Minnesota
|
3842
|
33-1007393
|
||
(State or other jurisdiction
of incorporation or
organization)
|
(Primary Standard Industrial
Classification Code
Number)
|
(I.R.S. Employer
Identification No.)
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer (Do not check if a smaller reporting company) o
|
Smaller
reporting company x
|
Title of each class of
securities to be registered
|
|
|
Amount to
be
Registered
|
|
Proposed
maximum
offering
price
per share
|
|
Proposed
maximum
aggregate
offering
price
|
|
|
Amount of
registration
fee
|
||||||
Common
stock, $0.01 par value (1)
|
7,101,266
|
N/A
|
$
|
2,485,443
|
$
|
97.68
|
||||||||||
Common
stock underlying warrants to purchase common
stock (2)
|
4,689,291
|
$
|
.46
|
$
|
2,157,074
|
$
|
84.77
|
|||||||||
Common
stock underlying convertible debentures (1)
|
620,095
|
N/A
|
$
|
217,034
|
$
|
8.53
|
||||||||||
Common
stock underlying warrants (3)
|
620,095
|
$
|
.42
|
$
|
217,034
|
$
|
8.53
|
|||||||||
TOTAL
|
13,030,747
|
N/A
|
$
|
5,076,585
|
$
|
199.51
|
(1)
|
Estimated
solely for the purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as amended. As a result,
only the title of class of securities to be registered, the proposed
maximum aggregate offering price and the amount of registration fee need
to appear in this Calculation of Registration Fee
table.
|
(2)
|
Calculated
in accordance with Rule 457 (g) under the Securities Act on the basis of
an exercise price of $.46 per share.
|
(3)
|
Calculated
in accordance with Rule 457 (g) under the Securities Act on the basis of
an exercise price of $.35 per
share.
|
•
|
7,101,266
shares of common stock;
|
|
•
|
5,309,386
shares of common stock underlying common stock purchase warrants, which
includes 4,689,291 and 620,095 shares of common stock underlying warrants
issued in conjunction with an October 2008 financing and bridge loans we
undertook in July 2007, respectively; and
|
|
•
|
620,095
shares of common stock underlying the convertible
notes.
|
Page
|
||
Prospectus
Summary
|
1
|
|
Risk
Factors
|
3
|
|
Special
Note Regarding Forward-Looking Statements
|
13
|
|
Use
of Proceeds
|
14
|
|
Determination
of Offering Price
|
15
|
|
Market
Price of Dividends on the Registrant’s Common Equity and Related
Stockholder Matters
|
16
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
20
|
|
Description
of Business
|
34
|
|
Legal
Proceedings
|
58
|
|
Description
of Property
|
58
|
|
Directors,
Executive Officers, Promoters and Control Persons
|
59
|
|
Executive
Compensation
|
63
|
|
Corporate
Governance
|
69
|
|
Certain
Relationships and Related Transactions
|
70
|
|
Selling
Security Holders
|
71
|
|
Plan
of Distribution
|
74
|
|
Security
Ownership of Certain Beneficial Owners and Management
|
76
|
|
Description
of Securities
|
78
|
|
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
|
80
|
|
Where
You Can Find More Information
|
84
|
|
Experts
|
84
|
|
Legal
Matters and Interests of Named Experts
|
84
|
|
Financial
Information
|
85
|
|
Exhibits
|
II-8
|
|
Signatures
|
II-12
|
•
|
5,816,577
shares of common stock issuable upon the exercise of warrants having a
range of exercise prices from $.02 to $3.76 per share (consisting of
5,309,386 shares of common stock underlying the warrants we are
registering pursuant to this registration statement; 507,191 shares of
common stock reserved for issuance upon the exercise of outstanding
warrants granted to certain investors and
consultants.
|
|
•
|
outstanding
options to purchase 1,131,174 shares of our common
stock;
|
|
•
|
975,405
shares of common stock reserved for issuance under our 2008 Equity
Incentive Plan;
|
|
•
|
620,095
shares of common stock issuable upon conversion of debt we obtained in
July 2007; and
|
•
|
297,142
shares subject to issuance upon conversion of certain
notes.
|
•
|
7,101,266
shares of common stock;
|
|
•
|
5,309,386
shares of common stock underlying common stock purchase warrants, which
includes 620,095 shares of common stock underlying warrants issued in
conjunction with a bridge loan we undertook in July 2007;
and
|
|
•
|
620,095
shares of common stock underlying the convertible
notes.
|
•
|
Raise
capital;
|
|
•
|
Develop
and implement our business plan in a timely and effective
manner;
|
|
•
|
Be
successful in uncertain markets;
|
|
•
|
Respond
effectively to competitive pressures;
|
|
•
|
Successfully
address intellectual property issues of others;
|
|
•
|
Protect
and expand our intellectual property rights; and
|
|
•
|
Continue
to develop and upgrade our
products.
|
1.
|
All
Company assets will be distributed to a wholly-owned subsidiary
(“Privco”). Privco will have the identical number of common shares
outstanding as the Company. The Investors will have the same percentage
ownership of Privco that they had in the Company and will maintain their
shares of Company common stock.
|
2.
|
BioDrain’s
original shareholders (the “Founders”) will cancel all Company stock held
by the Founders and the Founders will no longer own any Company equity.
Ownership of shares of the Company’s common stock by the Investors would
not be affected.
|
|
3.
|
In
consideration of such cancellation, the Founders will receive Privco stock
and options so that the Founders have the same percentage ownership of
Privco that it had in the Company. The Company will retain the rest of
Privco equity.
|
|
4.
|
All
Company stock options will be cancelled and replaced with Privco stock
options.
|
|
5.
|
The
Company will have new directors and officers selected by
Investors.
|
|
6.
|
In
the event of a reverse merger or other similar transaction with a new
operating business, the Company will either spin-off the remaining Privco
equity to the remaining Company shareholders or liquidate the Privco
securities and distribute any net proceeds to the Company
shareholders.
|
•
|
the
willingness and ability of customers to adopt new
technologies;
|
|
•
|
our
ability to convince prospective strategic partners and customers that our
technology is an attractive alternative to conventional methods used by
the medical industry;
|
•
|
our
ability to select and execute agreements with effective distributors and
manufacturers representatives to market and sell our product;
and
|
|
•
|
our
ability to assure customer use of the BioDrain proprietary cleaning
fluid.
|
•
|
our
ability to raise capital when we need it;
|
|
•
|
our
ability to market and distribute or sell our
Fluid
Management System (FMS) and related products; and
|
|
•
|
our
ability to protect our intellectual property and operate our business
without infringing upon the intellectual property rights of
others.
|
(i)
|
incentive
stock options, as defined in Section 422 of the Internal Revenue Code of
1986 (the “Code”);
|
|
(ii)
|
nonqualified
stock options, defined as any option granted under the Plan other than an
incentive stock option;
|
|
(iii)
|
stock
appreciation rights (“SARs”), defined as an award granted under the Plan
that is exercisable either in lieu of options, in addition to options,
independent of options or in any combination thereof, which, upon
exercise, entitles the holder to receive payment of an amount determined
by multiplying (a) the difference between the fair market value of a share
on the date of exercise and the exercise price established by the
administrator of the Plan on the date of grant by (b) the number of shares
with respect to which the SAR is exercised, the payment of which will be
made in cash or stock; or
|
(iv)
|
restricted
stock, defined as stock granted under the Plan that is subject to
restrictions on sale, transfer, pledge, or
assignment.
|
Expense
Item
|
Amount
|
Total
|
|||||
Accrued
payroll expense as of September 30, 2008
|
$
|
$
|
240,000
|
||||
Inception
through November 2007
|
115,000
|
||||||
December
2007 through April 2008
|
121,000
|
||||||
FDA
and electrical safety testing approval expenses
|
222,000
|
||||||
Expected
expenses in connection with our current offering
|
225,200
|
||||||
SEC
registration fee
|
200
|
||||||
Printing
fees
|
30,000
|
||||||
Legal
fees and expenses
|
80,000
|
||||||
Accounting
fees and expenses
|
60,000
|
||||||
Miscellaneous
|
55,000
|
||||||
Financing
fees owed in connection with our current offering (1)
|
0
|
||||||
Outstanding
debt payments to:
|
450,000
|
||||||
Carl
and Roy Moore
|
100,000
|
||||||
Marshall
C. Ryan
|
100,000
|
||||||
Richardson
& Patel LLP
|
100,000
|
||||||
Larkin
Hoffman
|
100,000
|
||||||
Andcor
Companies, Inc.
|
50,000
|
||||||
Other
operating expenses
|
1,200,000
|
||||||
Market
expansion to Europe and Pacific Rim
|
500,000
|
||||||
Personnel
additions
|
200,000
|
||||||
Miscellaneous
|
100,000
|
||||||
Total
|
$
|
3,137,200
|
(1)
|
All
fees were withheld by the broker of our current
offering.
|
|
Payment Due by Period as of September 30
|
|
||||||||||||||||||
Total
|
Less than 1
Year
|
1-3 Years
|
4-5 Years
|
After 5
Years
|
||||||||||||||||
Long
Term Debt
|
$
|
315,359
|
$
|
185,800
|
$
|
25,300
|
$
|
107,300
|
—
|
|||||||||||
Operating
Leases
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Capital
Leases
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Total
Contractual Cash Obligations
|
$
|
315,359
|
$
|
185,800
|
$
|
25,300
|
$
|
107,300
|
—
|
|
|
September 30,
|
|
|||||
2008
|
2007
|
|||||||
Notes
payable to several individuals due April 2008 including 8% fixed interest
and is now overdue. The notes are convertible into 620,096 shares of the
Company’s common stock and automatically convert at the effective date of
this registration statement.
|
$
|
170,000
|
$
|
—
|
||||
Note
payable to bank in monthly installments of $1,275/including variable
interest at 2% above the prevailing prime rate (6.00% at September 30,
2008) to August 2011 when the remaining balance is payable. The note is
personally guaranteed by executives of the Company.
|
41,359
|
49,901
|
||||||
Note
payable to NWBDC with interest only payments at 8% to December 2008 when
the remaining balance is payable. The note is personally guaranteed by
executives of the Company.
|
—
|
18,000
|
||||||
|
||||||||
Notes
payable to two individuals in interest only payments at 12% to March 2012
when the remaining balance is payable. The notes are convertible into
285,715 shares of stock in the Company at $.35 per
share.
|
100,000
|
100,000
|
||||||
Notes
payable to four shareholders of the Company that are overdue. The notes
are convertible into 11,429 shares of stock in the Company at $.35 per
share.
|
4,000
|
4,000
|
||||||
Total
|
315,359
|
181,901
|
||||||
Less
amount due within one year
|
185,800
|
39,900
|
||||||
Long-Term
Debt
|
$
|
129,559
|
$
|
142,001
|
1.
|
All
Company assets will be distributed to a wholly-owned subsidiary
(“Privco”). Privco will have the identical number of common shares
outstanding as the Company. The Investors will have the
same percentage ownership of Privco that they had in the Company and will
maintain their shares of Company common stock.
|
|
2.
|
BioDrain
Shareholders existing prior to the October 2008 financing (the “Founders”)
will cancel all Company stock held by the Founders and the Founders will
no longer own any Company equity. Ownership of shares of the Company’s
common stock by the Investors would not be
affected.
|
3.
|
In
consideration of such cancellation, the Founders will receive Privco stock
and options so that the Founders have the same percentage ownership of
Privco that it had in the Company. The Company will retain the rest of
Privco equity.
|
|
4.
|
All
Company stock options will be cancelled and replaced with Privco stock
options.
|
5.
|
The
Company will have new directors and officers selected by
Investors.
|
|
6.
|
In
the event of a reverse merger or other similar transaction with a new
operating business, the Company will either spin-off the remaining Privco
equity to the remaining Company shareholders or liquidate the Privco
securities and distribute any net proceeds to the Company
shareholders.
|
Stock Options (1)
|
Warrants (1)
|
|||||||||||||||
Number
of
Shares
|
Average
Exercise
Price
|
Number
of
Shares
|
Average
Exercise
Price
|
|||||||||||||
Outstanding
at December 31, 2005
|
17,956
|
$
|
1.67
|
20,950
|
$
|
2.62
|
||||||||||
Issued
|
23,942
|
1.67
|
71,826
|
0.85
|
||||||||||||
Outstanding
at December 31, 2006
|
41,898
|
$
|
1.67
|
92,776
|
$
|
1.25
|
||||||||||
Issued
|
5,985
|
1.67
|
28,502
|
0.35
|
||||||||||||
Outstanding
at December 31, 2007
|
47,882
|
$
|
1.67
|
121,278
|
$
|
1.04
|
||||||||||
Issued
|
1,083,292
|
0.17
|
5,075,204
|
0.45
|
||||||||||||
Outstanding
at September 30, 2008
|
1,131,174
|
$
|
0.24
|
5,196,482
|
0.47
|
Range of Exercise Prices
|
|
Shares
|
|
Weighted
Average
Remaining
Life
|
||
At
December 31, 2007:
|
||||||
Options:
|
||||||
$.35
|
11,970
|
4.37
|
||||
$1.67
|
41,898
|
3.31
|
||||
Warrants:
|
||||||
$0.02
|
35,913
|
5.45
|
||||
$0.35
|
|
28,502
|
4.17
|
|||
$1.67
|
44,892
|
3.69
|
||||
$3.34
|
11,971
|
0.79
|
||||
At
September 30, 2008:
|
||||||
Options:
|
||||||
$.01
|
543,292
|
9.68
|
||||
$.35
|
540,000
|
.57
|
||||
$1.67
|
47,882
|
2.75
|
||||
Warrants:
|
||||||
$0.02
|
71,826
|
5.70
|
||||
$0.35
|
28,502
|
3.42
|
||||
$0.46
|
4,889,291
|
2.63
|
||||
$1.67
|
44,892
|
2.94
|
||||
$3.76
|
11,971
|
0.04
|
Reverse Stock Split Table
|
||||||||||||
Number of Shares
|
Reverse
|
|||||||||||
Outstanding
|
Split Ratio
|
|||||||||||
Before
|
After
|
|||||||||||
As
of June 30, 2008:
|
||||||||||||
-
original shareholders
|
1,376,105
|
(1)
|
1,096,935
|
1.2545
|
||||||||
-
new investors, other
|
3,720,293
|
3,720,293
|
||||||||||
Total
|
5,096,398
|
4,817,228
|
||||||||||
As
of September 30, 2008:
|
||||||||||||
-
original shareholders
|
1,096,935
|
1,096,935
|
||||||||||
-
new investors, other
|
6,997,842
|
6,997,842
|
||||||||||
Total
|
8,094,237
|
8,094,237
|
||||||||||
As
of October 20, 2008:
|
||||||||||||
-
original shareholders
|
1,096,935
|
823,676
|
1.3317696
|
|||||||||
-
new investors, other
|
7,307,165
|
7,307,165
|
||||||||||
Total
|
8,403,560
|
8,130,841
|
||||||||||
As
of October 30, 2008 (closing date):
|
||||||||||||
-
original shareholders
|
823,676
|
|||||||||||
-
new investors, other
|
7,307,165
|
|||||||||||
Total
|
8,130,841
|
(1)
|
1,376,105
divided by 1.670705 equals
823,676.
|
Key
Feature Comparison
|
|||||||||||
Feature
|
BioDrain
Medical, Inc.
|
Stryker
Instruments
|
DeRoyal
|
Dornoch
Medical
Systems, Inc.
|
MD
Technologies,
Inc.
|
||||||
Portable
to Bedside vs. Fixed Installation
|
Fixed
|
Portable
|
Fixed
|
Portable
|
Fixed
|
||||||
Uses
Canisters
|
No
|
Yes
|
Yes
|
Yes
|
No
|
||||||
Secondary
Installed Device Required for Fluid Disposal
|
No
|
Yes
|
Yes
|
Yes
|
No
|
||||||
Numeric
Fluid Volume Measurement
|
Yes
|
Yes
|
No
|
Yes
|
Optional
|
||||||
Unlimited
Fluid Capacity
|
Yes
|
No
|
No
|
No
|
Yes
|
||||||
Installation
Requirements
|
|||||||||||
§Water
|
No
|
Yes
|
Yes
|
Yes
|
No
|
||||||
§Sewer
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
||||||
§Vacuum
|
Yes
|
Yes
|
Yes
|
Yes
|
Yes
|
•
|
Minimal
Human Interaction . The wall-mounted FMS
provides for a small internal reservoir that keeps surgical waste isolated
from medical personnel and disposes the medical waste directly into the
hospital sanitary sewer with minimal medical personnel interaction. This
minimal interaction is facilitated by the automated electronic controls
and computerized LCD touch-screen allowing for simple and safe single
touch operation of the
FMS.
|
•
|
Minimizes
Exposure . The FMS minimizes surgical team and cleaning crew
exposure to bloodborne pathogens, as the system is hands-free and fully
automated with electronic controls with regards to handling any waste
fluid. The FMS provides advanced fluid management technology in that it
eliminates the use of canisters, traditional or powered, for fluid
collection, is directly connected to the hospital sanitary sewer, provides
continuous flow of waste fluids from the operative field, allows
visualization of those fluids prior to disposal and provides measurement
of disposed fluids. It does not require any transport to and from the
operating room or any secondary procedure such as attachment to a
companion device for disposal of the waste
fluids
|
•
|
Fluid
Measurement . The
FMS volume measurement allows for in-process, accurate measurement of
blood/saline suctioned during the operative procedure, and eliminates much
of the estimation of fluid loss currently practiced in the operating room.
