issued and outstanding | 4,829 | -- | ||||
| Additional paid-in capital | 49,214,431 | -- | ||||
| Contributions by members | -- | 48,345,927 | ||||
| Deficit accumulated during the development stage | (58,979,467 | ) | (55,313,871 | ) | ||
| Total stockholders' deficiency | (9,760,207 | ) | (6,967,944 | ) | ||
| Total Liabilities and Stockholders' Deficiency | $ | 1,461,481 | $ | 1,248,127 |
| MEDASORB CORPORATION |
| (a development stage company) |
| STATEMENTS OF OPERATIONS |
| Period from | ||||||||||
| January 22, 1997 | ||||||||||
| (date of inception) to | Year ended | Year ended | ||||||||
| December 31, | December 31, | December 31, | ||||||||
| 2005 | 2005 | 2004 | ||||||||
| Revenue | $ | -- | $ | -- | $ | -- | ||||
| Expenses: | ||||||||||
| Research and development | 39,779,967 | 1,526,743 | 2,367,407 | |||||||
| Legal, financial and other consulting | 5,347,134 | 948,209 | 948,079 | |||||||
| General and administrative | 19,198,981 | 635,960 | 705,372 | |||||||
| Change in fair value of management and incentive units | (6,055,483 | ) | (14,551 | ) | (3,488,993 | ) | ||||
| Total expenses | 58,270,599 | 3,096,361 | 531,865 | |||||||
| Other (income) expenses: | ||||||||||
| Gain on disposal of property and equipment | (21,663 | ) | (21,663 | ) | -- | |||||
| Gain on extinguishment of debt | (175,000 | ) | (175,000 | ) | -- | |||||
| Interest expense, net | 905,531 | 765,898 | 564,818 | |||||||
| Total other (income) expense | 708,868 | 569,235 | 564,818 | |||||||
| Net loss | $ | (58,979,467 | ) | $ | (3,665,596 | ) | $ | (1,096,683 | ) |
| MEDASORB CORPORATION |
| (a development stage company) |
| STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) |
| Period from January 22, 1997 (date of inception) to December 31, 2005 | ||||||||||||||||||||||
| Deficit | ||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||
| Members' | Additional | During the | Total | |||||||||||||||||||
| Equity | Deferred | Common Stock | Paid-In | Development | Stockholders' | |||||||||||||||||
| (Deficiency) | Compensation | Shares | Par value | Capital | Stage | Equity (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 |
| MEDASORB CORPORATION |
| (a development stage company) |
| STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) |
| Deficit | ||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||
| Members' | Additional | During the | Total | |||||||||||||||||||
| Equity | Deferred | Common Stock | Paid-In | Development | Stockholders' | |||||||||||||||||
| (Deficiency) | Compensation | Shares | Par value | Capital | Stage | Equity (Deficit) | ||||||||||||||||
| 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 |
| MEDASORB CORPORATION |
| (a development stage company) |
| STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) |
| Deficit | ||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||
| Members' | Additional | During the | Total | |||||||||||||||||||
| Equity | Deferred | Common Stock | Paid-In | Development | Stockholders' | |||||||||||||||||
| (Deficiency) | Compensation | Shares | Par value | Capital | Stage | Equity (Deficit) | ||||||||||||||||
| 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 | ) |
| MEDASORB CORPORATION |
| (a development stage company) |
| STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) |
| Deficit | ||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||
| Members' | Additional | During the | Total | |||||||||||||||||||
| Equity | Deferred | Common Stock | Paid-In | Development | Stockholders' | |||||||||||||||||
| (Deficiency) | Compensation | Shares | Par value | Capital | Stage | Equity (Deficit) | ||||||||||||||||
| 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 | ) |
| MEDASORB CORPORATION |
| (a development stage company) |
| STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) |
| Deficit | ||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||
| Members' | Additional | During the | Total | |||||||||||||||||||
| Equity | Deferred | Common Stock | Paid-In | Development | Stockholders' | |||||||||||||||||
| (Deficiency) | Compensation | Shares | Par value | Capital | Stage | Equity (Deficit) | ||||||||||||||||
| 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 | ||||||||||||||||||||||
| member units | 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 | ) |
| MEDASORB CORPORATION |
| (a development stage company) |
| STATEMENTS OF CASH FLOWS |
| For the | ||||||||||
| Period from | ||||||||||
| January 22, 1997 | ||||||||||
| (date of inception) to | Year ended | Year ended | ||||||||
| December 31, | December 31, | December 31, | ||||||||
| 2005 | 2005 | 2004 | ||||||||
