##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: June 30, 2008
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period fromto
 Commission file number: 000-49635
 MINRAD INTERNATIONAL, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    870299034(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)50 Cobham Drive, Orchard Park, New York
    
    14127(Address of principal executive offices)
    
    (Zip Code)
 (716) 855-1068
Issuers Telephone Number
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (Unaudited)Consolidated Balance Sheets at June 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Operations Three and Six month periods ended June 30, 2008 and
2007
    
    
    4Consolidated Statement of Changes in Stockholders Equity (Deficit) Six-month period
ended June 30, 2008
    
    
    5Consolidated Statement of Changes in Stockholders Equity (Deficit) Six-month period
ended June 30, 2007
    
    
    6Consolidated Statements of Cash Flows Six-month periods ended June 30, 2008 and 2007
    
    
    7Notes to Financial Statements
    
    
    8ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    15ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    20ITEM 4T. CONTROLS AND PROCEDURES
    
    
    20PART II. OTHER INFORMATION
    
    
    22ITEM 1. LEGAL PROCEEDINGS
    
    
    22ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
    
    
    22ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    22ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    22ITEM 5. OTHER INFORMATION
    
    
    23ITEM 6. EXHIBITS
    
    
    23SIGNATURES
    
    
    24EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 
 Item 1. Financial Statements
 June 30, 2008(unaudited)
    
    
    December 31, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,604
    
    
    $
    238Investments
    
    
    540
    
    
    
    Accounts receivable, net
    
    
    10,334
    
    
    
    3,310Inventories, net
    
    
    8,877
    
    
    
    12,402Prepaid expenses and other
    
    
    1,275
    
    
    
    2,121Total current assets
    
    
    28,630
    
    
    
    18,071Property and equipment:Machinery and equipment
    
    
    15,542
    
    
    
    15,169Computers
    
    
    1,482
    
    
    
    1,471Furniture and fixtures
    
    
    919
    
    
    
    815Leasehold improvements
    
    
    385
    
    
    
    385Construction in progress
    
    
    8,373
    
    
    
    7,69226,701
    
    
    
    25,532Less accumulated depreciation
    
    
    4,276
    
    
    
    2,247Net property and equipment
    
    
    22,425
    
    
    
    23,285Other assets, net
    
    
    3,938
    
    
    
    639Total assets
    
    $
    54,993
    
    
    $
    41,995LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Demand notes payable
    
    $
    
    
    
    $
    6,000Accounts payable
    
    
    2,221
    
    
    
    12,983Accrued expenses
    
    
    841
    
    
    
    1,004Current portion of long-term debt
    
    
    210
    
    
    
    206Current portion of deferred revenue
    
    
    391
    
    
    
    103Total current liabilities
    
    
    3,663
    
    
    
    20,296Long-term liabilities:Long-term debt
    
    
    41,619
    
    
    
    1,725Long-term deferred revenue
    
    
    845
    
    
    
    897Total long-term liabilities
    
    
    42,464
    
    
    
    2,622Commitments and Contingencies (Note 12)
    
    
    
    
    
    
    Stockholders equity:Common stock
    
    
    490
    
    
    
    487Additional paid-in-capital
    
    
    85,656
    
    
    
    80,869Accumulated other comprehensive loss
    
    
    (150
    )
    
    
    Accumulated deficit
    
    
    (77,130
    )
    
    
    (62,279
    )Total stockholders equity
    
    
    8,866
    
    
    
    19,077Total liabilities and stockholders equity
    
    $
    54,993
    
    
    $
    41,995
  3




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##### Table of Contents



MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 Three month periods ended
    
    
    Six month periods endedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Revenue
    
    $
    4,152
    
    
    $
    4,304
    
    
    $
    15,947
    
    
    $
    7,230Cost of goods sold
    
    
    4,637
    
    
    
    3,287
    
    
    
    12,471
    
    
    
    5,523Gross profit (loss)
    
    
    (485
    )
    
    
    1,017
    
    
    
    3,476
    
    
    
    1,707Operating expenses:Sales and marketing
    
    
    1,818
    
    
    
    1,962
    
    
    
    5,512
    
    
    
    3,872Research and development
    
    
    917
    
    
    
    1,386
    
    
    
    2,026
    
    
    
    2,447Finance and administrative
    
    
    2,102
    
    
    
    1,097
    
    
    
    3,824
    
    
    
    2,293Reserve for potential uncollectible receivable  Note 2
    
    
    1,023
    
    
    
    
    
    
    
    1,023
    
    
    
