**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D** . **C** . **20549**




**FORM
        10-KSB**


**ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**


**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2007**


**COMMISSION
      FILE NUMBER 000-51038**









**MEDASORB
      TECHNOLOGIES CORPORATION**


(Name
      of
      Small Business Issuer in Its Charter)


**Nevada**
            ****
            **98-0373793**(State
                or Other Jurisdiction of Incorporation or
              Organization)
            
            (I.R.S.
                Employer identification number)


**7
      Deer Park Drive, Suite K**


**Monmouth
      Junction, New Jersey 08852**


**(732)
      329-8885**


(Address,
      including zip code, and telephone number,


including
      area code, of registrant’s principal executive offices)







**Securities
      registered pursuant to Section 12(b) of the Act: None**





**Securities
      registered pursuant to Section 12(g) of the Act: Common Stock
      $0** . **001
      par value**





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15
      (d) of the Exchange
      Act.  ̈









Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.


þ Yes  ̈ No




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained herein, and no disclosure will be contained, to the
      best of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB.  ̈




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.)     ̈ Yes þ No




The
      issuer had no **** revenues
      for its fiscal year ended December 31, 2007.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant as of April 7, 2008 was approximately
      $1,907,000. The number of shares outstanding of the registrant’s Common Stock as
      of April 15, 2008 was 25,044,932.









Transitional
      Small Business Disclosure Format:  ̈ Yes þ No










**MEDASORB
      TECHNOLOGIES CORP.**


**2007
      FORM 10-KSB ANNUAL REPORT**


**TABLE
      OF CONTENTS**




PagePART
                I
            
            3Item
                1. Description of Business
            
            3Item
                2. Description of Property
            
            28Item
                3. Legal Proceedings
            
            29Item
                4. Submission of Matters to a Vote of Security Holders
            
            29PART
                II
            
            29Item
                5. Market for Common Equity and Related Stockholder Matters and Small
                Business Issuer Purchases of Equity Securities
            
            29Item
                6. Management’s Discussion and Analysis of Plan of
                Operation
            
            30Item
                7. Financial Statements
            
            32Item
                8. Changes in and Disagreements With Accountants on Accounting and
                Financial Disclosure
            
            32Item
                8A. Controls and Procedures
            
            32Item
                8B. Other Information
            
            33PART
                III
            
            33Item
                9. Directors, Executive Officers, Promoters and Control Persons,
                Compliance with Section 16(a) of the Exchange Act
            
            33Item
                10. Executive Compensation
            
            35Item
                11. Security Ownership of Certain Beneficial Owners and Management
                and
                Related Stockholder Matters
            
            40Item
                12. Certain Relationships and Related Transactions and Director
                Independence
            
            42Item
                13. Exhibits
            
            43Item
                14. Principal Accountant Fees and Services
            
            44





**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





*This
      document contains “forward-looking statements”. These statements are subject to
      risks and uncertainties and are based on the beliefs and assumptions of
      management and information currently available to management. The use of words
      such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,”
“should,” “likely” or similar expressions, indicates a forward-looking
      statement. Forward-looking statements are not guarantees of performance. They
      involve risks, uncertainties and assumptions. Future results may differ
      materially from those expressed in the forward-looking statements. Many of
      the
      factors that will determine these results are beyond the ability of MedaSorb
      to
      control or predict. Stockholders are cautioned not to put undue reliance on
      any
      forward-looking statements, which speak only to the date made. For a discussion
      of some of the factors that may cause actual results to differ materially from
      those suggested by the forward-looking statements, please read carefully the
      information under “Risk Factors”. However, the identification in this document
      of factors that may affect future performance and the accuracy of
      forward-looking statements is meant to be illustrative and by no means
      exhaustive. All forward-looking statements should be evaluated with the
      understanding of their inherent uncertainty.*




**PART
      I**




**Item
      1.** **Description
      of Business.**




**Overview**




We
      are a
      medical device company that is currently in the development stage, headquartered
      in Monmouth Junction, New Jersey (near Princeton). We have developed and will
      seek to commercialize a blood purification technology that we believe will
      be
      able to efficiently remove middle molecular weight toxins from circulating
      blood
      and physiologic fluids. We will be required to obtain required regulatory
      approvals from a Notified Body for the European Community (CE Mark) and the
      United States Food and Drug Administration before we can sell our products
      in
      Europe and the United States, respectively. In December 2006, we submitted
      a
      proposed pilot study for approval to the FDA with respect to CytoSorbTM, the
      first device we intend to bring to market. In the first quarter of 2007, we
      received approval from the FDA to conduct a limited study of five patients
      in
      the adjunctive treatment of sepsis. Based on management’s belief that proceeding
      with the approved limited study would add at least one year to the approval
      process for the United States, we made a determination to focus our efforts
      on
      obtaining regulatory approval in Europe before proceeding with the
      FDA.