| Cash flows from operating activities: | ||||||||||
| Net loss | $ | (58,979,467 | ) | $ | (3,665,596 | ) | $ | (1,096,683 | ) | |
| Adjustments to reconcile net loss to net cash | ||||||||||
| used in operating activities: | ||||||||||
| Depreciation and amortization | 1,791,099 | 265,264 | 312,221 | |||||||
| Gain on disposal of property and equipment | (21,663 | ) | (21,663 | ) | -- | |||||
| Gain on extinguishment of debt | (175,000 | ) | (175,000 | ) | -- | |||||
| Abandoned patents | 183,556 | 183,556 | -- | |||||||
| Bad debts - employee advances | 255,882 | -- | -- | |||||||
| Contributed technology expense | 4,550,000 | -- | -- | |||||||
| Consulting expense | 237,836 | -- | -- | |||||||
| Management unit expense | 1,334,285 | (14,551 | ) | (2,438,754 | ) | |||||
| Incentive units expense | -- | -- | (1,050,239 | ) | ||||||
| Expense for issuance of warrants | 468,526 | -- | -- | |||||||
| Expense for issuance of options | 247,625 | -- | -- | |||||||
| Accrued interest expense | 1,399,793 | 760,860 | 418,933 | |||||||
| Amortization of deferred compensation | 74,938 | -- | -- | |||||||
| Changes in operating assets and liabilities: | ||||||||||
| Prepaid expenses and other current assets | (290,809 | ) | 41,898 | 86,487 | ||||||
| Other assets | (51,163 | ) | -- | (26,276 | ) | |||||
| Accounts payable and accrued expenses | 3,219,921 | 775,665 | 1,011,392 | |||||||
| Net cash used in operating activities | (45,754,641 | ) | (1,849,567 | ) | (2,782,919 | ) | ||||
| Cash flows from investing activities: | ||||||||||
| Proceeds from sale of property and equipment | 32,491 | 32,491 | -- | |||||||
| Purchase of property and equipment | (2,199,094 | ) | (4,000 | ) | -- | |||||
| Patent costs | (328,556 | ) | (20,393 | ) | -- | |||||
| Loan Receivable | (1,632,168 | ) | -- | -- | ||||||
| Net cash provided by (used in) financing | ||||||||||
| activities | (4,127,327 | ) | 8,098 | -- | ||||||
| Cash flows from financing activities: | ||||||||||
| Equity contributions - net of fees incurred | 41,711,198 | -- | 474,800 | |||||||
| Proceeds from borrowing | 8,378,631 | 2,132,581 | 1,346,050 | |||||||
| Proceeds from subscription receivables | 499,395 | 399,395 | -- | |||||||
| Net cash provided by financing activities | 50,589,224 | 2,531,976 | 1,820,850 | |||||||
| Net increase (decrease) in cash and cash equivalents | 707,256 | 690,507 | (962,069 | ) | ||||||
| Cash and cash equivalents at beginning of period | -- | 16,749 | 978,818 | |||||||
| Cash and cash equivalents at end of period | $ | 707,256 | $ | 707,256 | $ | 16,749 | ||||
| Supplemental disclosure of cash flow information: | ||||||||||
| Cash paid during the period for interest | $ | 511,780 | $ | 7,871 | $ | 149,080 | ||||
| Supplemental schedule of noncash financing activities: | ||||||||||
| Note payable principal and interest conversion to equity | $ | 1,171,565 | $ | 51,565 | $ | -- | ||||
| Issuance of member units for leasehold improvements | $ | 141,635 | $ | -- | $ | -- | ||||
| Issuance of management units in settlement of cost of | ||||||||||
| raising capital | $ | 437,206 | $ | 92,287 | $ | 42,463 | ||||
| Change in fair value of management units for cost of | ||||||||||
| raising capital | $ | 278,087 | $ | -- | $ | 42,463 | ||||
| Exchange of loan receivable for member units | $ | 1,632,168 | $ | -- | $ | -- | ||||
| Issuance of equity in settlement of accounts payable | $ | 836,319 | $ | 836,319 | $ | -- |
development stage company)
TO FINANCIAL STATEMENTS
| 1. | PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: | Nature of Business MedaSorb Corporation, fka MedaSorb Technologies, LLC, ("MedaSorb" or the "Company"), a Delaware Corporation, was formed on January 22, 1997. The Company is engaged in the research, development and commercialization of medical devices with its platform blood purification technology incorporating a proprietary absorbent 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. In December 2005, the Company reorganized its capital structure and converted from an LLC to a Corporation. This reorganization had no effect on the carrying value of the Company's net assets. As of December 31, 2005, 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. |
| The Company is a development stage company and has not yet generated any revenues. Since inception, the Company's expenses relate primarily to research and development, organizational activities, clinical manufacturing, regulatory compliance and operational strategic planning. Although the Company has made advances on these matters, there can be no assurance that the Company will continue to be successful regarding these issues, nor can there be any assurance that the Company will successfully implement its long-term strategic plans. | ||
