##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: March 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-49635
 MINRAD INTERNATIONAL, INC.
 (Exact name of small business issuer as specified in its charter)
 
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    870299034
(I.R.S. Employer
Identification No.)50 Cobham Drive, Orchard Park, New York
(Address of principal executive offices)
    
    14127
(Zip Code)
 (716) 855-1068
Issuers Telephone Number
 (Former name, former address and former fiscal year if changed since last report)
 þ o
 o þ
  o þ




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##### 



MINRAD INTERNATIONAL, INC.
FORM 10-QSB
THREE-MONTH PERIOD ENDED March 31, 2007
 TABLE OF CONTENTS
 PAGEPART I.
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (Unaudited)Consolidated Balance Sheets
at March 31, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations
Three-month periods ended March 31, 2007 and 2006
    
    
    4Consolidated Statement of Changes in Stockholders Equity
Three-month period March 31, 2007
    
    
    5Consolidated Statement of Changes in Stockholders Equity
Three-month period ended March 31, 2006
    
    
    6Consolidated Statements of Cash Flows
Three-month periods ended March 31, 2007 and 2006
    
    
    7Notes to Financial Statements
    
    
    8ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
    
    
    13ITEM 3.
    
    CONTROLS AND PROCEDURES
    
    
    16PART II.
    
    OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    17ITEM 2.
    
    UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
    
    
    17ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    17ITEM 4
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    17ITEM 5.
    
    OTHER INFORMATION
    
    
    17ITEM 6.
    
    EXHIBITS AND REPORTS ON FORM 8-K
    
    
    17SIGNATURES
    
    
    17EX-31.1EX-31.2EX-32.1
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##### Table of Contents



Item 1. Financial Statements .
 MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 (in thousands)
 March 31, 2007
    
    
    December 31, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,053
    
    
    $
    4,664Investments
    
    
    3,620
    
    
    
    7,249Interest receivable
    
    
    62
    
    
    
    86Loan proceeds receivable
    
    
    1,275
    
    
    
    Accounts receivable, net
    
    
    7,247
    
    
    
    10,473Inventories, net
    
    
    5,625
    
    
    
    4,360Prepaid
expenses and advance payments
    
    
    2,755
    
    
    
    1,477Total current assets
    
    
    22,637
    
    
    
    28,309Property and equipment:Machinery and equipment
    
    
    2,585
    
    
    
    2,420Computers
    
    
    1,315
    
    
    
    571Furniture and fixtures
    
    
    778
    
    
    
    662Leasehold
improvements
    
    
    385
    
    
    
    385Construction in progress
    
    
    6,974
    
    
    
    4,17712,037
    
    
    
    8,215Less accumulated depreciation
    
    
    1,454
    
    
    
    1,234Total property and equipment
    
    
    10,583
    
    
    
    6,981Other assets
    
    
    930
    
    
    
    439Total assets
    
    $
    34,150
    
    
    $
    35,729LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,495
    
    
    $
    965Accrued expenses
    
    
    1,025
    
    
    
    1,262Current portion of long term debt
    
    
    151
    
    
    
    Total current liabilities
    
    
    2,671
    
    
    
    2,227Commitments
and Contingencies
    
    
    
    
    
    
    Long term debt
    
    
    1,124
    
    
    
    Stockholders equityCommon stock
    
    
    471
    
    
    
    470Additional paid-in-capital
    
    
    76,751
    
    
    
    76,513Accumulated deficit
    
    
    (46,867
    )
    
    
    (43,481
    )Total stockholders equity
    
    
    30,355
    
    
    
    33,502Total liabilities and stockholders equity
    
    
    34,150
    
    
    $
    35,729
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (in thousands, except per share amounts)
 Three-Month
    
    
    Three-MonthPeriod Ended
    
    
    Period EndedMarch 31, 2007
    
    
    March 31, 2006Revenue
    
    $
    2,926
    
    
    $
    3,123Cost of goods sold
    
    
    2,236
    
    
    
    1,564Gross profit
    
    
    690
    
    
    
    1,559Operating expenses:Sales and marketing
    
    
    1,910
    
    
    
    761Research and development
    
    
    1,061
    
    
    