    Total operating expenses
    
    
    5,860
    
    
    
    4,445
    
    
    
    12,385
    
    
    
    8,612Operating loss
    
    
    (6,345
    )
    
    
    (3,428
    )
    
    
    (8,909
    )
    
    
    (6,905
    )Interest expense
    
    
    (1,052
    )
    
    
    (17
    )
    
    
    (1,681
    )
    
    
    (20
    )Interest income
    
    
    40
    
    
    
    57
    
    
    
    45
    
    
    
    151Loss on early extinguishment of debt
    
    
    (4,587
    )
    
    
    
    
    
    
    (4,587
    )
    
    
    Other income and expense
    
    
    260
    
    
    
    
    
    
    
    281
    
    
    
    Total non-operating income (expense)
    
    
    (5,339
    )
    
    
    40
    
    
    
    (5,942
    )
    
    
    131Net loss
    
    $
    (11,684
    )
    
    $
    (3,388
    )
    
    $
    (14,851
    )
    
    $
    (6,774
    )Net Loss per share basic and diluted
    
    $
    (0.24
    )
    
    $
    (0.07
    )
    
    $
    (0.30
    )
    
    $
    (0.14
    )Weighted average common shares outstanding basic and
diluted
    
    
    48,869,217
    
    
    
    47,213,653
    
    
    
    48,802,367
    
    
    
    47,142,763
  4




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
SIX-MONTH PERIOD ENDED JUNE 30, 2008 (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 Common Stock
    
    
    Additional
    
    
    Accumulated Other
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Comprehensive Loss
    
    
    Deficit
    
    
    TotalBalance at December 31,
2007
    
    
    48,688,802
    
    
    $
    487
    
    
    $
    80,869
    
    
    $
    
    
    
    $
    (62,279
    )
    
    $
    19,077Stock options exercised
    
    
    20,000
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Warrants exercised
    
    
    59,464
    
    
    
    1
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    54Discount on long-term
debt, net of tax effect
    
    
    
    
    
    
    
    
    
    
    3,056
    
    
    
    
    
    
    
    
    
    
    
    3,056Stock based compensation
    
    
    
    
    
    
    
    
    
    
    502
    
    
    
    
    
    
    
    
    
    
    
    502Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,167
    )
    
    
    (3,167
    )Other comprehensive loss:Unrealized loss on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (195
    )
    
    
    
    
    
    
    (195
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,362
    )Balance at March 31, 2008
    
    
    48,768,266
    
    
    $
    488
    
    
    $
    84,516
    
    
    $
    (195
    )
    
    $
    (65,446
    )
    
    $
    19,363Stock options exercised
    
    
    71,500
    
    
    
    1
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    101Warrants exercised
    
    
    87,026
    
    
    
    1
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    100Stock based compensation
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    524Tax effect on early
extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    417Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,684
    )
    
    
    (11,684
    )Other comprehensive gain:Unrealized gain on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,639
    )Balance at June 30, 2008
    
    
    48,926,792
    
    
    $
    490
    
    
    $
    85,656
    
    
    $
    (150
    )
    
    $
    (77,130
    )
    
    $
    8,866
  5




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
 SIX-MONTH PERIOD ENDED JUNE 30, 2007 (UNAUDITED)
 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 Common Stock
    
    
    Additional
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Deficit
    
    
    TotalBalance at December 31,
2006
    
    
    47,048,240
    
    
    $
    470
    
    
    $
    76,513
    
    
    $
    (43,481
    )
    
    $
    33,502Conversion of preferred
stock and accrued
dividends to common
stockStock options exercised
    
    
    45,291
    
    
    
    1
    
    
    
    116
    
    
    
    
    
    
    
    117Stock based compensation
    
    
    
    
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    122Stock warrants exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,386
    )
    
    
    (3,386
    )Balance at March 31,
2007
    
    
    47,093,531
    
    
    $
    471
    
    
    $
    76,751
    
    
    $
    (46,867
    )
    
    $
    30,355Stock options exercised
    
    
    241,331
    
    
    
    2
    
    
    
    407
    
    
    
    
    
    
    
    409Stock based compensation
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    
    
    
    
    275Stock warrants exercised
    
    
    389,400
    
    
    
    3
    
    
    
    553
    
    
    
    
    
    
    
    556Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,388
    )
    
    
    (3,388
    )Balance at June 30, 2007
    
    
    47,724,262
    
    
    $
    476
    
    
    $
    77,986
    
    
    $
    (50,255
    )
    