| The accompanying 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 and has a deficit accumulated during the development stage at December 31, 2005 of $58,979,467. The Company is not currently generating revenue and is dependent on the proceeds of present and future financings to fund its research, development and commercialization program. The Company is continuing its fund-raising efforts. Although the Company has been successful in raising additional equity and debt financing, 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 capital, there can be no assurance that the amount will be sufficient to complete the Company's plans. | ||
| The Company has developed an intellectual property portfolio, including 21 issued and 5 pending patents, covering materials, methods of production, systems incorporating the technology and multiple medical uses. | ||
| Development Stage Corporation The accompanying financial statements have been prepared in accordance with the provisions of Statement of Financial Accounting Standard (SFAS) No. 7, "Accounting and Reporting by Development Stage Enterprises." |
development stage company)
TO FINANCIAL STATEMENTS
| Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. | ||
| Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation of property and equipment is provided for by the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of their economic useful lives or the term of the related leases. Gains and losses on depreciable assets retired or sold are recognized in the statements operations in the year of disposal. Repairs and maintenance expenditures are expenses as incurred. | ||
| Patents Legal costs incurred to establish patents are capitalized. When patents are issued, capitalized costs are amortized on the straight-line method over the related patent term. In the event a patent is abandoned, the net book value of the patent is written off. | ||
| Impairment or Disposal of Long-Lived Assets The Company assesses the impairment of patents and other long-lived assets under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and fair value. | ||
| Research and Development All research and development costs, payments to laboratories and research consultants are expensed when incurred. | ||
| Income Taxes Income taxes are accounted for under the asset and liability method prescribed by SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax asset will not be realized. No provision for income taxes has been reflected in the accompanying financial statements since the Company was organized as a LLC through December 15, 2005 and the income or loss was included on the members individual income tax returns. | ||
| 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. |
development stage company)
TO FINANCIAL STATEMENTS
| Concentration of Credit Risk The Company maintains cash balances, at times, with financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and considers the Company's risk negligible. | ||
| Financial Instruments The carrying values of prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to their short-term nature. Convertible notes payable approximates its fair value based upon the borrowing rates available for the nature of the underlying debt. | ||
| Stock-Based Compensation Through December 31, 2005, the Company has accounted for its stock compensation plans under the recognition and measurement principles of Accounting Principles Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Under APB No. 25, no compensation cost is generally recognized for fixed stock options in which the exercise price is greater than or equal to the market price on the grant date. The Company has not adopted the recognition requirements of Statement of Financial Accounting Standards ("SFAS") No. 123, " Accounting for Stock-Based Compensation ", for employees and directors and, accordingly, has made all pro forma disclosures required. The Company has adopted the requirements of SFAS No. 123 and EITF Issue No. 96-18, "Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods and Services" with regard to non-employees. Each option granted is valued at fair market value on the date of grant. Had compensation cost for options granted to employees and directors been determined consistent with SFAS No. 123, the Company's pro forma net loss would have been as follows: |
| Period from | ||||||||||
| January 22, 1997 | Year ended | Year ended | ||||||||
| (date of inception) to | December 31, | December 31, | ||||||||