    427Finance and administrative
    
    
    1,196
    
    
    
    861Total operating expenses
    
    
    4,167
    
    
    
    2,049Operating loss
    
    
    (3,477
    )
    
    
    (490
    )Interest income (expense):Interest expense
    
    
    (3
    )
    
    
    (75
    )Interest income
    
    
    94
    
    
    
    Total interest income (expense)
    
    
    91
    
    
    
    (75
    )Net loss
    
    
    (3,386
    )
    
    
    (565
    )Less preferred stock dividends  non cash
    
    
    
    
    
    
    (183
    )Net loss available for common stockholders
    
    $
    (3,386
    )
    
    $
    (748
    )Net loss per share, basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.03
    )Weighted average common shares outstanding, basic and diluted
    
    
    47,071
    
    
    
    29,125
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
 THREE-MONTH PERIOD ENDED MARCH 31, 2007 (UNAUDITED)
 (in thousands, except number of shares)
 Series AConvertiblePreferred Stock
    
    
    Common Stock
    
    
    Additional
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Deficit
    
    
    TotalBalance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    47,048,240
    
    
    $
    470
    
    
    $
    76,513
    
    
    $
    (43,481
    )
    
    $
    33,502Stock options exercised
    
    
    
    
    
    
    
    
    
    
    45,291
    
    
    
    1
    
    
    
    116
    
    
    
    
    
    
    
    117Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    122Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,386
    )
    
    
    (3,386
    )Balance at March 31, 2007
    
    
    
    
    
    
    
    
    
    
    47,093,531
    
    
    $
    471
    
    
    $
    76,751
    
    
    $
    (46,867
    )
    
    $
    30,355
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT
OF CHANGES IN STOCKHOLDERS EQUITY
 THREE-MONTH PERIOD ENDED MARCH 31, 2006 (UNAUDITED)
 (in thousands, except number of shares)
 Series AConvertiblePreferred Stock
    
    
    Common Stock
    
    
    Additional
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Deficit
    
    
    TotalBalance at December 31, 2005
    
    
    11,200
    
    
    $
    3
    
    
    
    29,058,431
    
    
    $
    291
    
    
    $
    40,262
    
    
    $
    (36,209
    )
    
    $
    4,347Conversion of preferred
stock and accrued dividends
to common stock
    
    
    (290
    )
    
    
    
    
    
    
    145,953
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    2Stock options exercised
    
    
    
    
    
    
    
    
    
    
    33,608
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    57Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    
    
    
    
    118Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (183
    )
    
    
    (183
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (565
    )
    
    
    (565
    )Balance at March 31, 2006
    
    
    10,910
    
    
    $
    3
    
    
    
    29,237,992
    
    
    $
    292
    
    
    $
    40,438
    
    
    $
    (36,957
    )
    
    $
    3,776
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (in thousands)
 Three-Month
    
    
    Three-MonthPeriod Ended
    
    
    Period EndedMarch 31, 2007
    
    
    March 31, 2006Cash flows from operating activities:Net loss
    
    $
    (3,386
    )
    
    $
    (565
    )Adjustments to reconcile net loss to net
cash used by operating activities:Increase in inventory reserve
    
    
    
    
    
    
    10Depreciation and amortization
    
    
    223
    
    
    
    107Stock based compensation
    
    
    122
    
    
    
    118Amortization
of bond discount
    
    
    (12
    )
    
    
    (Increase) decrease in assets:Accounts receivable
    
    
    3,226
    
    
    
    (242
    )Interest receivable
    
    
    25
    
    
    
    Inventories
    
    
    (1,265
    )
    
    
    206Prepaid expenses
    
    
    (1,281
    )
    
    
    (106
    )Increase (decrease) in liabilities:Accounts payable
    
    
    (365
    )
    
    
    (228
    )Accrued expenses
    
    
    (237
    )
    
    
    156Net cash used by operating activities
    
    
    (2,950
    )
    
    
    (544
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,927
    )
    
    
    (128
    )Proceeds
from sale of investments
    
    
    3,641
    
    
    
    Increase in other assets
    
    
    (492
    )
    
    
    (14
    )Net cash
provided (used) by investing activities
    
    
    222
    
    
    