    $
    28,207
  6




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 Six-month period endedJune 30, 2008
    
    
    June 30, 2007Cash flows from operating activities:Net loss
    
    $
    (14,851
    )
    
    $
    (6,774
    )Adjustments to reconcile net loss to net cash used by operating activities:Depreciation and amortization
    
    
    2,041
    
    
    
    478Stock based compensation
    
    
    1,026
    
    
    
    397Loss on debt extinguishment
    
    
    4,058
    
    
    
    Amortization of capitalized fees associated with long-term debt
    
    
    240
    
    
    
    Provision
for potentially uncollectible receivables
    
    
    1,243
    
    
    
    Provision for inventory reserves
    
    
    853
    
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    (8,266
    )
    
    
    1,302Inventories
    
    
    2,672
    
    
    
    (5,932
    )Other assets
    
    
    744
    
    
    
    (1,502
    )Accounts payable
    
    
    (4,893
    )
    
    
    1,789Accrued and other liabilities
    
    
    (617
    )
    
    
    (548
    )Net cash used by operating activities
    
    
    (15,750
    )
    
    
    (10,790
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (7,037
    )
    
    
    (6,838
    )Proceeds from sale of investments
    
    
    
    
    
    
    7,249Acquisition of other assets, net
    
    
    (136
    )
    
    
    7Net cash (used) provided by investing activities
    
    
    (7,173
    )
    
    
    418Cash flows from financing activities:Proceeds under long-term debt borrowings, net of costs
    
    
    51,100
    
    
    
    2,063Borrowings under demand notes payable
    
    
    
    
    
    
    3,800Repayments under demand notes payable
    
    
    (6,000
    )
    
    
    Principal payments on long-term debt
    
    
    (15,102
    )
    
    
    (33
    )Proceeds from options exercised
    
    
    137
    
    
    
    525Proceeds from warrants exercised
    
    
    154
    
    
    
    555Net cash provided by financing activities
    
    
    30,289
    
    
    
    6,910Net increase (decrease) in cash and cash equivalents
    
    
    7,366
    
    
    
    (3,462
    )Cash and cash equivalents  Beginning of period
    
    
    238
    
    
    
    4,664Cash and cash equivalents  End of period
    
    $
    7,604
    
    
    $
    1,202
  7




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 NOTE 1  BASIS OF PRESENTATION
  NOTE 2  PROVISION FOR POTENTIALLY UNCOLLECTIBLE U.S. RECEIVABLE
  NOTE 3  RECENT ACCOUNTING PRONOUNCEMENTS
 of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair
Value Measurement for Purposes of Lease Classification or Measurement under Statement 13, and FSP
FAS 157-2, Effective Date of FASB Statement No. 157.
 Fair Value Option for Financial
Assets and Financial Liabilities
    8




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
    Reporting Other
Comprehensive Income
 NOTE 4  INVENTORIES
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    1,478
    
    
    $
    5,003Work-in-progress
    
    
    9,506
    
    
    
    8,598Finished goods
    
    
    1,257
    
    
    
    1,311Inventory reserves
    
    
    (3,364
    )
    
    
    (2,510
    )$
    8,877
    
    
    $
    12,402
 NOTE 5  DEBT
   9




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 NOTE 5  DEBT (CONTINUED)
  Year
    
    Commitment2008
    
    $
    1042009
    
    
    2142010
    
    
    2212011
    
    
    2292012
    
    
    238Thereafter
    
    
    823Total
    
    $
    1,829
       10




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 NOTE 5  DEBT (CONTINUED)
  NOTE 6  EQUITY
  NOTE 7  SUPPLEMENTAL CASH FLOW INFORMATION
  2008
    
    
    2007Non-cash investing and financing activities :Property and equipment acquisitions recorded as accounts payable
    
    $
    103
    
    
    $
    506Investments
    
    $
    690
    
    
    $
    Unrealized loss on investments available for sale
    
    $
    150
    
    
    $
    Tax effect of warrants with debt extinguishment
    
    $
    417
    
    
    $
    
 NOTE 8  STOCK OPTIONS
   11




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 NOTE 8  STOCK OPTIONS (CONTINUED)
  Six-Month Periods EndedJune 30,
    
    June 30,2008
    
    2007Service Based OptionsExpected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    36
    %
    
