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Dr Chan's Replies

Dr Chan's Replies

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Published by m_e_
Dr Chan's replies from the last year regarding Cytosorb (TM) of Cytosorbents.
Dr Chan's replies from the last year regarding Cytosorb (TM) of Cytosorbents.

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Published by: m_e_ on Oct 16, 2010
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10/16/2010

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June 4th (question by warren)Dear Xxxxxx,Thank you for your email. I understand this is a sensitive point for most shareholders. In a developmentstage company, raising equity is an unfortunate necessity. However, I believe it is imperative thatmanagement does so responsibly.In terms of CytoSorbents, I thought it would be helpful to point out a few things that demonstrate whatwe are trying to accomplish.1) If you look at our income statement for 2008, 2009 and 2010, our burn is low compared to manyother development stage companies. Our entire annual net loss (excluding non-cash charges) has beenless than $3M in 2008 and 2009, which includes our clinical trial costs. Please compare the cashmanagement of our company with other development stage companies. There are some developmentstage companies with $20M in cash, burning $20M a year. You will find that we compare favorably.Our advantage is that we don’t need to raise a huge amount of money to continue making progress. Ingeneral, that means less dilution for shareholders. We have also been very aggressive in trying to bringin non-dilutive or less dilutive money into the company wherever possible.2) Please compare the fully-diluted market capitalization of companies trying to make the transitionfrom development stage to commercial stage. Even disregarding the market potential of our products,you can make a judgement on your own on how we compare. If we are successful and have asuccessful product, it could make raising money at low cost much easier, and at some point, thecompany could fund operations and expansion through positive cash flow. This is the significance of gaining CE Mark approval. Our manufacturing process is inherently low cost and in volume, our grossmargins are expected to significantly exceed the 40-60% gross margins seen in the medical deviceindustry in general. Let me remind you that this is a low cost, high margin razorblade in other company’s razors with an outstanding business model in the favorable DRG reimbursement area of critical care.3) If you purchased the stock of our company in the past year to year and a half, in general the onlydilution that shareholders have suffered was from the regular quarterly issuance of Series A and SeriesB preferred dividends and the issuance of common stock warrants associated with the Series B warrantexercise. The number of fully diluted shares in the company has long been determined by the Series Bfinancing completed in June 2008. Yes, the outstanding common stock float has significantly increaseddue to the conversion of preferred stock into common stock, however, the fully diluted share count has been relatively stable, in comparison. If you bought X% of the company last June, on a fully-diluted basis, the ownership percentage has not changed drastically.May 12th (question by warren)Dear Xxxxx,Thank you for your email. Your comments capture the essence of the difficulties in buying or sellingstock for insiders in a publicly-traded company undergoing a clinical trial. However, as you can seefrom our most recent 10-K filing, I am the beneficial owner of 603,564 common shares of CytoSorbents Corporation (on an as-if converted basis) that I purchased with my personal money.
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In terms of your other question, whenever an investor, retail or institutional, purchases shares of acompany, there is always the expectation that they will sell the stock at some point. When it happens isanyone’s guess. Whether they buy shares in a PIPE financing, or on the open market, this is the natureof investing. In fact, in most private equity financings, including traditional PIPE financings, regardlessof structure, investors typically have the ability to sell registered public stock at any time. That beingsaid, I cannot predict what LPC will do with our shares. They have the ability to hold or sell our stock.They certainly have no incentive to buy our stock at $0.15, for example, and then dump it en masse thenext day at $0.14 cents for a loss. Like most experienced investors, if they want to sell, the strategy istypically to sell slowly over time so that the stock price is not adversely impacted. I would also say thatI was impressed by the level of due diligence they have performed on our company. These are verysmart institutional investors that are selective in their investments and my perception is that theycertainly understand and are excited about what we do.Looking at it from a bigger picture, I think the thing to remember is that they are providing the valuablefunction of helping to finance the company and advance our programs, including our clinical trial.General daily trading and market activity typically does not help a company raise money, unless theyhave the ability to sell stock to the public markets. This is the whole concept behind IPOs andsecondary offerings. LPC provides the link for us to do so. This is to the benefit of all shareholders.Hopefully this helps to address your concerns. Thank you again for your support.Best,PhillipJune 3th (question by Warren)Dear Xxxxxx,We have been working on a multi-faceted financing approach, looking to put together a financing package that would result in the least shareholder dilution that we could accomplish. The LPC equityline is a key part of that strategy. Our non-dilutive NJ NOL award was part of that strategy. The non-dilutive federal tax credit is another piece, for example. That being said, we need to wait until our registration statement is declared effective before drawing down on the equity line. We have beenworking on the S-1 and hope to file soon. We will also have to wait for our share price to rise above$0.10. Make no mistake, the LPC equity line is a good deal for shareholders. Although we never intended to rely solely on the LPC equity line, had our share price remained above $0.10, it could have been a primary financing vehicle for the company. The selling that is currently going on in thecompany is partly related to weakness in the overall markets and partly due to certain sellers in themarket. Their motivation for selling is their own. It is not based on any “inside” information.Hopefully this helps answer your question.
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 Best,Phillip ____________________________ Phillip P. Chan, MD, PhDChief Executive Officer CytoSorbents Corporation7 Deer Park Drive, Suite K Monmouth Junction, NJ 08852 pchan@cytosorbents.comO (732) 329-8885 ext *823F (732) 329-8650Oct. 1th (Question by Warren)Dear Xxxxxx,Thank you for your email. Not specifically relating to the phrase you have highlighted, I can only saythat we try to carefully review all materials that are posted on our website.Thank you again for your continued support and have a great weekend.Best,Phillip ____________________________ Phillip P. Chan, MD, PhD
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