We
      estimate that the market potential in Europe for our products is substantially
      equivalent to that in the U.S. Given the opportunity to conduct a much larger
      clinical study in Europe, and management’s belief that the path to a CE Mark
      should be faster than FDA approval, we have targeted Europe for the initial
      market introduction of our CytoSorbTM product. To accomplish the European
      introduction, in
      July
      2007 we prepared and filed a request for a clinical trial with a German Central
      Ethics Committee. We received approval of the final study design in October
      of
      2007. The clinical study allows for enrollment of up to 80 patients with acute
      respiratory distress syndrome or acute lung injury in the setting of sepsis.
      We
      have recently made arrangements with several hospitals in Berlin to conduct
      the
      clinical study, and those hospitals are now open for patient enrollment.





The
      clinical protocol for our European clinical study has been designed to allow
      us
      to gather information to support future U.S. studies. In the event we receive
      the CE Mark and are able to successfully commercialize our products in the
      European market, we will review our plans for the United States to determine
      whether to conduct clinical trials in support of 510K or PMA registration.
      No
      assurance can be given that our proposed CytoSorbTM product will work as intended
      or that we will be able to obtain CE Mark (or FDA) approval to sell CytoSorbTM.
      Even if we ultimately obtain CE Mark approval, because we cannot control the
      timing of responses from regulators to our submissions, there can be no
      assurance as to when such approval will be obtained.





We
      have
      developed two products, CytoSorbTM and BetaSorbTM utilizing our adsorbent polymer
      technology. These products are known medically as hemoperfusion devices. During
      hemoperfusion, blood is removed from the body via a catheter or other blood
      access device, perfused through a filter medium where toxic compounds are
      removed, and returned to the body.


3


The
      CytoSorbTM device consists of a cylinder containing the adsorbent polymer beads.
      The cylinder incorporates industry standard connectors at either end of the
      device which connect directly to an extra-corporeal circuit (bloodlines) on
      a
      stand alone basis. The extra-corporeal circuit consists of plastic tubing
      through which the blood flows, our CytoSorbTM cartridge containing adsorbent
      polymer beads, pressure monitoring gauges, and a blood pump to maintain blood
      flow. The patient’s blood is accessed through a catheter inserted into his or
      her veins. The catheter is connected to the extra-corporeal circuit and the
      blood pump draws blood from the patient, pumps it through the cartridge and
      returns it back to the patient in a closed loop system. As blood passes over
      the
      polymer beads in the cylinder, toxins (cytokines) are adsorbed from the
      blood.




To
      date,
      we have manufactured the CytoSorbTM device on a limited basis for testing
      purposes, including for use in clinical studies. We believe that current state
      of the art blood purification technology (such as dialysis) is incapable of
      effectively clearing the various toxic compounds intended to be adsorbed by
      our
      devices.




Following
      the sepsis indication, we intend to continue our research in other acute
      conditions where CytoSorbTM has indicated potential in preliminary studies to
      prevent or reduce the accumulation of cytokines and other toxic compounds in
      the
      bloodstream. These conditions include, but are not limited to, the prevention
      of
      post-operative complications of cardiac surgery (cardiopulmonary bypass
      surgery), damage to organs donated for transplant prior to organ harvest, and
      removing drugs from blood in situations such as patient overdoses.




Previous
      studies using our BetaSorbTM device in patients with chronic kidney failure have
      provided valuable data which we will use in conducting clinical studies using
      our CytoSorbTM device. However, limited studies have been conducted using our
      CytoSorbTM device to date and no assurance can be given that our proposed
      CytoSorbTM product will work as intended or that we will be able to obtain the
      necessary regulatory body approvals to sell CytoSorbTM. Even if we ultimately
      obtain regulatory approval, because we can not control the timing of responses
      to our regulatory submissions, there can be no assurance as to when such
      approval will be obtained.




Our
      BetaSorbTM device is intended to remove beta 2 -microglobulin
      from the blood of patients suffering from chronic kidney failure who rely on
      long term dialysis therapy to sustain their life. BetaSorbTM utilizes an
      adsorbent polymer packed into an identically shaped and constructed cylinder
      as
      utilized for our CytoSorbTM product, although the polymers used in the two
      devices are physically different. The BetaSorbTM device also incorporates
      industry standard connectors at either end of the device which connect directly
      into the extra-corporeal circuit (bloodlines) in series with a dialyser. To
      date, we have manufactured the BetaSorbTM device on a limited basis for testing
      purposes, including for use in clinical studies.