    
    34
    %Risk-free interest rate
    
    
    3.2
    %
    
    
    4.7
    %Expected life of options
    
    5.9 Years
    
    3.7 Years
 Six-Month Periods EndedJune 30,
    
    June 30,2008
    
    2007Performance Based OptionsExpected dividend yield
    
    
    0
    %
    
    
    N/AExpected stock price volatility
    
    
    36
    %
    
    
    N/ARisk-free interest rate
    
    
    3.1
    %
    
    
    N/AExpected life of options
    
    4.9 Years
    
    
    N/A
  Number of
    
    
    
    
    
    
    WeightedShares
    
    
    Weighted
    
    
    Average
    
    
    AggregateSubject To
    
    
    Average
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    ValueService Based Options:Outstanding as of December 31, 2007
    
    
    3,718,036
    
    
    $
    3.35Granted to employees  Six-month period ended
June 30, 2008
    
    
    1,971,500
    
    
    $
    2.48Forfeited  Six-month period ended June 30, 2008
    
    
    (502,000
    )
    
    $
    4.49Exercised  Six-month period ended June 30, 2008
    
    
    (91,500
    )
    
    $
    1.49Outstanding as of June 30, 2008
    
    
    5,096,036
    
    
    $
    2.93
    
    
    
    3.62
    
    
    $
    803Exercisable as of June 30, 2008
    
    
    2,555,036
    
    
    $
    2.62
    
    
    
    2.37
    
    
    $
    798
 Number of
    
    
    
    
    
    
    WeightedShares
    
    
    Weighted
    
    
    Average
    
    
    AggregateSubject To
    
    
    Average
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    ValuePerformance Based Options:Outstanding as of December 31, 2007
    
    
    1,341,375
    
    
    $
    5.20Granted to employees  Six-month period ended
June 30, 2008
    
    
    1,228,750
    
    
    $
    2.43Forfeited  Six-month period ended June 30, 2008
    
    
    (35,000
    )
    
    $
    4.43Exercised  Six-month period ended June 30, 2008
    
    
    
    
    
    $
    Outstanding as of June 30, 2008
    
    
    2,535,125
    
    
    $
    3.87
    
    
    
    3.47
    
    
    $
    1Exercisable as of June 30, 2008
    
    
    136,375
    
    
    $
    4.18
    
    
    
    0.42
    
    
    $
    
 12




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MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 NOTE 8  STOCK OPTIONS (CONTINUED)
   Number ofNon-vested
    
    
    WeightedShares Subject To
    
    
    Average Grant-Service Based Options:
    
    Options
    
    
    Date Fair ValueNon-vested as of December 31, 2007
    
    
    1,384,500
    
    
    $
    1.56Non-vested granted  Six-month period ended June 30, 2008
    
    
    1,971,500
    
    
    $
    0.73Vested  Six-month period ended June 30, 2008
    
    
    (385,000
    )
    
    $
    1.31Forfeited  Six-month period ended June 30, 2008
    
    
    (430,000
    )
    
    $
    1.38Non-vested as of June 30, 2008
    
    
    2,541,000
    
    
    $
    0.99
 Number ofNon-vested
    
    
    WeightedShares Subject To
    
    
    Average Grant-Performance Based Options:
    
    Options
    
    
    Date Fair ValueNon-vested as of December 31, 2007
    
    
    1,210,000
    
    
    $
    1.22Non-vested granted  Six-month period ended June 30, 2008
    
    
    1,228,750
    
    
    $
    0.46Vested  Six-month period ended June 30, 2008
    
    
    (5,000
    )
    
    $
    0.84Forfeited  Six-month period ended June 30, 2008
    
    
    (35,000
    )
    
    $
    1.11Non-vested as of June 30, 2008
    
    
    2,398,750
    
    
    $
    0.83
  NOTE 9  INCOME TAXES
   13




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##### Table of Contents



MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
 NOTE 10  EARNINGS PER SHARE
  NOTE 11  CUSTOMER CONCENTRATION
  NOTE 12 COMMITMENTS AND CONTINGENCIES
    14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview:
  Company Background
 TM TM
 Results of Operations
 Summarized selected financial data for the three and six months ended June 30, 2008 and 2007:
 Three months ended June 30
    
    Six Months ended June 30%
    
    
    
    
    
    
    
    
    
    
    
    
    
    %2008
    
    2007
    
    Change
    
    Change
    
    2008
    
    2007
    
    Change
    
    Change(In millions, except per share amount)Revenue
    
    
    4.2
    
    
    
    4.3
    
    
    
    (0.1
    )
    
    
    -4
    %
    
    
    15.9
    
    
    
    7.2
    
    
    
    8.7
    
    
    
    121
    %Gross profit
    
    
    (0.5
    )
    
