Cytosorbents Corp. 10-Q Summary (Q1 2010)
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2010, for Cytosorbents Corp. (f/k/a MedaSorb Technologies Corporation). The company is classified as a development stage company focused on the research, development, and commercialization of a blood purification device (CytoSorb) for the treatment of sepsis and other acute conditions. The company has not yet generated revenue and is dependent on future financings to fund operations. As of May 12, 2010, there were 97,414,829 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 | YTD Inception (Mar 31, 2010) |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(969,051) | $(760,151) | $(76,725,457) |
| Net Loss to Common Shareholders | $(1,750,415) | $(930,725) | $(80,652,936) |
| Cash and Cash Equivalents | $1,346,301 | $2,154,795 | $1,346,301 |
| Total Assets | $1,688,131 | $2,238,480 (Dec 31, 2009) | $1,688,131 |
| Total Liabilities | $1,320,771 | $970,765 (Dec 31, 2009) | $1,320,771 |
| Accumulated Deficit | $(80,652,936) | $(78,902,521) (Dec 31, 2009) | $(80,652,936) |
| Net Cash Used in Operating Activities | $(421,827) | $(784,111) | $(56,693,451) |
| Net Cash Provided by Financing Activities | $172,500 | $0 | $62,302,008 |
Debt: The company issued a $172,500 promissory note in January 2010 bearing 5% interest. This note is convertible into equity upon a future financing event.
Material Changes vs. Prior Period
- Increased Losses: Net loss increased by approximately 27% compared to Q1 2009, driven primarily by higher Research and Development (R&D) expenses ($681,215 vs. $488,555) and a significant non-cash charge for preferred stock dividends ($781,364).
- Stock Dividends: The company recorded non-cash stock dividends of $781,364 in Q1 2010, a change from the prior period. This included a change in valuation methodology for preferred stock dividends, increasing the charge by approximately $598,000.
- Equity Conversions: During the quarter, 2,968.40 Series B Preferred Shares and 500,000 Series A Preferred Shares were converted into 13,200,000 shares of Common Stock.
- Liquidity: Cash balances decreased by $249,327 from the beginning of the period, primarily due to operating cash outflows, partially offset by proceeds from a new note payable.
Outlook, Risks, and Management Commentary
- Going Concern: The financial statements are prepared on a going concern basis, but the company has a substantial accumulated deficit and negative cash flows. Management believes current cash is sufficient to fund operations into the third quarter of 2010, after which additional funding is required.
- Financing: In May 2010 (subsequent to the period end), the company entered into a purchase agreement with Lincoln Park Capital Fund, LLC, allowing for the potential purchase of up to $6 million of common stock over 750 days.
- Clinical Trials: The company is conducting a clinical study in Germany for its CytoSorb device. As of the report date, 63 patients had been enrolled out of a target of 100. Enrollment has been slower than anticipated, but the company has increased the number of clinical sites to improve recruitment. Completion is expected between late 2010 and early 2011.
- Risks: Primary risks include the inability to secure additional financing, failure to obtain regulatory approvals (CE Mark in Europe or FDA in the US), and the uncertainty of clinical trial outcomes. The company has no revenue and no assurance of future commercial success.
- Legal: A trademark dispute with Alkermes, Inc. regarding the name "MedaSorb" was settled in 2008, resulting in the company's name change to Cytosorbents.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $1.35 million cash balance to fund operations through Q3 2010 and the status of the $6 million financing agreement with Lincoln Park Capital.
- Clinical Enrollment: Monitor the progress of the German clinical trial, specifically the rate of patient enrollment and the safety/efficacy data required for CE Mark submission.
- Dilution: Assess the impact of the significant number of outstanding warrants (approx. 20.8 million) and options (approx. 26.2 million) on future share dilution.
- Regulatory Path: Confirm the timeline and requirements for obtaining the CE Mark in Europe and the subsequent strategy for FDA approval in the US.
- Debt Conversion: Review the terms of the $172,500 convertible note and the potential for further equity dilution upon conversion.