We
      had
      initially identified end stage renal disease (ESRD) as the target market for
      our
      polymer-based adsorbent technology. However, during the development of
      BetaSorbTM, we identified several applications for our adsorbent technology in
      the treatment of critical care patients. As a result, we shifted our priorities
      to pursue critical care applications (such as for the treatment of sepsis)
      for
      our technology given that BetaSorb’sTM potential for usage in chronic conditions
      such as end stage renal disease is anticipated to have a longer and more complex
      regulatory pathway. We currently intend to pursue our BetaSorbTM product after
      the commercialization of the CytoSorbTM product. At such time as we determine to
      proceed with our proposed BetaSorbTM product, if ever, we will need to conduct
      additional clinical studies using the BetaSorbTM device and obtain separate
      regulatory approval in Europe and/or the United States.




To
      date,
      we have conducted clinical studies using our BetaSorbTM device in patients with
      chronic kidney failure, which have provided valuable data which underpin the
      development of the critical care applications for our technology. The BetaSorbTM
device has been used in a total of three human pilot studies, involving 20
      patients, in the U.S. and Europe. The studies included approximately 345
      treatments, with some patients using the device for up to 24 weeks (in multiple
      treatment sessions lasting up to four hours, three times per week) in connection
      with the application of our products to patients suffering from chronic kidney
      failure. The BetaSorbTM device design was also tested on a single patient with
      bacterial sepsis, producing results that our management has found encouraging
      and consistent with our belief that our device design is appropriate for a
      more
      extensive sepsis study. In addition, CytoSorb’sTM ability to interact safely with
      blood (hemocompatibility) has been demonstrated through ISO 10993 testing.
      The
      studies we have done to date were not done in conjunction with obtaining FDA
      approval for the use of our CytoSorbTM device, the first device we intend to
      bring to market.


4


We
      have
      not generated any revenue to date. We have incurred losses in each of our fiscal
      years and expect these losses to continue for the foreseeable future. We will
      need to raise significant additional funds to conduct clinical studies and
      obtain regulatory approvals to commercialize our products. No assurance can
      be
      given that we will ever successfully commercialize any products.




**Corporate
      History**




MedaSorb
      Technologies Corporation was incorporated in Nevada on April 25, 2002 as Gilder
      Enterprises, Inc. and was originally engaged in the business of installing
      and
      operating computer networks that provided high-speed access to the Internet.
      On
      June 30, 2006, we disposed of our original business, and pursuant to an
      Agreement and Plan of Merger, acquired all of the stock of MedaSorb
      Technologies, Inc., a Delaware corporation in a merger, and its business became
      our business. Following the merger, in July 2006 we changed our name to MedaSorb
      Technologies Corporation. Unless otherwise indicated, all references in this
      Annual Report to “MedaSorb,” “us” or “we” with respect to events prior to June
      30, 2006 are references to MedaSorb Technologies, Inc. and its predecessors.
      Our
      executive offices are located at 7 Deer Park Drive, Suite K, Monmouth Junction,
      New Jersey 08852. Our telephone number is (732) 329-8885.




MedaSorb
      was originally organized as a Delaware limited liability company in August
      1997
      as Advanced Renal Technologies, LLC. MedaSorb changed its name to RenalTech
      International, LLC in November 1998, and to MedaSorb Technologies, LLC in
      October 2003. **** In
      December 2005, MedaSorb converted from a limited liability company to a
      corporation.




MedaSorb
      has been engaged in research and development since its inception, and prior
      to
      the merger, had raised approximately $53 million **** from
      investors. These proceeds have been used to fund the development of multiple
      product applications and to conduct clinical studies. These funds have also
      been
      used to establish in-house manufacturing capacity to meet clinical testing
      needs, expand our intellectual property through additional patents and to
      develop extensive proprietary know-how with regard to our products.




Immediately
      prior to the merger, MedaSorb had 292 stockholders that held an aggregate of
      20,340,929 shares of common stock . In connection with the merger, certain
      stockholders of ours ( i.e .,
      persons who were stockholders of Gilder Enterprises prior to the merger),
      including Joseph Bowes, a former principal stockholder and the sole director
      and
      officer of Gilder prior to the merger, sold an aggregate of 3,617,500 shares
      of
      our Common Stock to several purchasers, and forfeited 4,105,000 shares of Common
      Stock, which we cancelled. As a result, prior to giving effect to the merger,
      we
      had outstanding 3,750,000 shares of Common Stock and, after giving effect to
      the
      merger, we had outstanding 24,090,929 shares of Common Stock.