    
    1.0
    
    
    
    (1.5
    )
    
    
    -148
    %
    
    
    3.5
    
    
    
    1.7
    
    
    
    1.8
    
    
    
    104
    %Operating expenses
    
    
    5.8
    
    
    
    4.4
    
    
    
    1.4
    
    
    
    32
    %
    
    
    12.4
    
    
    
    8.6
    
    
    
    3.8
    
    
    
    44
    %Operating loss
    
    
    (6.3
    )
    
    
    (3.4
    )
    
    
    (2.9
    )
    
    
    85
    %
    
    
    (8.9
    )
    
    
    (6.9
    )
    
    
    (2.0
    )
    
    
    29
    %Non-operating income/ expense
    
    
    (5.4
    )
    
    
    0.0
    
    
    
    (5.4
    )
    
    NA
    
    
    
    (6.0
    )
    
    
    0.1
    
    
    
    (6.1
    )
    
    NANet loss
    
    
    (11.7
    )
    
    
    (3.4
    )
    
    
    (8.3
    )
    
    
    245
    %
    
    
    (14.9
    )
    
    
    (6.8
    )
    
    
    (8.1
    )
    
    
    119
    %Net loss per share
    
    
    (0.24
    )
    
    
    (0.07
    )
    
    
    (0.17
    )
    
    
    
    
    
    
    (0.30
    )
    
    
    (0.14
    )
    
    
    (0.16
    )Gross profit as % of revenue
    
    
    -12
    %
    
    
    24
    %
    
    
    -36
    %
    
    points    
    
    22
    %
    
    
    24
    %
    
    
    -2
    %
    
    pointsOperating expense as % of revenue
    
    
    141
    %
    
    
    103
    %
    
    
    38
    %
    
    points
    
    
    78
    %
    
    
    119
    %
    
    
    -41
    %
    
    pointsOperating loss a % of revenue
    
    
    -153
    %
    
    
    -80
    %
    
    
    -73
    %
    
    points
    
    
    -56
    %
    
    
    -96
    %
    
    
    40
    %
    
    pointsNet loss as % of revenue
    
    
    -282
    %
    
    
    -79
    %
    
    
    -203
    %
    
    points
    
    
    -93
    %
    
    
    -94
    %
    
    
    1
    %
    
    points
 Revenue:
  15




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##### Table of Contents



(Millions)
    
    Three months endedRegion
    
    June 30, 2008
    
    June 30, 2007
    
    % ChangeUnited States
    
    $
    1.4
    
    
    $
    1.0
    
    
    
    37
    %Europe
    
    
    0.5
    
    
    
    0.4
    
    
    
    47
    %Western Hemisphere
    
    
    1.1
    
    
    
    2.6
    
    
    
    -59
    %Pacific Rim
    
    
    1.2
    
    
    
    0.3
    
    
    
    260
    %Total
    
    $
    4.2
    
    
    $
    4.3
    
    
    
    -4
    %
 (Millions)
    
    Six months endedRegion
    
    June 30, 2008
    
    June 30, 2007
    
    % ChangeUnited States
    
    $
    8.4
    
    
    $
    1.6
    
    
    
    420
    %Europe
    
    
    2.0
    
    
    
    0.5
    
    
    
    290
    %Western Hemisphere
    
    
    2.4
    
    
    
    4.3
    
    
    
    -44
    %Pacific Rim
    
    
    3.1
    
    
    
    0.8
    
    
    
    295
    %Total
    
    $
    15.9
    
    
    $
    7.2
    
    
    
    121
    %
   (Millions)
    
    Three months ended,Product Line
    
    June 30, 2008
    
    June 30, 2007
    
    % ChangeSevoflurane
    
    $
    2.7
    
    
    $
    3.2
    
    
    
    -13
    %Other Inhalants
    
    
    1.4
    
    
    
    1.0
    
    
    
    29
    %Total Anesthesia and Analgesia
    
    
    4.1
    
    
    
    4.2
    
    
    
    -3
    %Image Guidance
    
    
    0.1
    
    
    
    0.1
    
    
    
    - 28
    %Total
    
    $
    4.2
    
    
    $
    4.3
    
    
    
    -4
    %
 (Millions)
    
    Six months ended,Product Line
    
    June 30, 2008
    
    June 30, 2007
    
    % ChangeSevoflurane
    
    $
    11.7
    
    
    $
    4.8
    
    
    
    145
    %Other Inhalants
    
    
    3.9
    
    
    
    2.3
    
    
    