This will be particularly important in minimally invasive surgical
procedures, where accounting for all fluids, including saline added for
the procedure, is vital to the operation. The surgical team can view in
real time the color of the extracted or evacuated fluid through the
viewing window on the
FMS.
|
•
|
Disposable Cleaning Kit.
A single-use,
disposable cleaning kit that is used for the automated cleaning cycle at
the conclusion of each procedure prepares the FMS for the next use,
reducing operating room turnover time. The cleaning kit includes a
BioDrain proprietary cleaning fluid for cleaning the internal tubing,
pathways and chamber within the FMS unit and a disposable external
manifold required for each surgical procedure. The cleaning solution
bottle is attached to the FMS with a cleaning fluid adapter which is
designed to mate with the special connector on the FMS. One manifold will
be supplied with each bottle of cleaning fluid, attached to the bottle for
user convenience in securing all consumables needed for each use of the
FMS. The disposable cleaning fluid bottle collapses at the end of the
cleaning cycle rendering it unusable; therefore it cannot be refilled with
any other solution. The instructions for use clearly state that the FMS
cleaning fluid, and only the FMS cleaning fluid, must be used with the FMS
following each surgical case. The cleaning fluid should be a substantial
revenue generator for the life of the
FMS.
|
•
|
Ease
of Use . The FMS
simply connects to the existing suction tubing from the operative field
(causing no change to the current operative methods). Pressing the
START button on the FMS touch screen
causes the suction tip to operate similarly to preexisting systems,
thereby minimizing the learning curve for operation at the surgical
site.
|
•
|
Installation . BioDrain will arrange
installation of the FMS products through a partnership or group of
partnerships. Such partnerships will include but not be limited to being
executed with distribution partners, manufacturer's representatives,
hospital supply companies and the like. We will train our partners and
standardize the procedure to ensure the seamless installation of our
products. The FMS is designed for minimal interruption of operating room
and surgical room utilization. Plug-and-play features of the design allow
for almost immediate connection and hook up to hospital utilities for
wall-hung units allowing for quick start-up post
installation.
|
•
|
Sales
Channel Partners .
The FMS will be sold to end-users through a combination of independent
stocking distributors, manufacturers representatives and, possibly later,
direct sales personnel. All personnel involved in direct contact with the
end-user will have extensive training and will be approved by BioDrain.
Exclusive agreements will be in place between BioDrain and the sales
channel partners outlining stocking expectations, sales objectives, target
accounts, and the like. Contractual agreements with the sales channel
partners will be reviewed on an annual basis and could possibly be
terminated at any time by BioDrain based on certain specified
conditions.
|
•
|
Competitive
Pricing . Estimated end-user
pricing is expected to be in the range of $12,000 - $15,000 list per
system (one per operating room - installation extra) and $15 - $20 per
unit retail for the proprietary cleaning kit to the U.S. hospital market.
The distributor or channel partner then sets the final retail price based
on quantity discounts for multiple
installations.
|
n
|
Develop a
complete line of wall-installed fluid evacuation systems (“FMS”) for use
in hospitals and free standing surgery centers as well as clinics and
physicians’ offices. Initially, we have developed the
FMS to work in hospital operating rooms and surgical centers. This device
was developed for use with the wall vacuum suction currently installed in
hospitals. Opportunities for future products include an FMS developed for
post-operation and recovery rooms with multiple inlet ports and multiple
volume measurements.
|
n
|
Provide
products that greatly reduce worker and patient exposure to harmful
materials present in infectious fluids and that contribute to an adverse
working environment. As one of the only
stand-alone surgical fluid disposal systems directly connected to the
sanitary sewer, the FMS could advance the manner in which such material is
collected, measured and disposed of in operating rooms, post-operating
recovery, emergency rooms and intensive care settings by eliminating the
need to transport a device to the patient bedside and remove it for
emptying and cleaning at the end of the procedure. The cost of such
exposures, measured in terms of human suffering, disease management costs,
lost productivity, liability or litigation, will be, when properly
leveraged, the strongest motivating factor for facilities looking at
investing in the FMS line of
products..
|
n
|
Utilize
existing medical products independent distributors and manufacturers
representatives to achieve the desired market penetration. Contacts have been established
with several existing medical products distributors and manufacturers
representatives and interest has been generated regarding the sales of the
BioDrain FMS and cleaning kits. In addition to their normal sales
practices, the distributors will carry a significant supply of cleaning
kits for their current customers and could purchase an FMS for
demonstration to new potential
customers.
|
n
|
Continue to
utilize operating room consultants, builders and architects as referrals
to hospitals and day surgery centers. To date, referrals have been
received from this group resulting in several potential sales and a
potential beta site. These referrals have shortened the time frame for
contacting and demonstrating the FMS to potential customers as well as
providing us with valuable responses to the FMS from the customer base,
the vast majority of which have been extremely positive to
date.
|
n
|
Utilize a
Medical Advisory Board to assist in market penetration. We have set up a Medical Advisory
Board consisting of a pioneering surgeon, two operating room consultants
and a nurse anesthetist to assist us in understanding the needs of our
market and ways to better serve that market. From time to time executive
management may elect to change the composition of the Medical Advisory
Board, including but not limited to, expanding the size of the Medical
Advisory Board.
|
n
|
Employing a lean operating
structure, while utilizing the latest trends and technologies in
manufacturing and marketing, to achieve both market share growth and
projected profitability.
|
n
|
Providing a leasing program
and/or “pay per use” program as purchasing
alternatives.
|
n
|
Providing service contracts to
establish an additional revenue
stream.
|
n
|
Utilizing management team
contacts in global sourcing of key sub-assemblies to drive significant per
unit cost reduction at
volume.
|
n
|
Offering an innovative
warranty program that is contingent on the exclusive use of our disposable
cleaning kit to insure the success of our after-market disposable
products.
|
•
|
Direct
Disposal Through the Sanitary Sewer. In virtually all municipalities,
the disposal of liquid blood may be done directly to the sanitary sewer
where it is treated by the local waste management facility. This practice
is approved and recommended by the EPA. In most cases these municipalities
specifically request that disposed bio-materials not be treated with any
known anti-bacterial agents such as glutalderhyde, as these agents not
only neutralize potentially infectious agents but also work to defeat the
bacterial agents employed by the waste treatment facilities themselves.
Disposal through this method is fraught with potential exposure to the
service workers, putting them at risk for direct contact with these
potentially infectious agents through spillage of the contents or via
splash when the liquid is poured into a hopper - a specially designated
sink for the disposal of infectious fluids. Once the infectious fluids are
disposed of into the hopper, the empty canister is sent to central
processing for re-sterilization (glass and certain plastics) or for
disposal in the biohazardous/infectious waste generated by the hospital
(red-bagged).
|
•
|
Conversion to
Gel for Red-Bag Disposal. In many hospital systems the
handling of this liquid waste has become a liability issue due to worker
exposure incidents and in some cases has even been a point of contention
during nurse contract negotiations. Industry has responded to concerns of
nurses over splash and spillage contamination by developing a powder that,
when added to the fluid in the canisters, produces a viscous, gel-like
substance that can be handled more safely. After the case is completed and
final blood loss is calculated, a port on the top of each canister is
opened and the powder is poured into it. It takes several minutes for the
gel to form, after which the canisters are placed on a service cart and
removed to the red-bag disposal area for disposal with the other
infectious waste. There are four major drawbacks to this
system:
|
o
|
It does not ensure protection
for healthcare workers, as there remains the potential for splash when the
top of the canister is
opened.
|
o
|
Based on industry pricing
data, the total cost per canister increases by approximately
$2.00.
|
o
|
Disposal costs to the hospital
increase dramatically as shipping, handling and landfill costs are based
upon weight rather than volume in most municipalities. The weight of an
empty 2,500 ml canister is approximately one pound. A canister and its
gelled contents weigh approximately 7.5
pounds.
|
o
|
The canister filled with gelled
fluid must be disposed; it cannot be cleaned and re-sterilized for future
use.
|
•
|
OSHA (Occupational Safety and
Health Administration)
|
•
|
EPA (Environmental Protection
Agency)
|
•
|
DOT (Department of
Transportation)
|
•
|
JCAHO (Joint Commission of
Accreditation of
Hospitals)
|
•
|
NFPA (National Fire Protection
Association)
|
•
|
AIA (American Institute of
Architects)
|
•
|
AORN (Association of Operating
Room Nurses)
|
•
|
Specific state, county,
hospital or institution
guidelines
|
1.
|
Our contracted FDA consultant
will compile the following
documents:
|
a.
|
Electrical safety testing report
and conclusions from TUV SUD America,
Inc.,
|
b.
|
Risk and hazard analysis
documentation,
|
c.
|
BioDrain FMS product labeling
such as the instructions for use, preventative, maintenance schedules,
troubleshooting guidelines,
|
d.
|
Documentation regarding the
proprietary cleaning fluid and the labeling and instructions for use
related to the use of the proprietary cleaning
fluid,
|
e.
|
Software and hardware design
inputs and outputs including requirements related specifications and
documents, and
|
f.
|
Other documentation the FDA deems
necessary.
|
2.
|
Upon compiling these documents, a
510(k) Submittal Document will be drafted in the format instructed by the
FDA. This entire package, upon completion by the BioDrain FDA consultant
and approval by BioDrain management, will be submitted to a contracted
third party 510(k) reviewer, Mark Job of Regulatory Technical
Services.
|
3.
|
Mr. Job will review the BioDrain
submittal and a question and answer iteration will take place between us
and Regulatory Technical Services until he is satisfied with the BioDrain
submittal. Once satisfied, Mr. Job will submit the BioDrain 510(k)
Submittal Document and all necessary, related documentation directly to
the FDA.
|
4.
|
The FDA has thirty days to review
and respond to the BioDrain 510(k) Submittal. Similarly, a
question and answer iteration may take place between the FDA and Mr. Job
or Regulatory Technical Services regarding the submittal. BioDrain, at the
request and as needed by Mr. Jobor Regulatory Technical Services, will
take all necessary steps and actions to provide the answers to any and all
FDA inquires specific to the 510(k)
submittal.
|
5.
|
Upon successfully addressing the
FDA’s questions, BioDrain can expect to receive FDA 510(k) clearance for
the FMS device.
|
1.
|
All Company assets will be
distributed to a wholly-owned subsidiary (“Privco”). Privco will have the
identical number of common shares outstanding as the Company. The
Investors will have the same percentage ownership of Privco that they had
in the Company and will maintain their shares of Company common
stock.
|
2.
|
BioDrain Original Shareholders
(the “Founders”) will cancel all Company stock held by the Founders,
and the Founders
will no longer own any Company equity. Ownership of shares of the
Company’s common stock by the Investors would not be
affected.
|
3.
|
In consideration of such
cancellation, the Founders will receive Privco stock and options so that
the Founders have the same percentage ownership of Privco that it had in
the Company. The Company will retain the rest of Privco
equity.
|
4.
|
All Company stock options will
be cancelled and replaced with Privco stock
options.
|
5.
|
The Company will have new
directors and officers selected by
Investors.
|
6.
|
In the event of a reverse
merger or other similar transaction with a new operating business, the
Company will either spin-off the remaining Privco equity to the remaining
Company shareholders or liquidate the Privco securities and distribute any
net proceeds to the Company
shareholders.
|
Name
|
|
Number of
Shares
|
|
|
Percentage of
Common Stock
Outstanding
|
|||
Investors:
|
||||||||
Caron
Partners LP
|
246,500
|
3.0
|
%
|
|||||
Marc
I. Abrams
|
28,571
|
0.3
|
%
|
|||||
Douglas
Gold
|
203,571
|
2.5
|
%
|
|||||
Stuart
A. Liner
|
71,429
|
0.9
|
%
|
|||||
Steven
M & Sheila A. Gold
|
71,429
|
0.9
|
%
|
|||||
Tangiers
Investors, L.P.
|
142,857
|
1.7
|
%
|
|||||
MLPF&S:
Jerome Cowan
|
71,429
|
0.9
|
%
|
|||||
Jeremy
Roll
|
28,572
|
0.3
|
%
|
|||||
Bernard
& Twyla Vosika
|
71,429
|
0.9
|
%
|
|||||
Sally
& Naomi Maslon JTWROS
|
28,571
|
0.3
|
%
|
|||||
Michael
Sobeck
|
14,286
|
0.2
|
%
|
|||||
Cavalier
Consulting Corp.
|
71,429
|
0.9
|
%
|
|||||
RP
Capital
|
183,991
|
2.2
|
%
|
|||||
Brian
Weitman
|
42,599
|
0.5
|
%
|
|||||
Bellajule
Partners LP
|
102,429
|
1.3
|
%
|
|||||
Morris
Esquenazi
|
100,000
|
1.2
|
%
|
|||||
Schwartz
Holding
|
500,000
|
6.1
|
%
|
|||||
Jack
& Thelma Farbman
|
100,000
|
1.2
|
%
|
|||||
Morrie
R. Rubin
|
50,000
|
0.6
|
%
|
|||||
Lee
M. Terpstra & Orlando Stephenson
|
100,000
|
1.2
|
%
|
Investors
|
||||||||
Name
|
Number
of
Shares
|
Percentage of
Common Stock
Outstanding
|
||||||
Bernard
Puder Revocable Trust
|
430,000
|
5.3
|
%
|
|||||
Thomas
J. Klas
|
71,429
|
0.9
|
%
|
|||||
Chad
Ruwe
|
571,429
|
7.0
|
%
|
|||||
Peter
Abramowicz
|
57,143
|
0.7
|
%
|
|||||
Scott
R. Storick
|
100,000
|
1.2
|
%
|
|||||
James
Dauwalter Living Trust
|
571,429
|
7.0
|
%
|
|||||
CGMI
as IRA Custodian FBO John D. Villas
|
71,429
|
0.9
|
%
|
|||||
Stan
Geyer Living Trust
|
71,429
|
0.9
|
%
|
|||||
James
Taylor, IV
|
571,429
|
7.0
|
%
|
|||||
Gregory
B, Graves
|
42,857
|
0.5
|
%
|
|||||
Fenton
Fitzpatrick
|
8,571
|
0.1
|
%
|
|||||
Peter
Persad
|
71,429
|
0.9
|
%
|
|||||
Thomas
M. Pronesti
|
55,964
|
0.7
|
%
|
|||||
Craig
Kulman
|
38,821
|
0.5
|
%
|
|||||
Kulman
IR LLC
|
125,000
|
1.5
|
%
|
|||||
Cross
Street Partners, Inc.
|
125,000
|
1.5
|
%
|
|||||
Namaste
Financial, Inc.