    (142
    )Cash flows from financing activities:Borrowings under demand notes payable
    
    
    
    
    
    
    400Proceeds from options exercised
    
    
    117
    
    
    
    58Deferred financing costs
    
    
    
    
    
    
    (59
    )Preferred cash dividends paid
    
    
    
    
    
    
    (170
    )Net cash provided by financing activities
    
    
    117
    
    
    
    229Net decrease in cash and cash equivalents
    
    
    (2,611
    )
    
    
    (457
    )Cash and cash equivalents  Beginning of period
    
    
    4,664
    
    
    
    670Cash and cash equivalents  End of period
    
    $
    2,053
    
    
    $
    213
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  BASIS OF PRESENTATION
  NOTE 2  RECENT ACCOUNTING PRONOUNCEMENTS
  NOTE 3  DEBT
    Year
    
    Commitment2007
    
    $
    1092008
    
    
    1692009
    
    
    1742010
    
    
    1802011
    
    
    186Thereafter
    
    
    457Total
    
    $
    1,275
 NOTE 4  EQUITY
  NOTE 5  SUPPLEMENTAL CASH FLOW INFORMATION
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  2007
    
    
    2006Non-cash
investing and financing activities (in thousands):Property and equipment
acquisitions recorded as
accounts payable
    
    $
    895
    
    
    $
    427Loan
proceeds receivable
    
    $
    1,275
    
    
    $
    Preferred stock dividend payable
    
    $
    
    
    
    $
    181Conversion of preferred stock
to common stock
    
    $
    
    
    
    $
    290Conversion of accrued dividends
to common stock
    
    $
    
    
    
    $
    2
 NOTE 6  STOCK OPTIONS
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Three-Month Periods EndedMarch 31,
    
    March 31,2007
    
    2006Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    34
    %
    
    
    34
    %Risk-free interest rate
    
    
    4.6
    %
    
    
    4.4
    %Expected life of options
    
    4.0 Years
    
    
    6.4 Years
  Three-Month Periods EndedMarch 31,
    
    March 31,2007
    
    2006Expected dividend yield
    
    
    N/A
    
    
    
    N/AExpected stock price volatility
    
    
    N/A
    
    
    
    N/ARisk-free interest rate
    
    
    N/A
    
    
    
    N/AExpected life of options
    
    N/A
    
    
    N/A
  Service Based Options:
 Number of
    
    
    
    
    
    
    WeightedShares
    
    
    Weighted
    
    
    Average
    
    
    AggregateSubject To
    
    
    Average
    
    
    Remaining
    
    
    Intrinsic(in thousands, except per share data)
    
    Options
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    ValueOutstanding as of December 31, 2006
    
    
    3,470
    
    
    $
    2.47Granted to
employees 
Three-month period
ended March 31,
2007
    
    
    384
    
    
    $
    5.90Forfeited 
Three-month period
ended March 31,
2007
    
    
    (88
    )
    
    $
    4.54Exercised 
Three-month period
ended March 31,
2007
    
    
    (45
    )
    
    $
    2.56Outstanding as of March 31, 2007
    
    
    3,721
    
    
    $
    2.78
    
    
    
    3.84
    
    
    $
    8,941Exercisable as of March 31, 2007
    
    
    2,141
    
    
    $
    1.64
    
    
    
    3.57
    
    
    $
    7,586
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Performance Based Options:
 Number of
    
    
    
    
    
    
    WeightedShares
    
    
    Weighted
    
    
    Average
    
    
    AggregateSubject To
    
    
    Average
    
    
    Remaining
    
    
    Intrinsic(in thousands, except per share data)
    
    Options
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    ValueOutstanding as of December 31, 2006
    
    
    1,480
    
    
    $
    4.25Granted to
employees -
Three-month period
ended March 31,
2007
    
    
    
    
    
    $
    Forfeited -
Three-month period
ended March 31,
2007
    
    
    
    
    
    $
    Exercised -
Three-month period
ended March 31,
2007
    
    
    
    
    
    $
    Outstanding as of March 31, 2007
    
    
    1,480
    
    
    $
    4.25
    
    
    
    2.41
    
    
    $
    1,376Exercisable as of March 31, 2007
    
    
    141
    
    
    $
    4.25
    
    
    