| December 31, 2005 | 2005 | 2004 | ||||||||
| Net Loss | ||||||||||
| As reported | $ | 58,979,467 | $ | 3,665,596 | $ | 1,096,683 | ||||
| Pro forma | $ | 59,053,461 | $ | 3,692,026 | $ | 1,096,683 |
| Under SFAS No. 123, the fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: (1) expected lives of five-ten years, (2) dividend yield of 0%, (3) risk-free interest rates ranging from 3.25% - 5.63%, and (4) volatility percentage of 0.01%. | ||
| Reverse Unit Split and Conversion to Corporation In December 2005, MedaSorb effected an approximate 1 for 6.64 reverse unit split to unit holders. Immediately subsequent to the split, the Company converted to a corporation (see Note 4). All share and per share information has been retroactively adjusted to reflect the split. |
development stage company)
TO FINANCIAL STATEMENTS
| Effects of Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123R "Share Based Payment." This statement is a revision to SFAS 123 and supersedes Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires a public entity to expense the cost of employee services received in exchange for an award of equity instruments using the fair-value-based method. This statement also provides guidance on valuing and expensing these awards, as well as disclosure requirements of these equity arrangements. This statement is effective for all reporting periods beginning after December 15, 2005. Management is currently evaluating the effect of this pronouncement. | ||
| In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29." The statement addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement is not anticipated to have a significant impact on the results of operations or financial position of the Company. | ||
| In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections." This statement replaces APB No. 20 and SFAS No. 3 and changes the requirements for the accounting and reporting of a change in accounting principle. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the accounting principle. SFAS No. 154 requires retrospective application to prior periods' financial statements of voluntary changes in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect that the adoption of SFAS No. 154 will have a significant impact on the results of operations or financial position of the Company. | ||
| In February 2006, the FASB issued SFAS No. 155,"Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140," to simplify and make more consistent the accounting for certain financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to permit fair value re-measurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140, Accounting for the Impairment or Disposal of Long-Lived Assets, to allow a qualifying special-purpose entity (SPE) to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006, with earlier application allowed. The Company does not expect that the adoption of SFAS No. 155 will have a significant impact on the results of operations or financial position of the Company. |
development stage company)
TO FINANCIAL STATEMENTS
| Depreciation/ | ||||||||||
| Amortization | ||||||||||
| December 31, | 2005 | 2004 | Period | |||||||
| Furniture and fixtures | $ | 130,015 | $ | 131,509 | 7 years | |||||
| Equipment and computers | 1,709,815 | 1,742,239 | 3 to 7 years | |||||||
| Leasehold improvements | 462,980 | 462,980 | Term of lease | |||||||
| 2,302,810 | 2,336,728 | |||||||||
| Less accumulated depreciation | ||||||||||
| and amortization | 1,749,153 | 1,516,407 | ||||||||
| Property and Equipment, Net | $ | 553,657 | $ | 820,321 |
| Depreciation expense for the years ended December 31, 2005 and 2004 amounted to $259,836 and $307,126, respectively. Depreciation expense from inception to December 31, 2005 amounted to $1,776,242. | ||
| 3. | OTHER ASSETS: | Other assets consist of the following: |
| December 31, | 2005 | 2004 | |||||
| Intangible assets, net | $ | 130,143 | $ | 298,734 | |||
| Security deposits | 51,164 | 51,164 | |||||
| Total | $ | 181,307 | $ | 349,898 |
| December 31, | 2005 | 2004 | |||||||||||
| Gross | Accumulated | Gross | Accumulated | ||||||||||
| Amount | Amortization | Amount | Amortization | ||||||||||
| Patents | $ | 145,000 | $ | 14,857 | $ | 308,163 | $ | 9,429 |
| The issued patents that are capitalized are being amortized over a period of 17.5 years. All pending patents are not being amortized. | ||
| Amortization expense amounted to $5,428 and $5,095 for the years ended December 31, 2005 and 2004, respectively. Amortization expense from inception to December 31, 2005 amounted to $14,857. |
development stage company)
TO FINANCIAL STATEMENTS