|
125,000
|
1.5
|
%
|
|||||
Ryan
Hong
|
57,404
|
0.7
|
%
|
|||||
Richardson
& Patel LLP
|
60,714
|
0.7
|
%
|
|||||
Sean
Fitzpatrick
|
150,000
|
1.8
|
%
|
|||||
David
Baker
|
225,000
|
2.8
|
%
|
|||||
Si
Phillips
|
50,000
|
0.6
|
%
|
|||||
Cameron
Broumand
|
35,000
|
0.4
|
%
|
|||||
Sylvia
Karayan
|
11,646
|
0.1
|
%
|
|||||
Jason
Cavalier
|
15,000
|
0.2
|
%
|
|||||
Greg
Suess
|
104,114
|
1.3
|
%
|
|||||
Ben
Padnos
|
100,000
|
1.2
|
%
|
|||||
Nimish
Patel
|
412,411
|
5.0
|
%
|
|||||
Erick
Richardson
|
399,543
|
4.9
|
%
|
|||||
Mark
Abdou
|
32,907
|
0.4
|
%
|
|||||
Addison
Adams
|
8,227
|
0.1
|
%
|
|||||
Michael
Cavalier
|
8,227
|
0.1
|
%
|
|||||
Mick
Cavalier
|
8,227
|
0.1
|
%
|
|||||
Francis
Chen
|
2,334
|
0.0
|
%
|
|||||
Doug
Croxall
|
6,170
|
0.1
|
%
|
|||||
Jennifer
& Michael Donahue
|
28,009
|
0.3
|
%
|
|||||
Egavnit
LLC
|
13,710
|
0.2
|
%
|
|||||
Dan
Estrin
|
823
|
0.0
|
%
|
|||||
Kevin
Friedmann
|
1,440
|
0.0
|
%
|
|||||
Abdul
Ladha
|
4,114
|
0.1
|
%
|
|||||
Jody
Samuels
|
8,227
|
0.1
|
%
|
|||||
Yossi
Stern
|
10,284
|
0.1
|
%
|
|||||
Steve
Yakubov
|
10,284
|
0.1
|
%
|
|||||
Total
|
7,101,266
|
86.8
|
%
|
Name
|
|
Number of
Shares
|
|
|
Percentage of
Common Stock
Outstanding
|
|
||
Lawrence
W. Gadbaw
|
139,163
|
1.7
|
%
|
|||||
Peter
L. Morawetz
|
107,739
|
1.3
|
%
|
|||||
Gerald
D. Rice
|
85,294
|
1.0
|
%
|
|||||
Jay
D. Nord
|
102,336
|
1.3
|
%
|
|||||
Sophia
M. Nord, Trust
|
29,928
|
0.4
|
%
|
|||||
Emily
A. Nord, Trust
|
29,928
|
0.4
|
%
|
|||||
Jeffrey
K. Drogue
|
53,870
|
0.7
|
%
|
|||||
Jonathon
N. Drogue, Trust
|
29,928
|
0.4
|
%
|
|||||
Samantha
N. Drogue, Trust
|
29,928
|
0.4
|
%
|
|||||
Staci
M. Lauer (Spade)
|
35,913
|
0.4
|
%
|
|||||
Wisconsin
Rural Enterprise
|
37,709
|
0.5
|
%
|
|||||
Richard
E. & Carol A. Thurk
|
5,986
|
0.1
|
%
|
|||||
Thomas
W. Gadbaw
|
599
|
0.0
|
%
|
|||||
Gail
C. & Ginger L. Smith
|
2,993
|
0.0
|
%
|
|||||
Charles
W. Gadbaw
|
300
|
0.0
|
%
|
|||||
Judith
A. Bright
|
1,497
|
0.0
|
%
|
|||||
Marshall
C. Ryan
|
71,906
|
0.9
|
%
|
|||||
Alice
I. North
|
399
|
0.0
|
%
|
|||||
Arliss
A. Gadbaw
|
400
|
0.0
|
%
|
|||||
Gaynelle
A. Templin
|
399
|
0.0
|
%
|
|||||
Kevin
R. Davidson
|
29,928
|
0.4
|
%
|
|||||
Mark
K. Lawlis
|
9,577
|
0.1
|
%
|
|||||
Wisconsin
Business Innovation Corporation
|
2,993
|
0.0
|
%
|
|||||
Andcor
Companies, Inc.
|
78,571
|
1.0%
|
%
|
|||||
Wisconsin
Rural Enterprise Fund
|
142,291
|
1.7
|
%
|
|||||
Total
|
1,029,575
|
12.7%
|
%
|
Name
|
Age
|
Position
Held
|
||
Lawrence
W. Gadbaw
|
71
|
Chairman
of the Board of Directors
|
||
Kevin
R. Davidson
|
48
|
President,
Chief Executive Officer and Director
|
||
Gerald
D. Rice
|
66
|
Director
|
||
Chad
A. Ruwe
|
44
|
Executive
Vice President of Operations and Director
|
||
Peter
L. Morawetz
|
81
|
Director
|
||
Thomas
J. McGoldrick
|
67
|
Director
|
||
Andrew
P. Reding
|
38
|
Director
|
•
|
had
any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer, either at the time of
the bankruptcy or within two years prior to that time,
|
|
•
|
been
convicted in a criminal proceeding and none of our directors or executive
officers is subject to a pending criminal proceeding,
|
|
•
|
been
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities, futures, commodities or
banking activities, or
|
|
•
|
been
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
|
Name and principal
position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($) (4)
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)
|
Nonquali-
fied
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compen-
sation
($)
|
Total ($)
|
|||||||||||||
Kevin
R. Davidson,
|
2008
|
160,000
|
185,806
|
345,806
|
||||||||||||||||||
President
and Chief
Executive
Officer
|
2007
|
150,000
|
23,000
|
173,000
|
(1) | |||||||||||||||||
Gerald
D. Rice,
|
2008
|
114,000
|
|
114,000
|
|
|||||||||||||||||
Former
Chief
Financial
Officer
and
Secretary (3)
|
2007 |
110,000 |
46,000 |
156,000
|
(2) |
(1)
|
In
2008 Mr. Davidson was entitled to $160,000 in base salary under his
employment agreement and a board approved salary increase, but was paid
only $126,650 due to a shortage of cash. In 2007, although Mr.
Davidson was entitled to $150,000 in base salary under his employment
agreement, he received $59,375 in base salary due to lack of
funds. In December 2007, upon request from our funding brokers,
we reduced accrued payroll liabilities by a total of $346,714 through
November 2007 (of which Mr. Davidson had waived compensation in the
aggregate amount of $70,000). In exchange therefor, Mr. Davidson will be
granted a one-time cash bonus of $23,000 as well as an option to purchase
80,000 shares of common stock at $.35 per share when the Company raises an
additional $3 million of funding subsequent to the financing completed in
October 2008..
|
(2)
|
In
2008 Mr. Rice was entitled to 114,250 in base salary under his employment
agreement and board approved salary increase, but was paid only $73,525
due to a shortage of cash. In 2007, although Mr. Rice was
entitled to $110,000 in base salary under his employment agreement, he
received $43,542 in base salary due to lack of funds. In December 2007,
upon request from our funding brokers, we reduced accrued payroll
liabilities by $346,714 through November 2007 (of which Mr. Rice had
waived compensation in the aggregate amount of $125,000). In exchange
therefore, Mr. Rice will be granted a one-time cash bonus of $46,000 as
well as an option to purchase 160,000 shares of common stock at $.35 per
share when we raise an additional $3 million of funding subsequent to the
financing completed in October 2008.
|
|
(3)
|
Mr.
Rice terminated his employment as our Chief Financial Officer and
Secretary on January 15, 2009
|
Option
awards
|
Stock
awards
|
|||||||||||||||||||||||||||||||
Name
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
Equity
incentive plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number
of
shares
or units
of stock
that
have
not
vested
(#)
|
Market
value
of
shares
of
units
of
stock
that
have
not
vested
($)
|
Equity
incentive
plan
awards: Number
of
unearned
shares,
units or
other
rights
that have
not
vested
(#)
|
Equity
incentive
plan
awards:
Market
or
payout
value of
unearned
shares,
units or
other
rights
that have
not
vested
($)
|
|||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||
Kevin
R. Davidson,
President
and Chief Executive Officer
|
-
|
80,000
|
(1)
|
-
|
$
|
.35
|
12/31/13
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
543,292
|
(2) |
|
.01
|
06/05/18
|
||||||||||||||||||||||||||||
Gerald
D. Rice,
Chief
Financial Officer and Secretary
|
-
|
160,000
|
(1)
|
-
|
$
|
.35
|
12/31/13
|
-
|
-
|
-
|
-
|
(1)
|
Vesting
of these stock options is contingent upon the Company achieving $3 million
in total investment funding.
|
|
(2)
|
Mr.
Davidson was entitled to receive 543,292 shares of company stock under
terms of his employment agreement, but agreed to accept a stock option to
purchase 543,292 shares at $.01 per share. The option vested immediately
and has a 10 year term.
|
a. the
continued noncompliance by the Employee with our directors’ written
instructions, directives or regulations, after fifteen (15) days’ written
notice of such noncompliance from us; a breach by the Employee of any
material term of the employment agreement, which breach is not cured
within seven (7) days of written notice thereof from us; unsatisfactory
performance of employment duties, obligations and work and production
standards that is not corrected within thirty (30) days after written
notice of such unsatisfactory performance from us, or such longer period
as specified in such notice;
|
b. malfeasance,
misfeasance, or nonfeasance by the Employee in the course of his
employment;
|
||
c. fraud
or a criminal act committed by Employee, provided such criminal act
adversely affects our business;
|
||
d. any
breach by Employee of his fiduciary duties and obligations to us or any
act or omission of Employee constituting a breach of his obligations
contained in the confidentiality and non-competition agreements entered
into by and between the Company and the Employee; and
|
||
e. the
Employee’s voluntary resignation at any
time.
|
·
|
Shares
underlying convertible debenture with certain investors who loaned us
$170,000 in July 2007. Such securities are convertible into 620,095shares
and the lenders were also entitled to receive a warrant to purchase
620,095 shares at $.42 per
share;
|
·
|
4,552,862
common shares and 4,552,862 common shares underlying warrants (at an
exercise price per share of $0.46) to 33 investors pursuant to an equity
private placement from June 2007 to October 2008 for $0.35 per share for
an aggregate of $1.6 million;
|
·
|
547,285
common shares and 136,429 warrants to consultants who provided services in
connection with such equity private placement;
and
|
·
|
Shares
issued pursuant to a binding term sheet with a consultant pursuant to
which the consultant would assist us in obtaining bridge financing and
subsequent equity financing and the consultant and its assigns received
2,001,119 shares in satisfaction of such
obligation.
|
Name of Selling Shareholder
|
Number of
Shares
Owned
Before
Offering(1)
|
Number of
Shares
Underlying
Warrants
Owned
Before
Offering
|
Number of
Shares
Offered in
this
Offering(1)
|
Number of
Shares
Owned
After
Offering(2)
|
Percentage
Owned
After
Offering(2)
|
|||||||||||||||
Caron
Partners LP(3) (25)
|
246,500 | 100,000 | 246,500 | 0 | 0 | |||||||||||||||
Alan
Topchik (25)
|
200,000 | 100,000 | 200,000 | 0 | 0 | |||||||||||||||
Marc
I. Abrams (25)
|
57,142 | 28,571 | 57,142 | 0 | 0 | |||||||||||||||
Douglas
J. Gold (21) (25) (27)
|
232,142 | 28,571 | 232,142 | 0 | 0 | |||||||||||||||
Stuart
A. Liner (25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
Steven
M. Gold and Sheila A. Gold (25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
Tangiers
Investors, L.P.(4) (25)
|
285,714 | 142,857 | 285,714 | 0 | 0 | |||||||||||||||
Jerome
M. Cowan (25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
Jeremy
Roll (25) (26)
|
68,573 | 40,001 | 68,573 | 0 | 0 | |||||||||||||||
Bernard
Vosika and Twyla Vosika (25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
Sally
Maslon & Naomi Maslon JTWROS (25)
|
57,142 | 28,571 | 57,142 | 0 | 0 | |||||||||||||||
Michael
Sobeck (25)
|
28,572 | 14,286 | 28,572 | 0 | 0 | |||||||||||||||
Cavalier
Consulting Corp.(5) (25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
RP
Capital(6) (21) (25)
|
326,848 | 142,857 | 326,848 | 0 | 0 | |||||||||||||||
Brian
Weitman (25)
|
64,028 | 21,429 | 64,028 | 0 | 0 | |||||||||||||||
Bellajule
Partners LP(7) (25)
|
173,858 | 71,429 | 173,858 | 0 | 0 | |||||||||||||||
Morris
Esquenazi (25)
|
200,000 | 100,000 | 200,000 | 0 | 0 | |||||||||||||||
Schwartz
Holding (25)
|
1,000,000 | 500,000 | 1,000,000 | 0 | 0 | |||||||||||||||
Jack
Farbman and Thelma Farbman (25)
|
200,000 | 100,000 | 200,000 | 0 | 0 | |||||||||||||||
Morrie
R. Rubin (25)
|
100,000 | 50,000 | 100,000 | 0 | 0 | |||||||||||||||
Lee
M. Terpstra and Orlando Stephenson (25)
|
200,000 | 100,000 | 200,000 | 0 | 0 | |||||||||||||||
Bernard
Puder Revocable Trust (25)
|
860,000 | 430,000 | 860,000 | 0 | 0 | |||||||||||||||
Thomas
J. Klas (25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
Chad
A. Ruwe(22) (25)
|
1,192,858 | 571,429 | 1,142,858 | 50,000 | (8) | * | ||||||||||||||
Peter
Abramowicz (25)
|
114,286 | 57,143 | 114,286 | 0 | 0 | |||||||||||||||
Scott
R. Storick (25)
|
200,000 | 100,000 | 200,000 | 0 | 0 | |||||||||||||||
James
R. Taylor, IV(25)
|
1,142,858 | 571,429 | 1,142,858 | 0 | 0 | |||||||||||||||
Citigroup
Global Markets Inc. as IRA Custodian FBO John D. Villas
(25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
Gregory
B. Graves (25)
|
85,714 | 42,857 | 85,714 | 0 | 0 | |||||||||||||||
James
E. Dauwalter Living Trust dated 12/11/01(9) (25)
|
1,142,858 | 571,429 | 1,142,858 | 0 | 0 | |||||||||||||||
Stan
Geyer Living Trust dated 10/15/2001, as amended, Stan Geyer & Beverly
Geyer, Trustees(10) (25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
Fenton
Fitzpatrick (25)
|
17,142 | 8,571 | 17,142 | 0 | 0 | |||||||||||||||
Peter
Persad (25)
|
142,858 | 71,429 | 142,858 | 0 | 0 | |||||||||||||||
Nimish
Patel(11) (21) (24)
|
503,601 | 45,595 | 503,601 | 0 | 0 | |||||||||||||||
Erick
Richardson(12) (21) (24)
|
490,733 | 45,595 | 490,733 | 0 | 0 | |||||||||||||||
Core
Fund Management, LP(13) (24)
|
364,762 | 182,381 | 364,762 | 0 | 0 | |||||||||||||||
James
Jensen(14) (24)
|
364,762 | 182,381 | 364,762 | 0 | 0 | |||||||||||||||
Steve
Andress(15) (24)
|
72,952 | 36,476 | 72,952 | 0 | 0 | |||||||||||||||
Kendall
Morrison(16) (24)
|
72,952 | 36,476 | 72,952 | 0 | 0 | |||||||||||||||
Egavnit
LLC(17) (24)
|
196,092 | 91,191 | 196,092 | 0 | 0 | |||||||||||||||
Thomas
Pronesti(23) (26)
|
55,964 | 55,964 | 0 | 0 | ||||||||||||||||
Craig
Kulman(23) (26)
|
38,821 | 38,821 | 0 | 0 | ||||||||||||||||
Kulman
IR LLC(18)(23) (26)
|
125,000 | 125,000 | 0 | 0 | ||||||||||||||||
Cross
Street Partners, Inc.(19)(23) (26)
|
125,000 | 125,000 | 0 | 0 | ||||||||||||||||
Bill
Glaser(23) (26)
|
250,000 | 125,000 | 250,000 | 0 | 0 | |||||||||||||||
Ryan
Hong(21) (27)
|
57,404 | 57,404 | 0 | 0 | ||||||||||||||||
Richardson
& Patel, LLP(20) (27)
|
60,714 | 60,714 | 0 | 0 | ||||||||||||||||
Sean
Fitzpatrick (27)
|
150,000 | 150,000 | 0 | 0 | ||||||||||||||||
David
Baker (27)
|
225,000 | 225,000 | 0 | 0 | ||||||||||||||||
Si
Phillips (27)
|
50,000 | 50,000 | 0 | 0 | ||||||||||||||||
Cameron
Broumand (27)
|
35,000 | 35,000 | 0 | 0 | ||||||||||||||||
Sylvia
Karayan(21) (27)
|
10,000 | 10,000 | 0 | 0 | ||||||||||||||||
Jason
Cavalier (27)
|
15,000 | 15,000 | 0 | 0 | ||||||||||||||||
Greg
Suess (27)
|
104,114 | 104,114 | 0 | 0 | ||||||||||||||||
Ben
Padnos (27)
|
100,000 | 100,000 | 0 | 0 | ||||||||||||||||
Mark
Abdou (27)
|
32,907 | 32,907 | 0 | 0 | ||||||||||||||||
Addison
Adams(21) (27)
|
8,227 | 8,227 | 0 | 0 | ||||||||||||||||
Michael
Cavalier (27)
|
8,227 | 8,227 | 0 | 0 | ||||||||||||||||
Mick
Cavalier (27)
|
8,227 | 8,227 | 0 | 0 | ||||||||||||||||
Francis
Chen(21) (27)
|
2,334 | 2,334 | 0 | 0 | ||||||||||||||||
Doug
Croxall (27)
|
6,170 | 6,170 | 0 | 0 | ||||||||||||||||
Jennifer
& Michael Donahue(21) (27)
|
28,009 | 28,009 | 0 | 0 | ||||||||||||||||
Dan
Estrin (27)
|
823 | 823 | 0 | 0 | ||||||||||||||||
Kevin
Friedmann(21) (27)
|
1,440 | 1,440 | 0 | 0 | ||||||||||||||||
Sylvia
Karayan(21) (27)
|
1,646 | 1,646 | 0 | 0 | ||||||||||||||||
Abdul
Ladha (27)
|
4,114 | 4,114 | 0 | 0 | ||||||||||||||||
Jody
Samuels(21) (27)
|
8,227 | 8,227 | 0 | 0 | ||||||||||||||||
Yossi
Stern (27)
|
10,284 | 10,284 | 0 | 0 | ||||||||||||||||
Steve
Yakubov
|
10,284 | 10,284 | 0 | 0 | ||||||||||||||||
TOTAL
|
13,030,747 | 5,309,386 | 13,030,747 | 0 | * |
Name of Beneficial Owner
|
Amount and
Nature of
Beneficial
Ownership
|
Percent
of
Class
|
||||||
Lawrence
W. Gadbaw (1)
|
139,563
|
1.7
|
%
|
|||||
Kevin
R. Davidson (2)
|
573,219
|
6.6
|
%
|
|||||
Gerald
D. Rice (3)
|
84,994
|
1.0
|
%
|
|||||
Chad
A. Ruwe (4)
|
621,429
|
7.6
|
%
|
|||||
Peter
L. Morawetz (5)
|
107,739
|
1.3
|
%
|
|||||
Thomas
J. McGoldrick (6)
|
23,942
|
*
|
%
|
|||||
Andrew
P. Reding (7)
|
23,942
|
*
|
%
|
|||||
Carl
Schwartz (8)
|
500,000
|
6.1
|
%
|
|||||
Bernard
Puder Revocable Trust (9)
|
430,000
|
5.3
|
%
|
|||||
James
Dauwalter Living Trust (10)
|
571,429
|
7.0
|
%
|
|||||
James
R. Taylor IV (11)
|
571,429
|
7.0
|
%
|
|||||
Nimish
Patel (12)
|
687,592
|
8.4
|
%
|
|||||
Erick
Richardson (13)
|
674,724
|
8.2
|
%
|
|||||
All
directors and executive officers as a group (7
persons)
|
1,574,828
|
17.9
|
%
|
*
Less than one percent
|
||
(1)
|
Includes
139,563 shares of common stock. Mr. Gadbaw does not currently have any
options to acquire additional shares of common stock of the
Company.