    1.50
    
    
    $
    131
   Service Based Options:
 Number ofNon-vested
    
    
    WeightedShares Subject To
    
    
    Average Grant-(in thousands, except per share data)
    
    Options
    
    
    Date Fair ValueNon-vested as of December 31, 2006
    
    
    1,462
    
    
    $
    1.20Non-vested granted  Three-month period ended
March 31, 2007
    
    
    378
    
    
    $
    1.61Vested  Three-month period ended March 31, 2007
    
    
    (177
    )
    
    $
    0.75Forfeited  Three-month period ended March 31, 2007
    
    
    (83
    )
    
    $
    1.90Non-vested as of March 31, 2007
    
    
    1,580
    
    
    $
    1.34
 Performance Based Options:
 Number ofNon-vested
    
    
    WeightedShares Subject To
    
    
    Average Grant-(in thousands, except per share data)
    
    Options
    
    
    Date Fair ValueNon-vested as of December 31, 2006
    
    
    1,339
    
    
    $
    0.97Non-vested granted  Three-month period ended
March 31, 2007
    
    
    
    
    
    $
    Vested  Three-month period ended March 31, 2007
    
    
    
    
    
    $
    Forfeited  Three-month period ended March 31, 2007
    
    
    
    
    
    $
    Non-vested as of March 31, 2007
    
    
    1,339
    
    
    $
    0.97
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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 7  EARNINGS PER SHARE
  NOTE 8  SUBSEQUENT EVENTS
  - 12 -




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations .
 Managements Discussion and Analysis of Financial Condition and Results of Operations
  Company Background
 TM TM
 Results Of Operations  Three-Month Period Ended March 31, 2007 Compared To Three-Month Period
Ended March 31, 2006.
 Three-Month Periods EndedMarch 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006Revenue
    
    $
    2,926
    
    
    $
    3,123Cost of goods sold
    
    
    2,236
    
    
    
    1,564Gross profit
    
    $
    690
    
    
    $
    1,559Gross margin
    
    
    24
    %
    
    
    50
    %
 Revenue
     Gross Profit
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Three-Month Periods EndedMarch 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006Operating expenses:Sales and marketing
    
    $
    1,910
    
    
    $
    761Research and development
    
    
    1,061
    
    
    
    427Finance and administrative
    
    
    1,196
    
    
    
    861Total operating expenses
    
    $
    4,167
    
    
    $
    2,049
 Sales & Marketing
  Research & Development
  Finance & Administration
  Three-Month Periods EndedMarch 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006Non-operating (income) expense:Interest expense
    
    $
    (3
    )
    
    $
    (75
    )Interest income
    
    
    94
    
    
    
    Total non-operating (income) expense
    
    $
    91
    
    
    $
    (75
    )
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Interest Expense
  Interest Income
  Three-Month Periods EndedMarch 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2006Net Loss
    
    $
    (3,386
    )
    
    $
    (565
    )Less preferred stock dividends  cash
    
    
    
    
    
    
    Less preferred stock dividends  non cash
    
    
    
    
    
    
    (183
    )Net loss
available for common stockholders
    
    $
    (3,386
    )
    
    $
    (748
    )Net loss per share, basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.03
    )Weighted average common shares outstanding, basic and diluted
    
    
    47,071
    
    
    
    29,125
 Net
Loss available for common stockholders
  Dividends
  Liquidity and Capital
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Forward-Looking Statements
   
 Item 3. Controls and Procedures .
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting
 - 16 -




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings .
  
 Item 2. Unregistered Sales of Securities and Use of Proceeds.
  
 Item 3. Defaults upon Senior Securities .
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits and Reports on Form 8-K .
 (a)
    
    The following exhibits are filed as part of this Quarterly Report on Form 10-QSB:
 31.1
    
    Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) under
the Exchange Act.31.2
    
    Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) under
the Exchange Act.32.1
    
    Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 Signatures
  Date: May 15, 2007
    MINRAD INTERNATIONAL, INC.By:
    /s/ William H. Burns, Jr.William H. Burns, Jr.,Chairman and CEO
(Duly authorized officer and chief executive officer of the Registrant) - 17 -