Cytosorbents Corp. 10-Q Summary: Period Ended September 30, 2010
Business Context and Reporting Period
Cytosorbents Corp. (f/k/a MedaSorb Technologies Corporation) is a development-stage company focused on the research, development, and commercialization of a blood purification technology (CytoSorb) for treating sepsis and other acute conditions. The company has not generated any revenue to date and is currently conducting a clinical trial in Europe to seek CE Mark approval. This report covers the quarterly period ended September 30, 2010, and the nine-month period ended on that date. The company is classified as a smaller reporting company and a shell company is not applicable.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2009 | Balance Sheet (Sep 30, 2010) |
|---|---|---|---|
| Revenue | $0 | $0 | N/A |
| Net Loss | $(2,433,765) | $(2,453,154) | N/A |
| Accumulated Deficit | N/A | N/A | $(82,933,087) |
| Cash and Cash Equivalents | N/A | N/A | $758,224 |
| Total Current Liabilities | N/A | N/A | $2,037,809 |
| Convertible Notes Payable | N/A | N/A | $871,688 (net of discount) |
| Stockholders' Equity (Deficit) | N/A | N/A | $(927,543) |
Operating Expenses (Nine Months 2010): Research and Development ($1,560,146), General and Administrative ($620,061), and Legal/Financial Consulting ($242,604). Total expenses were $2,422,811.
Cash Flow: Net cash used in operating activities was $1,809,086. Net cash provided by financing activities was $994,750, primarily from proceeds from borrowings ($977,250) and equity contributions ($17,500).
Material Changes vs. Prior Period
- Liquidity Decline: Cash and cash equivalents decreased from $1,595,628 at December 31, 2009, to $758,224 at September 30, 2010, a reduction of approximately 52%.
- Debt Increase: The company issued new convertible promissory notes in August 2010 totaling $977,250, resulting in a current liability of $871,688 (net of debt discount). No such notes were outstanding at the prior year-end.
- Equity Structure: Significant conversions occurred during the period. 12,862.78 Series B Preferred Shares and 819,563 Series A Preferred Shares were converted into approximately 43.7 million shares of Common Stock.
- Stock Dividends: The company recorded non-cash stock dividends of $1,596,801, an increase driven by a change in the valuation methodology for preferred stock dividends.
Outlook, Risks, and Management Commentary
Going Concern: The company has incurred significant losses since inception and has a substantial accumulated deficit. Management states that these matters raise substantial doubt about the company's ability to continue as a going concern. The company is dependent on future financings to fund operations.
Clinical Progress: The company is conducting a clinical study in Germany for the CytoSorb device. As of the report date, 85 patients had been enrolled, with plans to enroll up to 100. The company achieved ISO 13485 certification in September 2010. Management expects to complete enrollment by the first quarter of 2011, pending funding.
Financing Strategy: The company has a Purchase Agreement with Lincoln Park Capital Fund, LLC, allowing for the sale of up to $6 million of common stock over 750 days. In October and November 2010 (subsequent to the period end), the company sold approximately $400,000 of stock under this agreement and issued additional convertible notes of $258,000.
Risks: Primary risks include the inability to secure additional financing, failure to obtain regulatory approvals (CE Mark or FDA), and the uncertainty of clinical trial outcomes. The company has no assurance that it will successfully commercialize its products.
Investor Verification Checklist
- Cash Runway: Verify if the $758,224 cash balance and subsequent financing (LPC agreement and new notes) are sufficient to fund operations through the completion of the European clinical trial (expected Q1 2011).
- Dilution Impact: Assess the impact of the 43.7 million common shares issued via preferred stock conversion and the potential dilution from the $6 million LPC Purchase Agreement and outstanding warrants (approx. 30 million shares).
- Debt Terms: Review the terms of the convertible notes (8% interest, conversion at $0.10/share) and the associated warrant coverage, which could significantly increase the share count upon conversion.
- Regulatory Milestones: Monitor the status of the German clinical trial enrollment and the timeline for the CE Mark application submission.
- Going Concern Status: Confirm the company's ability to raise capital in the current market environment given the substantial accumulated deficit of over $82 million.