|
|
(2)
|
Includes
(i) 29,927 shares of common stock and (ii) options to acquire up to an
additional 543,292 shares of common stock of the Company, all of which are
presently exercisable.
|
|
(3)
|
Includes
84,994 shares of common stock. Mr. Rice does not currently have any
options to acquire additional shares of common stock of the
Company.
|
(4)
|
Includes
571,429 shares of common stock and options to acquire up to an additional
50,000 shares of common stock that are presently exercisable. Does not
include (i) 571,429 shares of common stock underlying warrants that are
not exercisable within 60 days and (ii) options to purchase 200,000 shares
of common stock that are not exercisable until achievement of certain
performance targets as provided for in Mr. Ruwe’s employment
agreement.
|
|
(5)
|
Includes
107,739 shares of common stock. Mr. Morawetz does not currently have any
options to acquire additional shares of common stock of the
Company.
|
|
(6)
|
Includes
options to acquire up to 23,942 shares of common stock, which are
presently exercisable, granted pursuant to a director stock option
agreement by and between Mr. McGoldrick and the
Company.
|
|
(7)
|
Includes
options to acquire up to 23,942 shares of common stock, which are
presently exercisable, granted pursuant to a director stock option
agreement by and between Mr. Reding and the Company.
|
|
(8)
|
Includes
500,000 shares of common stock. Does not include 500,000 shares of common
stock underlying warrants that are not exercisable within 60
days.
|
(9)
|
Includes
430,000 shares of common stock. Does not include 430,000 shares of common
stock underlying warrants that are not exercisable within 60
days.
|
|
(10)
|
Includes
571,429 shares of common stock. Does not include 571,479 shares of common
stock underlying warrants that are not exercisable within 60
days.
|
|
(11)
|
Includes
571,479 shares of common stock. Does not include 571,479 shares of common
stock underlying warrants that are not exercisable within 60
days.
|
|
(12)
|
Includes
412,411 shares of common stock, 45,595 shares of common stock underlying
warrants and, 45,595 shares of common stock underlying convertible notes.
Also includes 183,991 shares of common stock held by RP Capital LLC, for
which Nimish Patel and Erick Richardson have shared voting and dispositive
control. Does not include 60,714 shares of common stock held by Richardson
& Patel LLP. The voting and dispositive control of such shares are
held by Mr. Douglas Gold. Mr. Patel does not currently have any options to
acquire additional shares of common stock of the
Company.
|
|
(13)
|
Includes
399,543 shares of common stock, 45,595 shares of common stock underlying
warrants and, 45,595 shares of common stock underlying convertible notes.
Also includes 183,991 shares of common stock held by RP Capital LLC, for
which Nimish Patel and Erick Richardson have shared voting and dispositive
control. Does not include 60,714 shares of common stock held by Richardson
& Patel LLP. The voting and dispositive control of such shares are
held by Mr. Douglas Gold. Mr. Richardson does not currently have any
options to acquire additional shares of common stock of the
Company.
|
(1)
|
has
not been indemnified by another organization or employee benefit plan for
the same judgments, penalties, fines, including, without limitation,
excise taxes assessed against the person with respect to an employee
benefit plan, settlements, and reasonable expenses, including attorneys’
fees and disbursements, incurred by the person in connection with the
proceeding with respect to the same acts or omissions;
|
|
(2)
|
acted
in good faith;
|
|
(3)
|
received
no improper personal benefit and Section 302A.255, if applicable, has been
satisfied;
|
|
(4)
|
in
the case of a criminal proceeding, had no reasonable cause to believe the
conduct was unlawful; and
|
|
(5)
|
in
the case of acts or omissions occurring in the person’s performance in the
official capacity of director or, for a person not a director, in the
official capacity of officer, board committee member or employee,
reasonably believed that the conduct was in the best interests of the
corporation or, in the case of performance by a director, officer or
employee of the corporation involving service as a director, officer,
partner, trustee, employee or agent of another organization or employee
benefit plan, reasonably believed that the conduct was not opposed to the
best interests of the corporation. If the person’s acts or omissions
complained of in the proceeding relate to conduct as a director, officer,
trustee, employee, or agent of an employee benefit plan, the conduct is
not considered to be opposed to the best interests of the corporation if
the person reasonably believed that the conduct was in the best interests
of the participants or beneficiaries of the employee benefit
plan
|
|
(a)
all determinations whether indemnification of a person is required because
the criteria set forth in Subd. 2 have been satisfied and whether a person
is entitled to payment or reimbursement of expenses in advance of the
final disposition of a proceeding as provided in Subd. 3 shall be
made:
|
|
(1)
|
by
the board by a majority of a quorum, if the directors who are at the time
parties to the proceeding are not counted for determining either a
majority or the presence of a quorum;
|
|
(2)
|
if
a quorum under clause (1) cannot be obtained, by a majority of a committee
of the board, consisting solely of two or more directors not at the time
parties to the proceeding, duly designated to act in the matter by a
majority of the full board including directors who are
parties;
|
|
(3)
|
if
a determination is not made under clause (1) or (2), by special legal
counsel, selected either by a majority of the board or a committee by vote
pursuant to clause (1) or (2) or, if the requisite quorum of the full
board cannot be obtained and the committee cannot be established, by a
majority of the full board including directors who are
parties;
|
|
(4)
|
if
a determination is not made under clauses (1) to (3), by the affirmative
vote of the shareholders required by Section 302A.437 of the Minnesota
Statutes, but the shares held by parties to the proceeding must not be
counted in determining the presence of a quorum and are not considered to
be present and entitled to vote on the determination;
or
|
|
(5)
|
if
an adverse determination is made under clauses (1) to (4) or under
paragraph (b), or if no determination is made under clauses (1) to (4) or
under paragraph (b) within 60 days after (i) the later to occur of the
termination of a proceeding or a written request for indemnification to
the corporation or (ii) a written request for an advance of expenses, as
the case may be, by a court in this state, which may be the same court in
which the proceeding involving the person’s liability took place, upon
application of the person and any notice the court requires. The person
seeking indemnification or payment or reimbursement of expenses pursuant
to this clause has the burden of establishing that the person is entitled
to indemnification or payment or reimbursement of
expenses.
|
|
(b)
With respect to a person who is not, and was not at the time of the acts
or omissions complained of in the proceedings, a director, officer, or
person possessing, directly or indirectly, the power to direct or cause
the direction of the management or policies of the corporation, the
determination whether indemnification of this person is required because
the criteria set forth in Subd. 2 have been satisfied and whether this
person is entitled to payment or reimbursement of expenses in advance of
the final disposition of a proceeding as provided in Subd. 3 may be made
by an annually appointed committee of the board, having at least one
member who is a director. The committee shall report at least annually to
the board concerning its actions.
|
Page
|
||
Unaudited
Interim Financial Statements:
|
F-1
|
|
Balance
Sheets
|
F-2
|
|
Statements
of Operations
|
F-3
|
|
Statements
of Changes in Stockholders’ Equity (Deficit)
|
F-4
|
|
Statements
of Cash Flows
|
F-5
|
|
Notes
to Interim Financial Statements
|
F-6
|
|
Report
of Independent Registered Public Accounting Firm
|
F-14
|
|
Audited
Annual Financial Statements:
|
F-15
|
|
Balance
Sheets
|
F-16
|
|
Statements
of Operations
|
F-17
|
|
Statements
of Changes in Stockholders’ Equity (Deficit)
|
F-18
|
|
Statements
of Cash Flows
|
F-19
|
|
Notes
to Financial Statements
|
F-20
|
BIODRAIN
MEDICAL, INC.
|
(A
DEVELOPMENT STAGE COMPANY)
|
|
|
September
30,
2008
|
|
|
December
31,
2007
|
|
|
September
30,
2007
|
|
|||
|
|
(Unaudited)
|
|
|
|
|
(Unaudited)
|
|
||||
ASSETS
|
||||||||||||
Current
assets:
|
||||||||||||
Cash
|
$
|
744,929
|
$
|
4,179
|
$
|
17,733
|
||||||
Prepaid
expenses
|
37,241
|
4,558
|
547
|
|||||||||
Other
current assets
|
163,333,
|
—
|
—
|
|||||||||
Total
current assets
|
945,503
|
8,737
|
18,280
|
|||||||||
Fixed
assets
|
8,699
|
—
|
—
|
|||||||||
Intangibles,
net
|
134,299
|
113,056
|
110,425
|
|||||||||
Total
assets
|
$
|
1,088,501
|
$
|
121,793
|
$
|
128,705
|
||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
||||||||||||
Current
liabilities:
|
||||||||||||
Current
portion of long-term debt (See Note 6)
|
$
|
5,800
|
$
|
23,800
|
$
|
199,800
|
||||||
Current
portion of convertible debt (See Note 6)
|
180,000
|
180,000
|
||||||||||
Accounts
payable
|
284,567
|
207,657
|
136,072
|
|||||||||
Accrued
expenses
|
277,088
|
226,429
|
439,818
|
|||||||||
Notes
payable (See Note 6)
|
10,000
|
10,000
|
20,973
|
|||||||||
Total
current liabilities
|
757,455
|
647,886
|
796,663
|
|||||||||
Long-term
debt and convertible debt (See
Note 6)
|
129,559
|
136,508
|
140,682
|
|||||||||
Stockholders’
equity (deficit):
|
||||||||||||
Common
stock $0.01 par value; 40,000,000, 11,970,994, 11,970,994 shares
authorized; 8,130,841, 823,676 and 823,077shares issued and
outstanding
|
81,308
|
8,237
|
8,231
|
|||||||||
Additional
paid-in capital
|
1,837,846
|
117,833
|
105,877
|
|||||||||
Deficit
accumulated during development stage
|
(1,717,667
|
)
|
(788,671
|
)
|
(930,801
|
)
|
||||||
Total
stockholders’ equity (deficit)
|
201,487
|
(662,601
|
)
|
(808,640
|
)
|
|||||||
Total
liabilities and stockholders’ equity (deficit)
|
$
|
1,088,501
|
$
|
121,793
|
$
|
128,705
|
For the
Nine
Months
Ended
September
30,
|
For the
Year
Ended
December
31,
|
For the
Nine
Months
Ended
September
30,
|
For the
Period
From
April 23,
2002
(Inception)
To
September
30,
|
|
||||||||||||
2008
|
2007
|
2007
|
2008
|
|
||||||||||||
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
||||||
Operating
expenses
|
$
|
826,411
|
$
|
126,684
|
$
|
282,839
|
$
|
1,428,889
|
||||||||
Product
development
|
$
|
91,449
|
$
|
—
|
$
|
393
|
$
|
224,118
|
||||||||
Interest
expense
|
$
|
11,135
|
33,238
|
18,819
|
64,660
|
|||||||||||
Net
loss
|
$
|
928,995
|
$
|
159,922
|
$
|
302,051
|
$
|
1,717,667
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
||||||||
|
|
Shares
|
|
|
Amount
|
|
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
||||||
Issuance
of common stock 9/1/02 at $.0167/share (1)
|
598,549
|
$
|
5,985
|
$
|
4,015
|
$
|
—
|
$
|
10,000
|
|||||||||||
Issuance
of common stock 10/23/02 at $1.67/share
|
2,993
|
30
|
4,970
|
5,000
|
||||||||||||||||
Vested
stock options and warrants
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(51,057
|
)
|
(51,057
|
)
|
|||||||||||||
Balance
on December 31, 2002 (Unaudited)
|
601,542
|
$
|
6,015
|
$
|
8,985
|
$
|
(51,057
|
)
|
$
|
(36,057
|
)
|
|||||||||
Issuance
of common stock 2/12/03 at $.0167/share (2)
|
23,942
|
239
|
161
|
—
|
400
|
|||||||||||||||
Issuance
of common stock 6/11-12/3/03 (3) at
$1.67/share
|
21,548
|
216
|
34,784
|
35,000
|
||||||||||||||||
Vested
stock options and warrants
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(90,461
|
)
|
(90,461
|
)
|
|||||||||||||
Balance
on December 31, 2003 (Unaudited)
|
647,032
|
$
|
6,470
|
$
|
43,930
|
$
|
(141,518
|
)
|
$
|
(91,118
|
)
|
|||||||||
Issuance
of common stock 5/25/04
at $.0167/share (4)
|
6,567
|
66
|
44
|
—
|
110
|
|||||||||||||||
Vested
stock options and warrants
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(90,353
|
)
|
(90,353
|
)
|
|||||||||||||
Balance
on December 31, 2004 (Unaudited)
|
653,599
|
$
|
6,536
|
$
|
43,974
|
$
|
(231,871
|
)
|
$
|
(181,361
|
)
|
|||||||||
Issuance
of common stock 12/14/05
at $.0167/share (5)
|
14,964
|
150
|
100
|
—
|
250
|
|||||||||||||||
Vested
stock options and warrants
|
—
|
—
|
2,793
|
—
|
2,793
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(123,853
|
)
|
(123,853
|
)
|
|||||||||||||
Balance
on December 31, 2005 (Unaudited)
|
668,563
|
$
|
6,686
|
$
|
46,867
|
$
|
(355,723
|
)
|
$
|
(302,161
|
)
|
|||||||||
Issuance
of common stock 5/16, 8/8/06
at $.0167/share (6)
|
86,869
|
869
|
582
|
—
|
1,451
|
|||||||||||||||
Issuance
of common stock 10/19, 23/06
at $.0167/share (7)
|
38,906
|
389
|
261
|
—
|
650
|
|||||||||||||||
Issuance
of common stock 12/01/06
at $1.67/share (8)
|
28,730
|
287
|
44,523
|
—
|
44,810
|
|||||||||||||||
Vested
stock options and warrants
|
—
|
—
|
13,644
|
—
|
13,644
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(273,026
|
)
|
(273,026
|
)
|
|||||||||||||
Balance
on December 31, 2006
|
823,077
|
$
|
8,231
|
$
|
105,877
|
$
|
(628,749