The
      principal stockholders of MedaSorb immediately prior to the merger were Margie
      Chassman, Guillermina Montiel, Al Kraus and Robert Shipley, who respectively
      beneficially owned 10,000,000 shares (49.2%), 5,052,456 shares (24.6%),
      1,393,631 shares (6.9%) and 1,248,372 shares (6%), of the outstanding common
      stock of MedaSorb. Immediately following the merger and the closing of the
      Series A Preferred Stock financing described below, Ms. Chassman beneficially
      owned an additional 630,000 shares of Common Stock underlying the warrant we
      issued to her in connection with her pledge of stock to the purchasers of the
      Series A Preferred Stock, as described below. On July 5, 2006, Ms. Chassman
      transferred 2,005,000 shares of Common Stock owned by her to her designees.
      In
      addition, following the closing of the Series A Preferred Stock financing,
      without giving effect to applicable restrictions that prohibit conversion of
      the
      Series A Preferred Stock or exercise of warrants if as a result the holder
      would
      hold in excess of 4.99% of our Common Stock, Longview Fund, LP beneficially
      owned 3,600,000 shares (13%) of our Common Stock.




Principal
      Terms of the Reverse Merger




In
      connection with the merger, the stockholders of MedaSorb prior to the merger
      were issued an aggregate of 20,340,929 shares of Common Stock in exchange for
      the shares of MedaSorb common stock previously held by them. In addition,
      pursuant to the terms of the merger, outstanding warrants and options to
      purchase a total of 1,697,648 shares of the common stock of MedaSorb prior
      to
      the merger were cancelled in exchange for warrants and options to purchase
      the
      same number of shares of our Common Stock at the same exercise prices and
      otherwise on the same general terms as the MedaSorb options and warrants that
      were cancelled. Certain providers of legal services to MedaSorb who previously
      had the right to be issued approximately 997,000 **** shares
      of
      MedaSorb common stock as payment toward accrued legal fees, became entitled
      to
      instead be issued the same number of shares of our Common Stock as payment
      toward such services.


5


Concurrently
      with the closing of the merger, Joseph G. Bowes, the sole director and officer
      of MedaSorb
      Technologies Corporation ( then Gilder
      Enterprises) prior
      to
      the merger, appointed Al Kraus, Joseph Rubin, Esq., and Kurt Katz to the Board
      of Directors, and then resigned from the Board and from his positions as an
      officer. In addition, at such time, Al Kraus was appointed our President and
      Chief Executive Officer, Vincent Capponi was appointed our Chief Operating
      Officer, David Lamadrid was appointed our Chief Financial Officer and James
      Winchester, MD was appointed our Chief Medical Officer.




For
      accounting purposes, the merger has been accounted for as a reverse merger,
      since MedaSorb Technologies Corporation (then Gilder
      Enterprises) was
      a
      shell company prior to the merger, the stockholders of MedaSorb prior to the
      merger own a majority of the issued and outstanding shares of our Common Stock
      after the merger, and the directors and executive officers of MedaSorb prior
      to
      the merger became our directors and executive officers. Accordingly, pre-merger
      MedaSorb is treated as the acquiror in the merger, which is treated as a
      recapitalization of pre-merger MedaSorb, and the pre-merger financial statements
      of MedaSorb are now deemed to be our historical financial statements.




Principal
      Terms of the Series A Financing Consummated upon the Closing of the
      Merger




On
      June
      30, 2006, immediately following the merger, we sold to four institutional
      investors, in a private offering generating gross proceeds of $5.25 million,
      an
      aggregate of 5,250,000 shares of our Series A 10% Cumulative Convertible
      Preferred Stock initially convertible into 4,200,000 shares of Common Stock,
      and
      five-year warrants to purchase an aggregate of 2,100,000 shares of our Common
      Stock.




The
      Series A Preferred Stock has a stated value of $1.00 per share. The Series
      A
      Preferred Stock is not redeemable at the holder’s option but may be redeemed by
      us at our option following the third anniversary of the issuance of the Series
      A
      Preferred Stock for 120% of the stated value thereof plus any accrued but unpaid
      dividends upon 30 days' prior written notice (during which time the Series
      A
      Preferred Stock may be converted), provided a registration statement is
      effective under the Securities Act with respect to the shares of our Common
      Stock into which such Series A Preferred Stock is then convertible, and an
      event
      of default, as defined in the Certificate of Designations relating to the Series
      A Preferred Stock is not then continuing.




