|
|
(MARK
ONE)
|
|
|
[x]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[
] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Delaware
|
|
13-3971809
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
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|
(I.R.S.
Employer Identification No.)
|
Class
|
|
Outstanding
at May 15, 2006
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||
Common
Stock, $.001 par value
|
|
|
12,317,992
|
|
|
|
|
|
|
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Page
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||
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
Item 1.
Financial Statements
|
|
|
|
|
Condensed
Consolidated
Balance Sheets as of March 31, 2006 and December 31, 2005
|
|
|
3
|
|
Condensed
Consolidated
Statements of Operations for the Three Months Ended March 31, 2006
and
2005
|
|
|
4
|
|
Condensed
Consolidated
Statements of Cash Flows for the Three Months Ended March 31, 2006
and
2005
|
|
|
5
|
|
Condensed
Consolidated Statement of Changes in Stockholders’ Equity for the Three
Months Ended
March 31, 2006 and for the Year Ended December 31, 2005
|
6
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|||
Notes
to the Condensed Consolidated Financial Statements
|
|
|
7
|
|
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
12
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|||
Item 3.
Controls and Procedures
|
|
|
18
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PART
II. OTHER INFORMATION
|
|
|
|
|
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
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|||
Item 6.
Exhibits
|
|
|
19
|
|
SIGNATURES
|
|
|
20
|
|
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
ASSETS
|
|||||||
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
51,161
|
$
|
746,581
|
|||
Short-term
investments
|
3,655,264
|
4,500,000
|
|||||
Accounts
receivable, less allowances: 2006: $18,697; 2005: $18,697
|
181,481
|
244,100
|
|||||
Inventory
|
903,067
|
814,548
|
|||||
Prepaid
expenses and other current assets
|
354,882
|
358,306
|
|||||
Total
current assets
|
5,145,855
|
6,663,535
|
|||||
Property
and equipment, net
|
1,040,944
|
1,143,309
|
|||||
Other
assets
|
17,731
|
17,731
|
|||||
Total
assets
|
$
|
6,204,530
|
$
|
7,824,575
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
843,355
|
$
|
766,158
|
|||
Accrued
expenses
|
469,734
|
451,109
|
|||||
Accrued
severance expense
|
318,250
|
318,250
|
|||||
Note
Payable - short-term portion
|
387,735
|
295,838
|
|||||
Total
current liabilities
|
2,019,074
|
1,831,355
|
|||||
Note
Payable - long-term portion
|
421,880
|
613,727
|
|||||
Total
Liabilities
|
2,440,954
|
2,445,082
|
|||||
Stockholders'
equity
|
|||||||
Common
stock
|
12,317
|
12,313
|
|||||
Additional
paid-in capital
|
53,143,712
|
54,848,711
|
|||||
Deferred
compensation
|
-
|
(2,189,511
|
)
|
||||
Accumulated
other comprehensive loss
|
(102,106
|
)
|
(49,137
|
)
|
|||
Accumulated
deficit
|
(49,290,347
|
)
|
(47,242,883
|
)
|
|||
Total
stockholders' equity
|
3,763,576
|
5,379,493
|
|||||
Total
liabilities and stockholders' equity
|
$
|
6,204,530
|
$
|
7,824,575
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Contract
revenues
|
-
|
$
|
1,750,000
|
||||
Net
product revenues
|
$
|
174,360
|
151,665
|
||||
Net revenues
|
174,360
|
1,901,665
|
|||||
Cost
of product revenue
|
127,550
|
135,368
|
|||||
Inventory
write-down
|
18,790
|
-
|
|||||
Cost
of goods sold
|
146,340
|
135,368
|
|||||
Gross
profit
|
28,020
|
1,766,297
|
|||||