|
)
|
$
|
(514,641
|
)
|
|||||||||
Issuance
of common stock 1/30/07
at $1.67/share (9)
|
599
|
6
|
994
|
—
|
1,000
|
|||||||||||||||
Vested
stock options and warrants
|
—
|
—
|
10,962
|
—
|
10,962
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(159,922
|
)
|
(159,922
|
)
|
|||||||||||||
Balance
on December 31, 2007
|
823,676
|
$
|
8,237
|
$
|
117,833
|
$
|
(788,671
|
)
|
$
|
(662,601
|
)
|
|||||||||
Issuance
of common stock 6/11 - 9/30//08 at
$.35/share (10)
|
7,101,266
|
71,012
|
1,511,683
|
—
|
1,582,695
|
|||||||||||||||
Issuance
of common due to antidilution provisions
|
205,899
|
2,059
|
(2,059)
|
0
|
||||||||||||||||
Vested
stock options and warrants
|
—
|
—
|
210,389
|
—
|
210,389
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
(928,996
|
)
|
(928,996
|
)
|
|||||||||||||
Balance
on September 30, 2008)
|
8,130,841
|
$
|
81,308
|
$
|
1,837,846
|
$
|
(1,717,667
|
)
|
$
|
201,487
|
For the
Nine
Months
Ended
September
30,
2008
(Unaudited)
|
For the
Nine
Months
Ended
September
30,
2007
(Unaudited)
|
For the Year
Ended
December 31,
2007
|
For the
Period
From April
23,
2002
(Inception)
To
September
30,
2008
(Unaudited)
|
|||||||||||||
Cash flows from
operating activities:
|
|
|||||||||||||||
Net
loss
|
$ | (928,995 | ) | $ | (302,051 | ) | $ | (159,922 | ) | $ | (1,717,667 | ) | ||||
Adjustments
to reconcile net loss to net
cash used in operating activities:
|
||||||||||||||||
Amortization
|
— | - | 47 | — | ||||||||||||
Vested
stock options and warrants
|
210,389 | 8,500 | 10,962 | 237,788 | ||||||||||||
Changes
in assets and liabilities:
|
||||||||||||||||
Prepaid
expenses
|
(32,684 | ) | (275 | ) | (4,287 | ) | (37,242 | ) | ||||||||
Other
assets
|
(163,333 | ) | — | (163,333 | ) | |||||||||||
NNotes
Payable to Shareholder
|
(10,973 | ) | ||||||||||||||
Accounts
payable
|
76,910 | 67,147 | 127,125 | 284,567 | ||||||||||||
Accrued
expenses
|
50,657 | 1,771 | (187,092 | ) | 277,086 | |||||||||||
Net
cash used in operating activities
|
(787,056 | ) | (224,861 | ) | (224,140 | ) | (1,118,801 | ) | ||||||||
|
||||||||||||||||
Cash
flows from investing activities:
|
||||||||||||||||
Purchases
of fixed assets
|
(8,699 | ) | - | — | (8,699 | ) | ||||||||||
Purchases
of intangibles
|
(21,242 | ) | (43,460 | ) | (46,092 | ) | (134,298 | ) | ||||||||
Net
cash used in investing activities
|
(29,941 | ) | (43,460 | ) | (46,092 | ) | (142,997 | ) | ||||||||
Cash
flows from financing activities:
|
||||||||||||||||
Note
payable to shareholder
|
— | 274,761 | (10,973 | ) | (10,973 | ) | ||||||||||
Proceeds
on long-term debt
|
— | - | 274,000 | 421,505 | ||||||||||||
Principal
payments on long-term debt
|
(24,949 | ) | (2,011 | ) | (1,592 | ) | (85,173 | ) | ||||||||
Issuance
of common stock (1)
|
1,582,696 | 12,301 | 1,000 | 1,681,367 | ||||||||||||
Net
cash provided by financing activities
|
1,557,747 | 285,051 | 273,408 | 2,006,726 | ||||||||||||
Net
increase in cash and cash equivalents
|
740,750 | 16,730 | 3,176 | 744,929 | ||||||||||||
Cash
at beginning of period
|
4,179 | 1,003 | 1,003 | — | ||||||||||||
Cash
at end of period
|
$ | 744,929 | $ | 17,733 | $ | 4,179 | $ | 744,929 |
(1)
|
All funds collected were a part
of the October 2008 financing at $.35 per unit, which included one share
of common stock and one warrant to purchase an equal number of shares at
$.46 per share as of September 30,
2008.
|
|
Stock Options (1)
|
Warrants (1)
|
||||||||||||||
|
Number
of
Shares
|
Average
Exercise
Price
|
Number
of
Shares
|
Average
Exercise
Price
|
||||||||||||
Outstanding
at December 31, 2005
|
17,956
|
$
|
1.67
|
20,950
|
$
|
2.62
|
||||||||||
Issued
|
23,942
|
1.67
|
71,826
|
0.85
|
||||||||||||
Outstanding
at December 31, 2006
|
41,898
|
$
|
1.67
|
92,776
|
$
|
1.25
|
||||||||||
Issued
|
5,985
|
1.67
|
28,502
|
0.35
|
||||||||||||
Outstanding
at December 31, 2007
|
47,882
|
$
|
1.67
|
121,278
|
$
|
1.04
|
||||||||||
Issued
|
1,083,292
|
0.17
|
5,075,204
|
0.45
|
||||||||||||
Outstanding
at September 30, 2008
|
1,131,174
|
$
|
0.24
|
5,196,482
|
0.47
|
Range of Exercise Prices
|
|
Shares
|
Weighted
Average
Remaining
Life
|
||||||
Options
|
|||||||||
$0.01
|
$ | 543,292 | $ | 9.68 | |||||
$0.35
|
540,000 | .57 | |||||||
$1.67
|
47,882 | 2.75 | |||||||
Total
|
1,131,174 | ||||||||
Warrants
|
|||||||||
$0.02
|
71,826 | 5.70 | |||||||
$0.35
|
178,502 | 2.59 | |||||||
$0.42
|
620,095 | ||||||||
$0.46
|
4,889,291 | 2.63 | |||||||
$1.67
|
44,892 | 2.94 | |||||||
$3.76
|
11,971 | 0.04 | |||||||
|
Total
|
5,816,577 |
Year
|
Shares
|
Price
|
||||||
2005
|
17,956 | $ | 1.67 | |||||
2006
|
23,941 | 1.67 | ||||||
2007
|
245,985 | .35-1.67 | ||||||
2008
|
843,292 | .01-.35 | ||||||
Total
|
1,131,174 | $ | .01-$1.67 |
|
|
September 30,
|
|
|||||
|
|
2008
|
|
|
2007
|
|
||
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
||
Deferred
Tax Asset:
|
||||||||
Net
Operating Loss
|
$
|
428,000
|
$
|
231,000
|
||||
Total
Deferred Tax Asset
|
428,000
|
231,000
|
||||||
Less
Valuation Allowance
|
428,000
|
231,000
|
||||||
Net
Deferred Income Taxes
|
$
|
—
|
$
|
—
|
|
September 30,
|
|
||||||
|
2008
|
|
2007
|
|
||||
Notes
payable to several individuals due April 2008 including 8% fixed
interest
and is now delinquent. The notes are convertible into 620,095 shares
of the Company’s common stock and automatically convert at the
effective
date of this registration statement.
|
$
|
170,000
|
$
|
—
|
||||
Note
payable to bank in monthly installments of $1,275/including variable
interest at 2% above the prevailing prime rate (6.00% at September 30,
2008) to August 2011 when the remaining balance is payable. The note is
personally guaranteed by executives of the Company.
|
41,359
|
49,901
|
||||||
Note
payable to NWBDC with interest only payments at 8% to December 2008 when
the remaining balance is payable. The note was personally guaranteed by
executives of the Company. The note was paid in full on
June 24, 2008.
|
—
|
18,000
|
||||||
Notes
payable to two individuals with interest only payments at 12% to March
2012 when the remaining balance is payable. The notes are convertible into
285,715 shares of stock in the Company at $.35 per share.
|
100,000
|
100,000
|
||||||
Notes
payable to four shareholders of the Company that are overdue. The notes
are convertible into 11,429 shares of stock in the Company at $.35 per
share.
|
4,000
|
4,000
|
||||||
Total
|
315,359
|
181,901
|
||||||
Less
amount due within one year
|
185,800
|
39,900
|
||||||
Long-Term
Debt
|
$
|
129,559
|
$
|
142,001
|
1.
|
All Company assets will be
distributed to a wholly-owned subsidiary (“Privco”). Privco will have the
identical number of common shares outstanding as the
Company. The Investors will have the same percentage
ownership of Privco that they had in the Company and will maintain their
shares of Company common
stock.
|
2.
|
BioDrain Original Shareholders
(the “Founders”) will cancel all Company stock held by the Founders only
and the Founders will no longer own any Company equity. Ownership of
shares of the Company’s common stock by the Investors would not be
affected.
|
3.
|
In consideration of such
cancellation, the Founders will receive Privco stock and options so that
the Founders have the same percentage ownership of Privco that it had in
the Company. The Company will retain the rest of Privco
equity.
|
4.
|
All Company stock options will be
cancelled and replaced with Privco stock
options.
|
5.
|
The Company will have new
directors and officers selected by
Investors.
|
6.
|
In the event of a reverse merger
or other similar transaction with a new operating business, the Company
will either spin-off the remaining Privco equity to the remaining Company
shareholders or liquidate the Privco securities and distribute any net
proceeds to the Company
shareholders.
|
December 31,
2007
|
December 31,
2006
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$
|
4,179
|
$
|
1,003
|
||||
Prepaid
expenses
|
4,558
|
271
|
||||||
Total
current assets
|
8,737
|
1,274
|
||||||
Intangibles,
net
|
113,056
|
67,011
|
||||||
Total
assets
|
$
|
121,793
|
$
|
68,285
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt (See Note 6)
|
$
|
33,,800
|
$
|
20,500
|
||||
Current
portion of long-term convertible debt (See Note 6)
|
170,000
|
|||||||
Accounts
payable
|
207,657
|
80,532
|
||||||
Accrued
expenses
|
226,429
|
413,521
|
||||||
Note
payable (See Note 6)
|
10,000
|
10,000
|
||||||
Note
Payable to Shareholder
|
—
|
10,973
|
||||||
Total
current liabilities
|
647,886
|
535,526
|
||||||
Long-term
convertible debt (See Note 6)
|
136,508
|
47,400
|
||||||
Stockholders’
equity (deficit):
|
||||||||
Common
stock $0.01 par value; 20,000,000 shares authorized; 823,676 and 823,077
shares issued
|
8,237
|
8,231
|
||||||
Additional
paid-in capital
|
117,833
|
105,877
|
||||||
Deficit
accumulated during development stage
|
(788,671
|
)
|
(628,749
|
)
|
||||
Total
stockholders’ equity (deficit)
|
(662,601
|
)
|
(514,641
|
)
|
||||
Total
liabilities and stockholders’ equity (deficit)
|
$
|
121,793
|
$
|
68,285
|
For
the
Year
Ended
December
31,
|
For
the
Year
Ended
December
31,
|
For
the
Period
From
April 23,
2002
(Inception)
To
December
31,
|
||||||||||
2007
|
2006
|
2007
|
||||||||||
Operating
expenses
|
$
|
126,684
|
$
|
266,958
|
$
|
735,146
|
||||||
Interest
expense
|
33,238
|
6,068
|
53,525
|
|||||||||
Net
loss
|
$
|
159,922
|
$
|
273,026
|
$
|
788,671
|
Common Stock
|
Additional
|
|
||||||||||||||||||
Shares
|
Amount
|
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
||||||||||||||||
Balance
on December 31, 2005 (Unaudited)
|
668,563 | $ | 6,686 | $ | 46,867 | $ | (355,723 | ) | $ | (302,161 | ) | |||||||||
Issuance
of common stock 5/16, 8/8/06
at $.0167/share (6)
|
86,869 | 869 | 582 | — | 1,451 | |||||||||||||||
Issuance
of common stock 10/19, 23/06
at $.0167/share (7)
|
38,906 | 389 | 261 | — | 650 | |||||||||||||||
Issuance
of common stock 12/01/06
at $1.67/share (8)
|
28,730 | 287 | 44,523 | — | 44,810 | |||||||||||||||
Vested
stock options and warrants
|
— | — | 13,644 | — | 13,644 | |||||||||||||||
Net
loss
|
— | — | — | (273,026 | ) | (273,026 | ) | |||||||||||||
Balance
on December 31, 2006
|
823,077 | $ | 8,231 | $ | 105,877 | $ | (628,749 | ) | $ | (514,641 | ) | |||||||||
Issuance
of common stock 1/30/07
at $1.67/share (9)
|
599 | 6 | 994 | — | 1,000 | |||||||||||||||
Vested
stock options and warrants
|
— | — | 10,962 | — | 10,962 | |||||||||||||||
Net
loss
|
— | — | — | (159,922 | ) | (159,922 | ) | |||||||||||||
Balance
on December 31, 2007
|
823,676 | $ | 8,237 | $ | 117,833 | $ | (788,671 | ) | $ | (662,601 | ) |
For the Year
Ended
December
31,
2007
|
For the Year
Ended
December
31,
2006
|
For the
Period
From April
23,
2002
(Inception)
To
December
31,
2007
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$
|
(159,922
|
)
|
$
|
(273,026
|
)
|
$
|
(788,671
|
)
|
|||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Amortization
|
47
|
70
|
350
|
|||||||||
Vested
stock options and warrants
|
10,962
|
13,644
|
27,399
|
|||||||||
Changes
in assets and liabilities:
|
||||||||||||
Prepaid
expenses
|
(4,287
|
)
|
201
|
(4,558
|
)
|
|||||||
Accounts
payable
|
127,125
|
46,823
|
207,657
|
|||||||||
Accrued
expenses
|
(187,092
|
)
|
198,118
|
226,429
|
||||||||
Net
cash used in operating activities
|
(213,167
|
)
|
(14,170
|
)
|
(331,394
|
)
|
||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of intangibles
|
(46,092
|
)
|
(29,675
|
)
|
(113,406
|
)
|
||||||
Net
cash used in investing activities
|
(46,092
|
)
|
(29,675
|
)
|
(113,406
|
)
|
||||||
Cash
flows from financing activities:
|
||||||||||||
Note
payable to shareholder
|
(10,973
|
)
|
—
|
(10,973
|
)
|
|||||||
Proceeds
on long-term debt
|
274,000
|
10,000
|
421,505
|
|||||||||
Principal
payments on long-term debt
|
(1,592
|
)
|
(37,658
|
)
|
(60,224
|
)
|
||||||
Issuance
of common stock
|
1,000
|
46,901
|
98,671
|
|||||||||
Net
cash provided by financing activities
|
262,435
|
19,243
|
448,979
|
|||||||||
Net
increase (decrease) in cash and cash equivalents
|
3,176
|
(24,602
|
)
|
4,179
|
||||||||
Cash
at beginning of year
|
1,003
|
25,605
|
—
|
|||||||||
Cash
at end of year
|
$
|
4,179
|
$
|
1,003
|
$
|
4,179
|
Stock
Options
|
Warrants
|
|||||||||||||||
Number
of
Shares
|
Average
Exercise
Price
|
Number
of
Shares
|
Average
Exercise
Price
|
|||||||||||||
Outstanding
at December 31, 2005
|
17,956
|
$
|
1.67
|
20,950
|
$
|
2.62
|
||||||||||
Issued
|
23,942
|
1.67
|
71,826
|
0.85
|
||||||||||||
Outstanding
at December 31, 2006
|
41,897
|
$
|
1.67
|
92,776
|
$
|
1.25
|
||||||||||
Issued
|
5,985
|
1.67
|
28,502
|
0.35
|
||||||||||||
Outstanding
at December 31, 2007
|
47,882
|
$
|
1.67
|
121,278
|
$
|
1.04
|
Range of Exercise Prices
|
Shares
|
Weighted
Average
Remaining Life
|
||||
Options
|
||||||
$0.35
|
11,970
|
4.37
|
||||
$1.67
|
41,898
|
3.31
|
||||
Warrants
|
||||||
$0.02
|
35,913
|
5.45
|
||||
$0.35
|
28,502
|
4.17
|
||||
$1.67
|
44,892
|
3.69
|
||||
$3.76
|
11,971
|
0.79
|
December
31,
|
||||||||
2007
|
2006
|
|||||||
Deferred
Tax Asset:
|
||||||||
Net
Operating Loss
|
$
|
196,000
|
$
|
156,000
|
||||
Total
Deferred Tax Asset
|
196,000
|
156,000
|
||||||
Less
Valuation Allowance
|
196,000
|
156,000
|
||||||
Net
Deferred Income Taxes
|
$
|
—
|
$
|
—
|
December
31,
|
||||||||
2007
|
2006
|
|||||||
Notes
payable to several individuals due April 2008 including 8% fixed interest.