    68
    %Total Anesthesia and Analgesia
    
    
    15.6
    
    
    
    7.1
    
    
    
    120
    %Image Guidance
    
    
    0.3
    
    
    
    0.1
    
    
    
    165
    %Total
    
    $
    15.9
    
    
    $
    7.2
    
    
    
    121
    %
  16




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Gross Profit:
   Operating Expenses:
   Operating Loss:
  Non-operating income/expense:
  17




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##### Table of Contents



Liquidity and Capital:
   Six months ended June 302008
    
    2007Net Cash used by Operating Activities
    
    
    (15.7
    )
    
    
    (10.8
    )Net
Cash provided (used) by Investing Activities
    
    
    (7.2
    )
    
    
    0.4Net cash provided by Financing Activities
    
    
    30.3
    
    
    
    6.9Net Increase (Decrease) in cash and cash equivalents
    
    
    7.4
    
    
    
    (3.5
    )
   st
 18




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19




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##### Table of Contents



Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosure about Market Risk.
  
 Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
  20




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##### Table of Contents



Internal Control  Integrated Framework
  
    
    We were ineffective in maintaining a sufficient complement of
qualified accounting personnel and controls associated with
segregation of duties. Currently, all aspects of our financial
reporting process, are performed by a single individual with limited
segregation of duties and limited secondary review, including but not
limited to access to the underlying accounting records and systems,
the ability to post and record journal entries and responsibility for
the preparation of the financial statements. This creates certain
incompatible duties and a lack of review over the financial reporting
process that would likely fail to detect errors in spreadsheets,
calculations, or assumptions used to compile the financial statements
and related disclosures with the SEC. Specifically, we determined that
because of the latter situation, our controls over the preparation,
review and monitoring of the financial statements were ineffective to
provide reasonable assurance that financial disclosures agreed to
appropriate supporting detail, calculations or other documents.
    
    Our documentation of accounting policies and procedures is incomplete
to the level necessary to ensure accounting for transactions are
accounted by the limited accounting staff in accordance with generally
accepted accounting principles properly each reporting period.
    
    We installed a new enterprise wide information system during 2007 that
is utilized to plan and execute the business. However the accounting
modules and functionality of the new system are not fully implemented
or
utilized by Company personnel to process transactions which have
contributed to weaknesses in internal control over financial
reporting.
    
    We have a complex chemical production process which was not properly
reflected in the accounting records captured in our enterprise wide
information system at the end of 2007 and at interim reporting dates
during 2007. In this regard, audit adjustments were made relating to
both the quantity and value of inventory at December 31, 2007.
Additional management time has been required to ensure that inventory
has been properly accounted for during and at the end of each
financial reporting period.
 Internal Control  Integrated Framework
  Plan for Remediation of Material Weaknesses.
  21




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##### Table of Contents



Changes in Internal Control over Financial Reporting.
  
 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.
  1.
    
    To elect 8 directors to hold office for a term of one year. Each of our directors were
re-elected. The vote was as follows:
 FOR
    
    AGAINST
    
    % FOR ELECTIONBurns
    
    
    35,910,942
    
    
    
    155,204
    
    
    
    73.6
    %DiGiacinto
    
    
    36,017,748
    
    
    
    48,398
    
    
    
    73.9
    %Donaldson
    
    
    36,012,977
    
    
    
    53,169
    
    
    
    73.8
    %Farley
    
    
    36,019,138
    
    
    
    47,008
    
    
    
    73.9
    %Hopper
    
    
    35,509,252
    
    
    
    556,894
    
    
    
    72.8
    %Lifeso
    
    
    35,507,599
    
    
    
    558,547
    
    
    
    72.8
    %Stanley
    
    
    35,508,552
    
    
    
    557,594
    
    
    
    72.8
    %Zbar
    
    
    35,932,936
    
    
    
    133,210
    
    
    
    73.7
    %
 22




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##### Table of Contents



2.
    
    To amend the 2004 Stock Option Plan to increase the aggregate number of shares of
common stock that may be issued by 4,000,000 shares:
 BROKERFOR
    
    AGAINST
    
    NON VOTE
    
    ABSTAIN17,891,231
    
    
    3,936,645
    
    
    
    14,194,653
    
    
    
    43,617
 
 Item 5. Other Information.
  
 Item 6. Exhibits and Reports on Form 8-K .
 The
following exhibits are filed as part of this Quarterly Report on Form 10-Q
 ExhibitNo.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.
 23




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Signatures
  Date: August 14, 2008
    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) 24