Operating
expenses:
|
|||||||
Research and development
|
315,627
|
462,701
|
|||||
Selling, general and administrative
|
1,798,529
|
1,752,488
|
|||||
Total
operating expenses
|
2,114,156
|
2,215,189
|
|||||
Loss
from operations
|
(2,086,136
|
)
|
(448,892
|
)
|
|||
Interest
income
|
38,672
|
56,005
|
|||||
Net
loss
|
$
|
(2,047,464
|
)
|
$
|
(392,887
|
)
|
|
Basic
and diluted net loss per common share
|
$
|
(0.17
|
)
|
$
|
(0.03
|
)
|
|
Shares
used in computing basic and diluted net loss
|
|||||||
per common share
|
12,314,294
|
12,150,956
|
Three
Months Ended
March
31,
|
|||||||
2006
|
2005
|
||||||
Operating
activities:
|
|||||||
Net
loss
|
$
|
(2,047,464
|
)
|
$
|
(392,887
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
|
47,093
|
73,775
|
|||||
Noncash stock-based compensation
|
483,076
|
167,330
|
|||||
(Increase)
decrease in operating assets:
|
|||||||
Accounts receivable
|
66,308
|
(46,515
|
)
|
||||
Inventory
|
(71,228
|
)
|
66,474
|
||||
Prepaid expenses and other current assets
|
3,400
|
(40,479
|
)
|
||||
Other assets
|
-
|
(1,500
|
)
|
||||
Increase
(decrease) in operating liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
(24,133
|
)
|
(10,972
|
)
|
|||
Deferred
revenue
|
-
|
(23,663
|
)
|
||||
Net
cash used in operating activities
|
(1,542,948
|
)
|
(208,437
|
)
|
|||
Investing
activities
|
|||||||
Purchase of property and equipment
|
-
|
(112,064
|
)
|
||||
Redemption of short-term investments
|
844,736
|
||||||
Net
cash provided by (used in) investing activities
|
844,736
|
(112,064
|
)
|
||||
Financing
activities
|
|||||||
Proceeds from private placement of common stock
|
-
|
955,521
|
|||||
Adjustment to proceeds from IPO of common stock
|
-
|
44,361
|
|||||
Proceeds from exercise of stock options
|
1,440
|
-
|
|||||
Net
cash provided by financing activities
|
1,440
|
999,882
|
|||||
Effect
of exchange rates on cash
|
1,352
|
(83,469
|
)
|
||||
Net
(decrease) / increase in cash and cash equivalents
|
(695,420
|
)
|
595,912
|
||||
Cash and cash equivalents, beginning of period
|
746,581
|
3,719,181
|
|||||
Cash and cash equivalents, end of period
|
$
|
51,161
|
$
|
4,315,093
|
Accumulated
|
||||||||||||||||||||||
|
Additional
|
Other
|
||||||||||||||||||||
Common
Stock
|
Deferred
|
Paid-in
|
Comprehensive
|
Accumulated
|
||||||||||||||||||
Shares
|
Amount
|
Compensation
|
Capital
|
Income
|
Deficit
|
Total
|
||||||||||||||||
Balance,
December 31, 2004
|
12,120,248
|
$
|
12,120
|
$
|
(2,479,317
|
)
|
$
|
53,740,171
|
$
|
152,373
|
$
|
(41,774,706
|
)
|
$
|
9,650,641
|
|||||||
Comprehensive
loss:
|
||||||||||||||||||||||
Net loss
|
-
|
-
|
-
|
-
|
-
|
(5,468,177
|
)
|
(5,468,177
|
)
|
|||||||||||||
Net unrealized losses on foreign currency translation
|
-
|
-
|
-
|
-
|
(205,570
|
)
|
-
|
(205,570
|
)
|
|||||||||||||
Net unrealized gains on available-for-sale securites
|
- | - | - | - |
4,060
|
- |
4,060
|
|||||||||||||||
Comprehensive loss
|
(5,669,687
|
)
|
||||||||||||||||||||
Amortization
of deferred compensation
|
-
|
-
|
378,430
|
-
|
-
|
378,430
|
||||||||||||||||
Issuance
of Noncash stock-based compensation
|
(173,347
|
)
|
173,347
|
|||||||||||||||||||
Cancelled
stock options due to terminations
|
-
|
-
|
84,723
|
(84,723
|
)
|
-
|
-
|
-
|
||||||||||||||
Exercise
of stock options
|
8,996
|
9
|
-
|
2,870
|
-
|
-
|
2,879
|
|||||||||||||||
Adjustment
to issuance of common stock in
|
||||||||||||||||||||||
connection with initial public offering
|
-
|
-
|
-
|
44,361
|
-
|
-
|
44,361
|
|||||||||||||||
Issuance