The notes are convertible into 620,095 shares of the Company’s common
stock.
|
$
|
170,000
|
$
|
—
|
||||
Note
payable to bank in monthly installments of $1,255/including variable
interest at 2% above the prevailing prime rate (7.25% at December 31,
2007) to August 2011 when the remaining balance is payable. The note is
personally guaranteed by executives of the Company.
|
48,308
|
49,900
|
||||||
Note
payable to Development Corporation in interest only payments at 8% to
December 2008 when the remaining balance is payable. The note is
personally guaranteed by executives of the Company.
|
18,000
|
18,000
|
||||||
Notes
payable to two individuals in interest only payments at 12% to March 2012
when the remaining balance is payable. The notes are convertible into
shares of stock in the Company at a price equal to the next completed
funding transaction by the Company.
|
100,000
|
—
|
||||||
Notes
payable to four shareholders of the Company that are overdue. The notes
are convertible into shares of stock in the Company at $1.00 per
share.
|
4,000
|
—
|
||||||
Total
|
340,308
|
67,900
|
||||||
Less
amount due within one year
|
203,800
|
20,500
|
||||||
Long-Term
Debt
|
$
|
136,508
|
$
|
47,400
|
(1)
|
has not been indemnified by
another organization or employee benefit plan for the same judgments,
penalties, fines, including, without limitation, excise taxes assessed
against the person with respect to an employee benefit plan, settlements,
and reasonable expenses, including attorneys’ fees and disbursements,
incurred by the person in connection with the proceeding with respect to
the same acts or omissions;
|
(2)
|
acted in good
faith;
|
(3)
|
received no improper personal
benefit and Section 302A.255, if applicable, has been
satisfied;
|
(4)
|
in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful;
and
|
(5)
|
in the case of acts or
omissions occurring in the person’s performance in the official capacity
of director or, for a person not a director, in the official capacity of
officer, board committee member or employee, reasonably believed that the
conduct was in the best interests of the corporation or, in the case of
performance by a director, officer or employee of the corporation
involving service as a director, officer, partner, trustee, employee or
agent of another organization or employee benefit plan, reasonably
believed that the conduct was not opposed to the best interests of the
corporation. If the person’s acts or omissions complained of in the
proceeding relate to conduct as a director, officer, trustee, employee, or
agent of an employee benefit plan, the conduct is not considered to be
opposed to the best interests of the corporation if the person reasonably
believed that the conduct was in the best interests of the participants or
beneficiaries of the employee benefit
plan.
|
(1)
|
by the board by a majority of
a quorum, if the directors who are at the time parties to the proceeding
are not counted for determining either a majority or the presence of a
quorum;
|
(2)
|
if a quorum under clause (1)
cannot be obtained, by a majority of a committee of the board, consisting
solely of two or more directors not at the time parties to the proceeding,
duly designated to act in the matter by a majority of the full board
including directors who are
parties;
|
(3)
|
if a determination is not made
under clause (1) or (2), by special legal counsel, selected either by a
majority of the board or a committee by vote pursuant to clause (1) or (2)
or, if the requisite quorum of the full board cannot be obtained and the
committee cannot be established, by a majority of the full board including
directors who are
parties;
|
(4)
|
if a determination is not made
under clauses (1) to (3), by the affirmative vote of the shareholders
required by Section 302A.437 of the Minnesota Statutes, but the shares
held by parties to the proceeding must not be counted in determining the
presence of a quorum and are not considered to be present and entitled to
vote on the determination;
or
|
(5)
|
if an adverse determination is
made under clauses (1) to (4) or under paragraph (b), or if no
determination is made under clauses (1) to (4) or under paragraph (b)
within 60 days after (i) the later to occur of the termination of a
proceeding or a written request for indemnification to the corporation or
(ii) a written request for an advance of expenses, as the case may be, by
a court in this state, which may be the same court in which the proceeding
involving the person’s liability took place, upon application of the
person and any notice the court requires. The person seeking
indemnification or payment or reimbursement of expenses pursuant to this
clause has the burden of establishing that the person is entitled to
indemnification or payment or reimbursement of
expenses.
|
Amount
|
||||
SEC
Registration Fee
|
$
|
200
|
||
Printing
Fees
|
$
|
30,000
|
||
Legal
Fees and Expenses
|
$
|
80,000
|
||
Accounting
Fees and Expenses
|
$
|
60,000
|
||
Miscellaneous
|
$
|
55,000
|
||
Total
|
$
|
225,200
|
3.1
|
Articles
of Incorporation of the Registrant, as amended**
|
|
3.2
|
Bylaws
of the Registrant, as amended**
|
|
3.3
|
Amendment
to Articles*
|
|
5.1
|
Opinion
of Richardson & Patel LLP***
|
|
10.1
|
Form
of Employment Agreement by and between the Registrant and Kevin R.
Davidson dated October 4, 2006**
|
|
10.2
|
Form
of Employment Agreement by and between the Registrant and Gerald D. Rice
dated October 18, 2006**
|
|
10.3
|
Form
of Employment Agreement by and between the Registrant and Chad A. Ruwe
dated June 16, 2008**
|
|
10.4
|
Form
of Confidential Separation Agreement and Release by and between the
Registrant and Lawrence W. Gadbaw dated August 13,
2008**
|
|
10.5
|
Form
of Nondisclosure and Noncompete Agreement by and between the Registrant
and Lawrence W. Gadbaw dated October 18, 2006**
|
|
10.6
|
Form
of Stock Option Agreement by and between the Registrant and Kevin R.
Davidson dated June 5, 2008**
|
|
10.7
|
Form
of Director Stock Option Agreement between the Registrant and Thomas
McGoldrick dated August 22, 2006**
|
|
10.8
|
Form
of Director Stock Option Agreement between the Registrant and Andrew P.
Reding dated November 11, 2006**
|
|
10.9
|
Form
of Consulting Agreement by and between the Registrant and Jeremy Roll
dated February 29, 2008**
|
|
10.10
|
Form
of Consulting Agreement by and between the Registrant and Namaste
Financial, Inc. dated June 30, 2008**
|
|
10.11
|
Form
of Consulting Agreement by and between the Registrant and Marshall C. Ryan
and Mid-State Stainless, Inc. dated June 2008**
|
|
10.12
|
Form
of Investor Relations Agreement by and between the Registrant and Kulman
IR, LLC dated April 15, 2008**
|
|
10.13
|
Form
of Finder Agreement by and between the Registrant and Thomas Pronesti
dated March 10, 2008**
|
|
10.14
|
Form
of Patent Assignment by Marshall C. Ryan in favor of the Registrant dated
June 18, 2008**
|
|
10.15
|
Form
of Convertible Debenture by and between the Registrant and Kevin R.
Davidson dated February 2, 2007**
|
|
10.16
|
Form
of Convertible Debenture by and between the Registrant and Peter L.
Morawetz dated February 2, 2007**
|
|
10.17
|
Form
of Convertible Debenture by and between the Registrant and Andrew P.
Reding dated February 2, 2007**
|
|
10.18
|
Form
of Convertible Debenture by and between the Registrant and Thomas
McGoldrick dated January 30, 2007**
|
|
10.19
|
Form
of Convertible Debenture by and between the Registrant and Andcor
Companies, Inc. dated September 29, 2006**
|
|
10.20
|
Form
of Convertible Debenture by and between the Registrant and Carl Moore
dated March 1, 2007**
|
|
10.21
|
Form
of Convertible Debenture by and between the Registrant and Roy Moore dated
March 1, 2007**
|
|
10.22
|
Form
of Advisory Board Warrant Agreement by and between the Registrant and
Debbie Heitzman dated August 31, 2005**
|
|
10.23
|
Form
of Advisory Board Warrant Agreement by and between the Registrant and Mary
Wells Gorman dated August 31,
2005**
|
10.24
|
Form
of Advisory Board Warrant Agreement by and between the Registrant and
David Feroe dated August 31, 2005**
|
|
10.25
|
Form
of Advisory Board Warrant Agreement by and between the Registrant and Dr.
Arnold S. Leonard dated June 12, 2006**
|
|
10.26
|
Form
of Advisory Board Warrant Agreement by and between the Registrant and
Karen A. Ventura dated December 7, 2006**
|
|
10.27
|
Form
of Advisory Board Warrant Agreement by and between the Registrant and
Nancy A. Kolb dated December 20, 2006**
|
|
10.28
|
Form
of Advisory Board Warrant Agreement by and between the Registrant and Kim
Shelquist dated December 20, 2006**
|
|
10.29
|
Form
of Warrant Agreement by and between the Registrant and Wisconsin Rural
Enterprise Fund, LLC dated December 1, 2006**
|
|
10.30
|
Form
of Stock Purchase and Sale Agreement by and between the Registrant and
Wisconsin Rural Enterprise Fund, LLC dated July 31,
2006**
|
|
10.31
|
Form
of Subscription Agreement**
|
|
10.32
|
Form
of Registration Rights Agreement**
|
|
10.33
|
Form
of Escrow Agreement**
|
|
10.34
|
Form
of Warrant**
|
|
10.35
|
2008
Equity Incentive Plan**
|
|
10.36
|
Office
Lease Agreement by and between the Registrant and Roseville Properties
Management Company, as agent for Lexington Business Park,
LLC**
|
|
10.37
|
Form
of Employment Agreement by and between the Registrant and David Dauwalter
dated August 11, 2008**
|
|
10.38
|
Form
of Amendment No. 1 to Employment Agreement by and between the Registrant
and David Dauwalter dated September 11, 2008**
|
|
10.39
|
Form
of Consulting Agreement by and between the Registrant and Andcor
Companies, Inc. dated September 15, 2008**
|
|
10.40
|
Form
of Consulting Agreement by and between the Registrant and Taylor &
Associates, Inc. dated August 15, 2008**
|
|
10.41
|
Form
of Consulting Agreement by and between the Registrant and Gregory Sachs
dated October 20, 2008**
|
|
10.42
|
Form
of Restructuring Agreement dated June 9, 2008**
|
|
10.43
|
Form
of Secured Convertible Note Purchase Agreement dated July 23,
2007**
|
|
10.44
|
Form
of Secured Convertible Note dated July 2007**
|
|
10.45
|
Form
of Secured Convertible Note Security Agreement dated July
2007**
|
|
14
|
Code
of Ethics**
|
|
21
|
Subsidiaries
of the Registrant**
|
|
23.1
|
Consent
of Olsen Thielen & Co., Ltd.*
|
|
23.2
|
Consent
of Richardson & Patel LLP (See Exhibit
5.1)***
|
i.
|
Include any prospectus required
by section 10(a)(3) of the Securities Act of
1933;
|
ii.
|
Reflect in the prospectus any
facts or events which, individually or together, represent a fundamental
change in the information in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
and
|
iii.
|
Include any additional or
changed material information on the plan of
distribution.
|
BIODRAIN
MEDICAL, INC.
|
|||
By:
|
/s/
Kevin R. Davidson
|
||
Kevin
R. Davidson
|
|||
President
and Chief Executive
Officer
|
Name
|
Title
|
Date
|
||
*
|
Chairman
of the Board of Directors
|
February
12, 2009
|
||
Lawrence
W. Gadbaw
|
||||
/s/
Kevin R. Davidson
|
President,
Chief Executive Officer (Principal
Executive
Officer), Interim Chief Financial Officer
(Principal
Financial Officer)and
|
February
12, 2009
|
||
Kevin
R. Davidson
|
Director.
|
|||
*
|
Director
|
February
12, 2009
|
||
Gerald
D. Rice
|
*
|
Director
|
February
12, 2009
|
||
Chad
A. Ruwe
|
||||
*
|
Director
|
February
12, 2009
|
||
Peter
L. Morawetz
|
*
|
Director
|
February
12, 2009
|
||
Thomas
J. McGoldrick
|
||||
*
|
Director
|
February
12, 2009
|
||
Andrew
P. Reding
|
|
Authorized
Shares: The total number of par shares which this
Corporation shall have authority to issue is 40,000,000 shares with a par
value of one cent ($.01) per share; all of such shares shall be common
stock.”
|
/s/ Gerald D. Rice
|
||
Jerry
Rice, Secretary
|
|
Re:
|
BioDrain
Medical, Inc.
Registration
Statement on Form S-1 (“S-1”)
Filed
January 29, 2009
File
No. 333-155299
|
|
1.
|
Please
tell us, with a view toward disclosure, how you concluded to register the
resale of 7,101,267 shares of common stock and 4,689,290 shares underlying
warrants and that you have 8,180,831 shares outstanding. It
appears that adding the numbers to the bullet points in your response to
prior comment 1 does not result in the totals expressed prior to those
bullet points, in your fee table and throughout your
document.
|
|
2.
|
We
will continue to evaluate your response to prior comment 4 after the
warrants underlying the convertible notes have been
issued.
|
|
3.
|
We
note that you put in a price range. Prior to effectiveness,
please state the specific fixed price at which the securities will be sold
until they are trading on the OTC Bulletin
Board.
|
|
4.
|
If
you have already received a United States patent for your product, as
indicated by your responses to prior comments 10 and 11, then please
revise your second paragraph here
accordingly.
|
|
5.
|
We
note your response to prior comment 12. Because it appears you
have not provided us with the supplemental materials we requested, we
reissue the first sentence of prior comment 12. Also, please
reconcile your disclosure here and on pages 38 and 46 regarding the market
share currently held by Cardinal Health and
Stryker.
|
|
6.
|
We
note your responses to prior comments 6 and
15.
|
|
·
|
Please clarify how the risks
disclosed in the last paragraph relate to the restructuring agreement and
how it may impact potential investors. For example, you refer
here to the loss of management that could delay the implementation of your
business plan. It is unclear how this poses a risk to potential
investors, given your disclosure in the preceding paragraph, pages 53-54
and exhibit 10.42 that your operations will cease and your assets will be
transferred to Privco. Please revise;
and
|
|
7.
|
Regarding
your response to prior comment 7:
|
|
·
|
Revise your disclosure in the
first paragraph, which misstates the registrant’s reporting obligations in
the event that it registers a class of securities pursuant to Section 12
of the Exchange Act;
|
|
·
|
Clarify your reference in the
caption and first paragraph of this risk factor to registering your
securities on a “national securities exchange.” Do you mean
registering a class of your securities under the Exchange
Act?;
|
|
·
|
We reissue the second bullet in
part because that bullet requested an explanation of the effects of the
inapplicability of Section 16 of the Exchange Act, not Section 26;
and
|
|
·
|
We note that you do not intend
to register a class of your securities before this registration statement
is effective; however, your disclosure on page 68 indicates that you will
register a class of your securities at a later date. Please
clarify when and whether you intend on registering a class of your
securities under the Exchange Act. If you do not intend to so
register, revise your disclosure here and page 68 to remove any
implication to the contrary.
|
|
8.
|
We
note your response to prior comment 17. Rather than disclosing
all listing criteria applicable to the Nasdaq and NYSE markets, please
revise to disclose the listing criteria that you do not currently meet,
including the criteria noted in the last sentence of this risk
factor.
|
|
9.
|
Expand
to disclose the warrant exercise prices for the warrants being
registered.
|
|
10.
|
Reconcile
the disclosure here with that on page 29 regarding outstanding
warrants.
|
|
11.
|
Please
clarify your reference on page 22 to TUV SUD being a regulatory
body. Is their approval required before you can market and sell
your products? Or are they a private company that performs no
regulatory oversight?