of common stock in connection with
|
||||||||||||||||||||||
private placement
|
184,250
|
184
|
-
|
955,337
|
-
|
-
|
955,521
|
|||||||||||||||
Issuance
of warrants in connection with
|
||||||||||||||||||||||
settelement of legal proceedings
|
-
|
-
|
-
|
17,348
|
-
|
-
|
17,348
|
|||||||||||||||
Balance,
December 31, 2005
|
12,313,494
|
12,313
|
(2,189,511
|
)
|
54,848,711
|
(49,137
|
)
|
(47,242,883
|
)
|
5,379,493
|
||||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||
Net loss
|
(2,047,464
|
)
|
(2,047,464
|
)
|
||||||||||||||||||
Net unrealized losses on foreign currency translation
|
(52,969
|
)
|
(52,969
|
)
|
||||||||||||||||||
Comprehensive loss
|
(2,100,433
|
)
|
||||||||||||||||||||
Elimination
of deferred compensation
|
2,189,511
|
(2,189,511
|
)
|
-
|
||||||||||||||||||
Noncash
stock-based compensation
|
483,076
|
483,076
|
||||||||||||||||||||
Exercise
of stock options
|
4,498
|
4
|
1,436
|
1,440
|
||||||||||||||||||
Balance,
March 31, 2006 (unaudited)
|
12,317,992
|
$
|
12,317
|
$
|
-
|
$
|
53,143,712
|
$
|
(102,106
|
)
|
$
|
(49,290,347
|
)
|
$
|
3,763,576
|
Three
Months Ended March 31,
|
|||||||
2006
|
2005
|
||||||
Expected
Volatility
|
65
% to 92
|
%
|
80
|
%
|
|||
Risk-free
interest rate
|
4.3
% to 4.8
|
%
|
4.0
|
%
|
|||
Expected
life of options (in years)
|
5.8
to 6.0
|
7.0
|
|
Three
Months Ended
March
31, 2005
|
||||||
Net
loss as reported
|
$
|
(392,887
|
)
|
||||
Add
back: compensation expense recorded under the intrinsic
method
|
167,330
|
||||||
Deduct:
compensation expense under the fair value method
|
(249,362
|
)
|
|||||
Pro
forma net loss using the fair value method
|
$
|
(474,919
|
)
|
||||
Net
loss per share:
|
|||||||
As reported
|
$
|
(0.03
|
)
|
||||
Pro forma
|
$
|
(0.04
|
)
|
Weighted-
|
|||||||
Average
|
|||||||
Number
of
|
Exercise
|
||||||
Options
|
Price
|
||||||
Outstanding
at January 1, 2006
|
1,884,537
|
$
|
1.91
|
||||
Granted
|
200,500
|
2.12
|
|||||
Exercised
|
(4,499
|
)
|
0.32
|
||||
Canceled
or expired
|
(123,753
|
)
|
2.60
|
||||
Outstanding
at March 31, 2006
|
1,956,785
|
$
|
1.88
|
||||
Exercisable
at March 31, 2006
|
1,317,902
|
$
|
1.53
|
March31,
2006
|
December
31, 2005
|
||||||
Raw Materials |
$
|
166,394
|
$ | 153,299 | |||
Finished Goods |
736,673
|
661,249 | |||||
Total Inventory |
$
|
903,067
|
$ | 814,548 |
· |
OLpūr
MDHDF filter series (currently consisting
of our MD190 and MD220 diafilters) designed expressly for HDF therapy
and
employing our proprietary Mid-Dilution Diafiltration
technology;
|
· |
OLpūr
H2H,
our add-on module designed to allow the most common types of hemodialysis
machines to be used for HDF therapy;
and
|
· |
OLpūr NS2000
system, our stand-alone HDF machine and associated filter
technology.
|
· |
advancing
our
OLpūr H2H
product development in order to eventually apply for regulatory approval
for the OLpūr H2H
product in the European Community which we have targeted for the
third
quarter of 2006;
|
· |
advancing
our OLpūr H2H
product development in order to eventually
apply for regulatory approval for the OLpūr H2H
and the OLpūr MD190 in the United States which we have targeted
for the second half of 2006;
|
· |
advancing
our OLpūr NS2000 product development in conjunction with a
European dialysis machine manufacturer in order to eventually obtain
regulatory approval in the European Community and in the United States
in
2007; and
|
· |
developing
alternative configurations using our proprietary water filtration
technology to address a growing range of market
opportunities.