|
|
12.
|
We
re-issue prior comment 21. Please revise to provide a
discussion of your critical accounting policies and
estimates. This discussion should present your analysis of the
uncertainties involved in applying an accounting principle at a given time
or the variability that is reasonably likely to result from its
application over time. You should address specifically when
your accounting estimates or assumptions bear the risk of
change. For example, it appears that there is significant
judgment in valuing stock options and warrants. Refer to
FR-72. While we see the changes in response to the comment, the
revisions do not provide meaningful disclosure. Please further
revise.
|
|
13.
|
Please
reconcile your reference here to “paying” full annual salary rates with
the disclosure throughout your document that you have accrued a salary
expense, which will be paid only when sufficient funds are
available.
|
|
14.
|
We
reference prior comment 24. We see that you were notified in
2007 that you would be billed $100,000 for product development work
performed by a contractor in 2003 – 2007. Please respond to the
following:
|
|
·
|
Tell us and disclose when you
recorded the $100,000
accrual.
|
|
·
|
Reconcile the disclosures in
the “research and development” discussions on pages 22 and 23 of
MD&A. From those disclosures it is not clear whether the
$100,000 was accrued in 2006 or
2008.
|
|
·
|
If the discussions on pages 22
and 23 are addressing different accruals, please clarify the
disclosure. Please ensure that you have provided a clear and
complete discussion of research and development costs and the accruals for
those costs.
|
|
·
|
Tell us why you did not make
accruals for the work as that work was performed. In that
regard, tell us why you believe there is no error in the financial
statements as it appears that product development work performed in prior
years is expensed in a later
year.
|
|
15.
|
We
refer to your response to prior comment 27. Please provide us
and disclose a clear basis in GAAP for the accounting applied in the
reduction of the accrued salaries. While we see the revisions
to the disclosure, those revisions do not provide a clear and transparent
discussion of the basis in GAAP for the
accounting.
|
|
16.
|
We
note your response to prior comment
29. Please:
|
|
·
|
Reconcile your disclosures on
pages 23, 26 and 27 regarding the amount of outstanding debt payments you
are obligated to make;
|
|
·
|
Expand the third paragraph on
page 25 to clearly disclose the nature of the “risks to investors” from
your early stage position. Also disclose the “risk in this
process” mentioned in the penultimate paragraph on page 25. For
example, do you anticipate providing an inducement similar to the
restructuring agreement you provided the “Investors” in order to obtain
funds through your October 2008
financing?;
|
|
·
|
Expand the sixth paragraph on
page 25 to disclose the amount of funds from your secondary financing that
will be used to satisfy the obligation noted in that
paragraph
|
|
·
|
Disclose the rights the holders
of your debts have in the event they demanded payment and you were unable
to fulfill your obligations. We note the disclosure on page 25
that this would “create a liquidity issue,” which does not appear to
sufficiently describe the results of a formal payment
demand;
|
|
·
|
Reconcile your disclosure in
the first paragraph under this caption that you expect research and
development expenses to increase with your disclosure in the second
paragraph on page 26 that there will be “nominal, if any, additional
expenses incurred for the development of our
product”;
|
|
·
|
Expand to discuss in more
detail “the progress we have made and the opportunities ahead of us” in
raising additional funds. Include in such discussion the types
of additional financing you are
pursuing;
|
|
·
|
Explain why you are “confident”
that you will have the ability to raise $3 million during the first half
of 2009, particularly in light of your stage of development, lack of
revenues, and “current economic
turmoil.”;
|
|
·
|
Clarify the nature of the
“other operating expenses” mentioned on page 23;
and
|
|
·
|
Please tell us how you have
communicated and will communicate with potential investors consistent with
Section 5 of the Securities Act, in light of this pending registration
statement.
|
|
17.
|
You
indicate that cash used in operations in 2008 was impacted by an “increase
in escrow cash.” Please tell us what you mean by “escrow cash”
and explain to us why that item is appropriately reported as an operating
activity under SFAS 95.
|
|
18.
|
Tell
us the terms of the “escrow cash” and explain where the “escrow cash” is
presented in the balance sheet. If included in cash, tell us
why that classification is appropriate in
GAAP.
|
|
19.
|
You
also indicate that cash used in operating activities in 2008 was increased
by an “increase in vested operations.” Please revise to clarify
what you mean by an “increase in vested options” and how that increase
impacted cash flows from
operations.
|
|
20.
|
Please
reconcile the amount of debt on the contractual obligation table to the
balance sheet as of September 30, 2008 on page F-3. Explain how
$11,800 of “long-term debt’ can be due in less than one
year. Please also revise to present the $10,000 notes payable
and the current portion of long-term debt on the
table.
|
|
21.
|
For
each issuance in the transactions beginning on page 31, state the warrant
or option exercise price.
|
|
22.
|
Please
reconcile your response to prior comment 38 with exhibit 3.1, which was
included as an exhibit to your original
filing.
|
|
23.
|
We
note your response to prior comment 39; however, we also note that you
continue to make claims regarding the safety and efficacy of your
product. For example, you state on page 39 that the FMS
“greatly reduces” safety issues and is “uniquely positioned to dominate
its market segment.” You also state on page 40 that your
product is “unique” and disclose on page 44 that FMS will “redefine the
manner in which [infectious fluid] is collected, measured and
disposed.” Please reconcile these statements with your response
to prior comment 60 and the fact other companies have already developed
and sold fluid collection and disposal systems in your target market
without exposure to healthcare
workers.
|
|
24.
|
Disclose
the date or dates when the warrants become
exercisable.
|
|
25.
|
We
note your response to prior comment 49. Clarify how your
product will “significantly reduce the risk of healthcare worker exposure”
to infectious fluids, as stated in the second paragraph on page 38, given
your disclosure in the following paragraph regarding products already
developed and marketed by your competitors that “address the deficiencies
described above.” Also expand the last bullet point on page 40
to compare how the competitors’ products mentioned in the second paragraph
on page 38 are different from your
own.
|
|
26.
|
Regarding
your responses to prior comments 42 and
55:
|
|
·
|
Clarify how the estimated
installation cost disclosed on page 50 accounts for the uncertainty
regarding the accessibility of sewer lines and suction systems noted on
page 39. Also clarify the basis for your estimates regarding the cost and
time of installation, given that it appears you have not yet installed
your product in any facility;
and
|
|
·
|
Revise the last sentence of the
penultimate paragraph on page 39 to clarify whether the information in
that sentence reflects your opinion. Your current disclosure
appears to attribute such information to third parties;
and
|
|
27.
|
We
note your response to prior comment 43. While your disclosure
on pages 40 and 52 refers to “established timeframes and plans” for the
regulatory process, it appears that the work you have done in preparation
of your submission to the FDA solely involves the hiring of regulatory
consultants. Please revise to clarify what work, if any, you have done in
preparation of that submission. For example, have you or your
regulatory consultant begun compiling any of the documents or preparing
the “Submittal Document” referenced on page
52?
|
|
28.
|
We
note from your response to prior comment 45 that you “do not expect to
acquire ownership of any patent rights or claims pertaining to such
fluid.” Expand to state whether you currently have any
intellectual property rights with respect to your disposable cleaning
kit. Also disclose whether you have any agreements with any
party regarding the disposable cleaning
kit.
|
|
29.
|
Please
clarify how the continuous operation feature mentioned in the last
paragraph on page 41 provides you with a significant competitive
advantage, given your disclosure on page 37 that current techniques and
products are also capable of continuous
operation.
|
|
30.
|
Please
expand your response to prior comment 47 to disclose all material
obstacles to achieving the “razor blade business model” referenced in your
disclosure. For example, given your response to prior comment
45 regarding your lack of intellectual property rights to the cleaning
kit, including the “special adapter,” it appears that medical providers
could use kits made by others rather than those made by
you. Please revise.
|
|
31.
|
Please
tell us how the “forecast” mentioned in the second paragraph under this
caption satisfied the requirements of Item 10 of Regulation
S-K.
|
|
32.
|
Please
reconcile your disclosures here and the second and third paragraphs on
page 38 regarding whether competitive systems that utilize canisters have
or need FDA approval.
|
|
33.
|
Please
expand your responses to prior comments 42 and 50 to include a complete
discussion of the disadvantages of your product that may result in
difficulty penetrating your target market. For example, we note
the numerous statements regarding the limited floor space and handling
needed for your product; however, it is unclear where you have discussed
the disadvantages resulting from the immobility of your system, as
indicated in your response to prior comment 42. Please revise
to include such a discussion. For example, would the mobility of your
competitors’ products enable them to be used in multiple rooms in a
hospital whereas use of your product would be confined to the room in
which it was installed?
|
|
34.
|
Please
explain the basis underlying the first sentence under this caption, given
that you have not yet finalized any agreement related to the manufacture
and distribution of your product and have not yet sold your product
commercially. Also clarify the meaning of the second sentence;
it is unclear to what strategy and sales objectives you are
referring. The purpose of the clause following the hyphen is
also unclear. Please
revise.
|
|
35.
|
We
note your response to prior comment 57. Ensure that your
disclosure distinguishes between aspiration and
accomplishments. If you know the material terms of the supply
agreement, disclose those terms, including the information requested by
prior comment 57. If you do not know the material terms, revise
your disclosure to state that fact. Also file that agreement as
an exhibit when it is finalized and reconcile your statement in the first
paragraph that your relationship is finalized with your subsequent
disclosure that it is still being
negotiated.
|
|
36.
|
We
reissue prior comment 61.
|
|
·
|
While you may encourage
investors to investigate aspects related to regulation by the FDA, simply
inserting a hyperlink and reference to the chapter of the Code of Federal
Regulations does not provide investors with sufficient information
regarding the material requirements that such regulation will have on you;
and
|
|
·
|
Although you refer on page 23
to market expansion to Europe and the Pacific Rim, it is unclear where you
provided disclosure regarding regulations in foreign jurisdictions in
which you will see to do
business.
|
|
37.
|
Please
reconcile your disclosure on pages 6, 53 and exhibit 10.42 regarding the
date on which the “restructuring agreement” was entered
into.
|
|
38.
|
Regarding
your responses to prior comments 64 and
65:
|
|
·
|
It appears that investors who
may acquire the shares offered pursuant to this registration statement
will not receive the rights referenced in your disclosure. It
also appears that those potential investors will not receive shares of
“Privco” and will, instead, only hold the shares of a public shell
company. If that is correct, please expand to state so
directly. Also revise your disclosure on page 1 and throughout
your document to disclose this consequence to potential
investors;
|
|
·
|
Expand the first paragraph to
clarify how the “Investors” will maintain their shares of your common
stock, given that such shares are registered for resale
here;
|
|
·
|
Reconcile your disclosures in
paragraphs 1, 3 and 6 and third paragraph on page 54 regarding who will
receive shares of Privco. Paragraph 1 and page 54 currently
suggest that the “investors” will receive Privco shares immediately after
the transfer of your assets to Privco; however, paragraphs 3 and 6
indicate that the “Company” will retain the Privco equity remaining after
distributing Privco shares to the
“Founders”;
|
|
·
|
Expand paragraph 6 to clarify
whether the “Company shareholders” who will receive either Privco shares
or the net proceeds from the sale of those shares include only the
“investors” or whether subsequent purchasers of your securities will also
receive those shares or
proceeds;
|
|
·
|
Disclose whether investors who
may acquire your shares offered pursuant to this registration statement
will be entitled to vote on the transfer of your assets to
Privco. If it is your belief that such investors will not be
entitled to vote on the asset transfer, then tell us how your conclusion
is consistent with your governing documents and the laws of the
jurisdiction in which you are incorporated. Cite all authority
on which you rely;
|
|
·
|
Expand the third paragraph on
page 54 to disclose whether a reverse merger or similar transaction
involving you, as opposed to Privco, is currently being negotiated or
considered; and
|
|
·
|
Clarify the meaning of the last
sentences in the second and third paragraphs on page 54. Given
your disclosure that your assets will be transferred to Privco and that
you will retain the “rest of Privco equity,” it is unclear what assets the
“Investors” will be able to liquidate and distribute the proceeds in
connection with a shareholder vote or reverse merger or similar
transaction.
|
|
39.
|
Please
reconcile your response to prior comment 66 and disclosure on page 53 with
paragraphs 2 and 4 of exhibit 10.42, which indicate that all company
stock, options and warrants will be cancelled, not just the securities
held by the founders. Also reconcile your disclosure in
paragraph 3 on page 53 with paragraph 3 of exhibit 10.42, which indicates
that all equity holders, not only the “Founders,” will receive Privco
shares and options.
|
|
40.
|
If
your private placement memorandum has already been modified, as noted in
your response to prior comment 67, then please disclose the date on which
it was modified and tell us why exhibit 10.42 was filed separately rather
than as part of exhibit 10.31.
|
|
41.
|
As
a related matter, please confirm our understanding of your response to
prior comment 67 that you and the “investors” entered into the
restructuring agreement and agreed to modify the private placement
memorandum prior to the date on which this registration statement was
filed. Generally, it is inconsistent with Section 5 of the
Securities Act to renegotiate the terms of a private placement while the
related shares are registered for
resale.
|
|
42.
|
We
note your response to prior comment 18. Please disclose the
information required by Item 401(c) of Regulation S-K with respect to Mr.
Sachs as well as the “two independent FDA consultants” and the “third
party firm” mentioned on page 40. Please also tell us why you have not
disclosed the information required by Item 401 with respect to Mr.
Dauwalter and Ms. Doerfert.
|
|
43.
|
Regarding
your response to prior comment 68:
|
|
·
|
We note the numerous claims you
make regarding the business experience of your medical advisory
board. For example; you state that Dr. Leonard is an
“outstanding…world-wide medical pioneer” and that he has “distinguished
himself in a great number of areas too numerous to detail.” You
also indicate that Mr. Feroe and Ms. Gorman were “instrumental” in gaining
acceptance of new technologies and changing existing
guidelines. Please revise to present a more balanced picture of
the qualifications of the members of your medical advisory
board;
|
|
·
|
We note your disclosure
regarding the awards previously granted to Dr.
Leonard. Please tell us, with a view toward disclosure,
how recipients of those awards are chosen and whether others received the
awards in addition to Dr. Leonard;
and
|
|
·
|
Please expand the first
paragraph under this heading to clarify how this board assists you in
“understanding the needs of [y]our market and ways to better serve that
market,’ in light of the fact that you have not yet begun marketing or
selling your product.
|
|
44.
|
Please
update your disclosures required by Item 402 of Regulation S-K to include
compensation information for your last completed fiscal
year.
|
|
45.
|
Please
tell us how your responses to prior comments 70 and 72 considers the 75%
salary rates you paid in 2007, as noted on page
22.
|
|
46.
|
We
note your response to prior comment 75. Since it is unclear
from your response how your conclusion as to Mr. Morawetz’s independence
considers the nature of your relationship with him disclosed on page 69,
we reissue the last sentence of prior comment
75.
|
|
47.
|
We
note from your response to prior comment 35 and disclosure on page 30 that
1,920,000 shares were to be allocated to your “existing
shareholders.” Please tell us the identities of these
individuals and the number of shares they received. If your
affiliates and principal stockholders received shares, disclose the
information required by Item 404 of Regulation S-K with respect to that
transaction, including the purpose of the share
allocation.
|
|
48.
|
Regarding
your response to prior comment 77:
|
|
·
|
Please reconcile your
disclosures in the second and third paragraphs regarding whether Mr.