|
(1) |
the
completion and success of additional clinical trials and of our regulatory
approval processes for each of our products in our target
territories;
|
(2) |
the
market acceptance of HDF therapy in the United States and of our
technologies and products in each of our target
markets;
|
(3) |
our
ability to effectively and efficiently manufacture, market and distribute
our products;
|
(4) |
our
ability to sell our products at competitive prices which exceed our
per
unit costs; and
|
(5) |
the
consolidation of dialysis clinics into larger clinical
groups.
|
• |
the
market acceptance of our products, and our ability to effectively
and
efficiently produce and market our
products;
|
• |
the
availability of additional financing, through the sale of equity
securities or otherwise, on commercially reasonable terms or at
all;
|
• |
the
timing and costs associated with obtaining the CE mark for products
other than our OLpūr MDHDF filter series, for which the CE mark was
obtained in July 2003, or United States regulatory
approval;
|
• |
the
continued progress in and the costs of clinical studies and other
research
and development programs;
|
• |
the
costs involved in filing and enforcing patent claims and the status
of
competitive products; and
|
• |
the
cost of litigation, including potential patent litigation and any
other
actual or threatened litigation.
|
• |
for
the marketing and sales of our
products;
|
• |
to
complete certain clinical studies, obtain appropriate regulatory
approvals
and expand our research and development with respect to our ESRD
therapy
products;
|
• |
to
continue our ESRD therapy product
engineering;
|
• |
to
pursue business opportunities with respect to our DSU water-filtration
product;
|
• |
to
pay the Receiver of Lancer Offshore, Inc. amounts due under the settlement
with respect to the Ancillary Proceeding between us and the Receiver
(see
Note 5 to our Condensed Consolidated Financial Statements for additional
information regarding such
payment);
|
• |
to
pay a former supplier, Plexus Services Corp., amounts due under our
settlement agreement; and
|
• |
for
working capital purposes and for additional professional fees and
expenses
and other operating costs.
|
· |
products
that appeared promising in research or clinical trials to us may
not
demonstrate anticipated efficacy, safety or cost savings in subsequent
pre-clinical or clinical trials;
|
· |
we
may not obtain appropriate or necessary governmental or regulatory
approvals to achieve our business plan;
|
· |
product
orders may be cancelled, patients currently using our products may
cease
to do so, patients expected to begin using our products may not and
we may
not be able to bring on new patients at the rate originally anticipated;
|
· |
we
may not be able to obtain funding if and when needed or on terms
favorable
to the Company;
|
· |
we
may encounter unanticipated internal control deficiencies or weaknesses
or
ineffective disclosure controls and
procedures;
|
· |
HDF
therapy may not be accepted in the United States and/or our technology
and
products may not be accepted in current or future target markets,
which
could lead to failure to achieve market penetration of our
products;
|
· |
we
may not be able to sell our products at competitive prices or
profitably;
|
· |
we
may not be able to secure or enforce adequate legal protection, including
patent protection, for our
products;
|
· |
FDA
approval relating to our OLpūr HD190 filter may not facilitate or have any
effect on the regulatory approval process for our other
products;
|
· |
we
may not be able to achieve sales growth in Europe or expand into
other key
geographic markets;
|
· |
we
may not be able to continue as a going concern;
and
|
· |
we
may not be able to meet the American Stock Exchange’s continued listing
standards and
as a result, we may receive a delisting notice from the American
Stock
Exchange.
|
· |
Monthly
meetings to address all expense and accrual activity focusing on
analysis
of budget variances. Meetings are led by the Chief Financial Officer
and
attended by the Chief Executive Officer and other functional departmental
executives; and
|
· |
Engaging
outside accounting services and to support and supplement our internal
staff and enhance our internal controls over accounting and related
areas.
|
31.1
|
Certification
by the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31.2
|
|
Certification
by the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification
by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
|
Certification
by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
31.1
|
Certification
by the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31.2
|
|
Certification
by the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification
by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
|
Certification
by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|