Morawetz agreed to waive or reduce the outstanding fees you
owe;
|
|
·
|
Disclose the amount you agreed
to pay Mr. Morawetz pursuant to the “oral
understanding”;
|
|
·
|
Clarify whether Mr. Morawetz’s
efforts at contacting distributors and investors were
successful. Also clarify the nature of the “general counsel
services” he provided;
and
|
|
·
|
Please include as an exhibit
the summary of the oral agreement when it is approved by the
parties.
|
|
49.
|
We
reissue prior comment 78, given the continued reference to Mr. Morawetz in
the third paragraph of this
section.
|
|
50.
|
We
note your responses to prior comments 79 and
80:
|
|
·
|
It appears from your disclosure
that your affiliates will receive cash bonuses and have their option
vesting accelerate upon receipt of $3 million in
funding. Please revise to disclose on an individual and
aggregate basis the dollar amounts and number of shares to be received,
including whether the unpaid, accrued salaries will be paid from such
funds;
|
|
·
|
Revise your table on page 76 to
disclose the number of unexercisable stock options currently held by your
officers, directors and principal
stockholders;
|
|
·
|
Update your disclosure to
discuss whether salaries were paid or accrued from June 2008 to
present.
|
|
51.
|
Regarding
your response to prior comment 82,
please:
|
|
·
|
Tell us why you did not include
Erick Richardson in your disclosure on page 69, given your disclosure on
page 76 regarding the number of shares he beneficially
owns;
|
|
·
|
Reconcile your disclosure here
that James Taylor IV acquired more than 5% of your shares with your
disclosure on page 76 that James Taylor III holds more than 5% of your
shares; and
|
|
·
|
Tell us, with a view toward
disclosure, why David Dauwalter is not listed as a 5% shareholder here and
on page 76, given the amount of his investment in you at the time he
commenced his employment that is mentioned in exhibit
10.37.
|
|
52.
|
We
note your response to prior comment 83. We reissue the first
bullet point of that comment because it is unclear where you provided the
disclosure requested by that
comment.
|
|
53.
|
It
is unclear from your response to prior comment 85 how you considered the
referral services provided by Mr. Roll, as noted on page II-6. Therefore,
we reissue the comment. Also tell us how your response to prior comment 85
accounts for the consulting relationship mentioned in the fourth bullet on
page 70 and on page II-5.
|
|
54.
|
We
note your response to prior comment 86. In addition to
disclosing the general terms of the transactions in which the selling
security holders acquired the shares, please indicate by footnote which
selling security holders participated in each of the transactions noted in
the bullet points on page 70.
|
|
55.
|
We
note your response to prior comment 86. In addition to
disclosing the general terms of the transactions in which the selling
security holders acquired the shares, please indicate by footnote which
selling security holders participated in each of the transactions noted in
the bullet points on page 70.
|
|
56.
|
We
note your response to prior comment 89. However, your
disclosure continues to appear inconsistent regarding the number f shares
underlying warrants that are held by Mr. Roll. For example, you
disclose on page 70 that Mr. Roll holds warrants to purchase 40,001 shares
but your disclosure on pages 31, F-10 and II-6 indicates that Mr. Roll
holds warrants to purchase only 11,429 shares. Therefore, we
reissue prior comment 89.
|
|
57.
|
Please
reconcile your disclosures in the first bullet and in notes 11-17
regarding the aggregate number of shares underlying the convertible
note.
|
|
58.
|
Please
revise your disclosure here consistent with your response to prior comment
3.
|
|
59.
|
Please
update your disclosure here to be of the most recent practicable
date.
|
|
60.
|
We
note your response to prior comment 90; however, your disclosure on pages
71 and 77 continues to disclose different numbers of shares underlying
warrants held by James Taylor. Additionally, the number of common shares
held by RP Capital, as disclosed in notes 12 and 13, differs from the
number of common shares it holds as disclosed on page 71. Specifically,
subtracting your third column from your second column does not equal
142,857. Therefore, we reissue prior comment
90.
|
|
61.
|
We
note your response to prior comment 92. However, to continues to be
unclear how your July 2007 convertible note financing relates to your
October 2008 financing, given your disclosure that the October 2008
financing only involved common stock and warrants. For example, it is
unclear why the monetary penalties noted on page 79 will be paid pro rata to investors in
your October 2008 financing and how the registration rights relate to the
October 2008 financing. Please revise. Also identify the “seven holders”
who acquired and hold the convertible
notes.
|
|
62.
|
We
note your response to prior comment 93.
Please
|
|
·
|
Disclose the aggregate number
for shares beneficially owned by all affiliates of Richardson & Patel
and registered for resale, as requested by that
comment;
|
|
·
|
Reconcile the number of shares
held by the law firm and its affiliates that are disclosed here with the
numbers disclosed in the selling security holders’ table. We note, for
example, that your disclosure here regarding the number of shares held and
offered by Erick
Richardson,
Nimish
Patel and RP
Capital differs from the number of shares disclosed in that
table;
|
|
·
|
Ensure that your disclosure
here includes all interests of the law firm and its affiliates. For
example, we note the debt you owe to the law firm that is mentioned on
page 23; and
|
|
·
|
Provide us your assessment of
the materiality of any risks resulting from the interests of the law firm
and its affiliates.
|
|
63.
|
Please
update the financial statements when required by Rule 8-08 of Regulation
S-X.
|
|
64.
|
We
re-issue prior comment 94. Please have your auditor tell us why they have
asked that their consent appear in the body of the filing on page F-2. The
consent should appear as an appropriately numbered
exhibit.
|
|
65.
|
We
re-issue prior comment 96. Please revise to remove the label “audited”
from the top of the balance sheet, statement of operations and cash flows
as of and for the year ended December 31, 2997. Since full audited
financial statements, including an audit opinion, are not included in the
interim presentation, amounts derived from the audited financial
statements should not be labeled
“audited”.
|
|
66.
|
Various
lines items on the statement indicate that shares were issued at $1.67 per
share. However, the shares do not appear to be recorded based on that
assigned value. For instance, we see an issuance in 2006 of 86,869 shares
for “vendor contractual consideration” where the disclosure indicates that
the shares were valued at $1.67 per share, but the amount recorded totals
only $1,451, which does not appear to reflect the $1.67 per share value.
Please tell us and clearly disclose how share issuance were accounted for
and valued. Demonstrate to us that your accounting is appropriate in
GAAP.
|
|
67.
|
Please
remove the captions “un-audited” from the sub- totals for all annuals
periods.
|
|
68.
|
Please
provide a cash flow statement for the nine months ended September 30,
2007. Please refer to Article 8 of Regulation
S-X.
|
|
69.
|
We
reference prior comment 100 and see the footnote disclosure added to the
bottom of the statement of cash flows regarding the stock issuances during
2008. Please expand the notes to the financial statements to present a
full discussion of the private placements and related stock and warrant
issuances consummated in 2008. This discussion should (1) describe all
significant terms and provisions of the private placements and equity
instruments issued and (2) provide a clear and complete discussion of the
accounting applied. As a related matter, if you entered into registration
right agreements in connection with the 2008 private placements, the notes
to financial statements should include the disclosure required by FSP EITF
00-19-2.
|
|
70.
|
Please
tell us why cash as of December 31, 2007 on the statement of cash flows
does not agree with cash at December 31, 2007 on the face of the balance
sheet. In this regard, it appears that the summation of the total net cash
provided by financing activities for this period is not mathematically
correct. Please revise as
necessary.
|
|
71.
|
We
refer to the disclosure added in response to prior comment 102. We see
that you paid Mr. Ryan $75,000 and 150,000 warrants in exchange for the
exclusive assignment of the patent. Disclose when this transaction took
place and clarify whether the transaction is reflected in the accompanying
financial statements. Please also disclose how you are accounting for the
value of the cash and warrants.
|
|
72.
|
As
a related matter, you state that you assigned a fair value of $52,500 to
the warrants based on the per share price of the October 2008 financing.
It does not appear that you have used an option pricing model, such as the
Black-Scholes Merton model, to determine the fair value of the warrants.
Please tell us why your valuation method is appropriate in GAAP, including
how your valuation method considers the guidance from SFAS 123 (R). Also
tell us how the disclosure is consistent with the response to prior
comment 118. In that response you informed us that warrants are valued
based on the Black-Scholes Merton
model.
|
|
73.
|
We
refer to the first sentence under the table appearing at the top of page
F-9. Based on the weighted average remaining lives disclosed in the
referenced table, your statement that options expire through 2013 does not
appear accurate. Please revise or
advise.
|
|
74.
|
Please
revise the disclosure so that the narratives describing the various share,
warrant and option issuances can be readily reconciled with the
transactions disclosed on the face of the statements of stockholders’
equity and statements of cash flows and with
issuances.
|
|
75.
|
Refer
to your responses to prior comments 103, 110 and 111. Please
revise to disclose how each issuance was valued and accounted for,
including the model(s) and all significant assumptions. In that
regard, please disclose the fair value assigned to each issuance and how
that amount was recorded in the financial statements. Pursuant
to SFAS 7, the disclosure should also describe management’s basis for the
fair value assigned in non-cash transactions. Refer to SFAS 7
and SFAS 123(R).
|
|
76.
|
We
refer to the revisions in response to comment 104. You disclose
that 543,292 options priced at $0.01 per share were issued to Mr.
Davidson. You also disclose that on September 12, 2008 the
Board ratified the issuance and that the options vest immediately;
however, the options are recorded by footnote only in the financial
statements and will
be recorded as compensation expense in the operating
statement. Please tell us the value assigned to the options and
why the amounts have not been recorded as compensation at September 30,
2008. Your response should fully explain how the accounting is
appropriate under SFAS 123(R).
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77.
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We
reference prior comment 19 and the additional disclosure included in
response to that comment on page F-12 for contingent stock and option
issuances. Please revise to disclose your accounting for each
of the contingent issuances. In that regard, your disclosure
should be sufficiently detailed so that it is clear that you are
appropriately accounting for the agreements. Also, disclose
whether you have recognized any compensation for these issuances or, if
not, when you expect to recognize compensation. Please refer to
SFAS 123(R) for issuances to employees and EITF Issue No. 96-18 for
issuances to non-employees.
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78.
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We
see that you entered into an oral agreement with director Peter Morawetz
for services. You disclose that fees owed to him total $84,963,
yet no amounts have been expensed or accrued because there is an oral
understanding that “the amount to be paid will be less.” Please
tell us why you should not accrue and expense the amount owed to Mr.
Morawetz. We refer to SFAS 140 which states that a liability is
not extinguished until (a) the debtor pays the creditor and is relieved of
its obligation for the liability or (b) the debtor is legally released
from being the primary obligor under the liability, either judicially or
by the creditor.
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79.
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We
reference the paragraph at the top of page F-13. Please tell us
what this paragraph is intended to convey and how it makes meaningful
accounting disclosure. In that regard, please explain how the
statements are consistent with the accounting guidance on the valuation of
and accounting for stock-based compensation as set forth in SFAS 123(R)
and related literature.
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80.
|
We
see that certain of your debt are convertible. Please revise to
label the debt as convertible on the face of your balance
sheet.
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81.
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As
you disclose that notes totaling $284,000 are “passed their due dates
and could be called by the holders,” please tell us why only $186,000 is
classified as current in the balance sheet. Explain the basis
in GAAP for your conclusion.
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82.
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We
note the disclosure that the $170,000 note contains penalties until the
registration statement is declared effective by the
SEC. Disclose whether you have accrued any liability under the
registration rights agreement and provide an accounting policy
disclosure. Refer to FSP EITF
00-19-2.
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83.
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We
re-issue prior comment 108. We see that you are a development
stage business with recurring losses, operating cash flow deficits and no
revenues. Please have your auditors tell us how they evaluated
the requirements of AU Section 341 in concluding that the audit report
should not include a paragraph regarding going concern with accompanying
footnote disclosure as specified in the referenced
guidance. While we see your response it fails to address the
requirements of the cited guidance. Also have your auditor
reconcile their view with the management’s disclosure on page 3 that
various matters “raise substantial doubt about our ability to continue as
a going concern.”
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84.
|
Please
revise so that the numbers of outstanding shares as of December 31, 2007
and 2006 agree to the corresponding numbers from the statement of
stockholders’ equity (deficit).
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85.
|
We
reissue prior comment 109. We no not see where you have labeled
your notes payable and long-term debt as “convertible,” as
applicable. Please
advise.
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86.
|
Please
remove the captions “un-audited” from the sub-totals for all applicable
periods.
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87.
|
We
re-issue to prior comment 111. Please also revise to include a
discussion in the footnotes to the audited financial statements of shares
and equity instruments issued during all periods presented. In
that regard describe the individual transactions, consideration received
by the Company and how the equity instruments issued in those transactions
were accounted for and valued. Refer to SFAS 7, SFAS 123(R),
and SFAS 129. The expanded disclosure should be readily
reconcilable to disclosure in the statement of stockholders’ equity
(deficit) and statement of cash flows. While we see your
response, the footnotes to the audited financial statements should present
all relevant required disclosure.
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88.
|
We
see that you revised your statement of cash flows in response to prior
comment 113 and that this changed the total cash used in operating
activities and provided by financing activities for the year ended
December 31, 2007 and inception to date. Please label the
statement of cash flows as “restated” and provide appropriate footnote
disclosure. Refer to paragraph 26 of SFAS
154.
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89.
|
We
do not see where you have included any additional disclosure about your
policy for patent costs in response to prior comment
114. Please revise.
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90.
|
Please
reconcile the numerical disclosures of the amounts of research and
development expense in 2007 and 2006 as presented in this footnote with
the corresponding numerical disclosures of the amounts of research and
development expense in 2007 and 2006 as presented in MD&A on page
23.
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91.
|
We
reference the statement that as of December 31, 2007 you have “accrued
$100,000 for unbilled product development work since
2002.” However, we see that total research and development
expense for the year ended December 31, 2007 is only
$1,434. Please disclose the actual date of the
accrual. Please also clarify disclosure in the “research and
development” discussions on pages 22 and 23 of MD&A. From
those disclosures it is not clear whether the $100,000 was accrued in 2006
or 2008.
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92.
|
Please
tell us whether the numerical disclosures of vested options and warrants
described in the sentence appearing directly under the stock
option/warrant roll-forward were updated for the stock
splits.
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93.
|
We
re-issue prior comment 116. You disclose that you use the
calculated value method to value stock options. Under
SFAS123(R) that method is defined as a measure of the value of a share
option or similar instrument determined by substituting the historical
volatility of an appropriate industry sector index for the expected
volatility of an appropriate industry sector index for the expected
volatility of a nonpublic entity’s share price in an option-pricing
model. Your disclosure suggests that you did not apply a
measure of volatility since that measure is zero. Tell us why
your volatility assumption is appropriate under the guidance set forth in
paragraphs A43 through A48 of SFAS123(R). Please also refer to
the guidance about volatility set forth in SAB Topic 14. Your
response should fully demonstrate that you have appropriately applied
SFAS123(R) in establishing a volatility
assumption.
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94.
|
We
re-issue prior comment 17. SFAS123(R) calls for numerous
disclosures as set forth in paragraphs A240 and A241 that are required for
both employee and non-employee transactions. Also note that you
should comply with all disclosures applicable to a public company as a
result of your registration statement. Your disclosures do not
appear compete under the cited guidance. Please appropriately
revise.
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95.
|
We
re-issue prior comment 118. Please revise to disclose how you
value warrants and to provide all relevant valuation disclosures about
warrants required by SFAS123-R. Refer to paragraph 64 and
Paragraphs A240 and A241 of the
Statement.
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96.
|
We
reissue prior comment 120. Please note that under the
definitions in the Glossary to SFAS123(R) you are no longer a non-public
entity as of the filing date of the Form-S-1. Accordingly, any
share options or similar instruments issued on or after that date should
be valued and accounted for under the guidance applicable to public
companies under SFAS123(R). That is, you should not use the
calculated value method for instruments issued or modified on or after
November 12, 2008. Refer to SAB Topic 14 for further
guidance.
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97.
|
We
note your response to prior comment 123. We reissue that
comment because it appears you have provided the information required by
Item 701 of Regulation S-K with respect to your transaction with Mr. Sachs
that is noted on page 33 and the options granted to your executives
officers, as disclosed on page 32.
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98.
|
We
reissue prior comment 125, given the continued inconsistencies regarding
the number of common shares outstanding disclosed on pages 1 and
F-5. Also tell us, with a view toward disclosure, how your
balance sheet as of September 30, 2008 on page F-3 states that you have
8,180,832 shares outstanding, given that your disclosure that the recent
financing did not close until the end of October,
2008.
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99.
|
We
note your response to prior comments 128 and 130. We reissue
the first sentence of prior comments 128 and 130. We reissue
the first sentence of prior comment 130 because it appears that exhibits
10.43 and 10.44 both omit Schedule
A.
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100.
|
We
note your response to prior comment 126. However, your filing
still appears to lack the first clause of Item 512(a)(5). It
also appears that your filing continues to lack the undertaking required
by Item 512(a)(6) of Regulation S-K. Therefore, we reissue
prior comment 126.
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101.
|
We
note your response to prior comment 127. Please reconcile your
disclosures on pages 58 and 59 and here regarding the identity of your
chief executive officer.
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102.
|
We
note your response to prior comment 131; however, it appears that you have
not filed an amended copy of your articles of incorporation with this
amendment. Please file a complete copy of your articles, as
previously requested.
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Very
truly yours,
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RICHARDSON
& PATEL, LLP
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Ryan
Hong, Esq.
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