The
      Series A Preferred Stock has a dividend rate of 10% per annum, payable
      quarterly. The dividend rate increases to 20% per annum upon the occurrence
      of
      the events of default specified in the Certificate of Designations. Dividends
      may be paid in cash or, provided no event of default is then continuing, with
      additional shares of Series A Preferred Stock valued at the stated value
      thereof. The Series A Preferred Stock is convertible into Common Stock at the
      conversion rate of one share of Common Stock for each $1.25 of stated value
      or
      accrued but unpaid dividends converted.




The
      warrants issued in the private placement have an initial exercise price of
      $2.00
      per share. The aggregate number of shares of Common Stock covered by the
      Warrants equaled, at the date of issuance, one-half the number of shares of
      Common Stock issuable upon the full conversion of the Series A Preferred Stock
      issued to the investors on that date.




We
      agreed
      to file a registration statement under the Securities Act covering the Common
      Stock issuable upon conversion of the Series A Preferred Stock and exercise
      of
      the warrants within 120 days following closing of the private placement and
      to
      cause it to become effective within 240 days of that closing. We also granted
      the investors demand and piggyback registration rights with respect to such
      Common Stock.




Because
      the registration statement we agreed to file was not declared effective within
      the time required under our agreements with the June 30, 2006 purchasers of
      the
      Series A Preferred Stock, dividends on the shares of Series A Preferred Stock
      issued to those purchasers accrued at the rate of 20% per annum from February
      26, 2007 until May 7, 2007, the date the registration statement was declared
      effective. During this time period, we were obligated to pay those purchasers
      cash dividends and an aggregate of $105,000 per 30-day period from February
      26,
      2007 through the date such registration statement was declared effective (May
      7,2007) in cash. Pursuant to a settlement agreement with the June 30, 2006
      purchasers of Series A Preferred Stock, all cash dividends and damages were
      paid
      for in full with additional shares of Series A Preferred Stock.


6


Both
      the
      conversion price of the Series A Preferred Stock and the exercise price of
      the
      warrants are subject to “full-ratchet” anti-dilution provisions, so that upon
      future issuances of our Common Stock or equivalents thereof, subject to
      specified customary exceptions, at a price below the conversion price of the
      Series A Preferred Stock and/or exercise price of the warrants, the conversion
      price and/or exercise price will be reduced to the lower price.




In
      connection with the sale of the Series A Preferred Stock and warrants to the
      four institutional investors, to induce those investors to make the investment,
      Margie Chassman pledged to those investors securities of other publicly traded
      companies. The pledged securities consisted of a $400,000 promissory note of
      Xechem International, Inc. convertible into Xechem common stock at $.005 per
      share, and 250,000 shares of the common stock of Novelos Therapeutics, Inc.
      Based on the market value of the Xechem common stock ($.07 per share) and the
      Novelos common stock ($1.03) per share, on June 30, 2006, the aggregate fair
      market value of the pledged securities at the date of pledge was approximately
      $5,857,500.




The
      terms
      of the pledge provided that in the event those investors suffered a loss on
      their investment in our securities as of June 30, 2007 (as determined by actual
      sales by those investors or the market price of our Common Stock on such date),
      the investors would be entitled to sell all or a portion of the pledged
      securities so that the investors receive proceeds from such sale in an amount
      equal to their loss on their investment in our securities. In consideration
      of
      her pledge to these investors, we paid Ms. Chassman (i) $525,000 in cash
      (representing 10% of the cash amount raised from the institutional investors),
      and (ii) five-year warrants to purchase




·
            525,000
                shares of Series A Preferred Stock (representing 10% of the Series
                A
                Preferred Stock purchased by those investors), and




·
            warrants
                to purchase 210,000 shares of Common Stock at an exercise price of
                $2.00
                per share (representing 10% of the Series A Preferred Stock purchased
                by
                those investors),




for
      an
      aggregate exercise price of $525,000.




**Research
      and Development**




We
      have
      been engaged in research and development since inception. Our research and
      development costs were approximately $1,416,000 and $1,113,000 for the years
      ended December 31, 2007 and 2006, respectively.




**Technology,
      Products and Applications**




For
      approximately the past half-century, the field of blood purification has been
      focused on hemodialysis, a mature, well accepted medical technique primarily
      used to sustain the lives of patients with permanent or temporary loss of kidney
      function. It is widely understood by the medical community that dialysis has
      inherent limitations in that its ability to remove toxic substances from blood
      drops precipitously as the size of toxins increases. Our hemocompatible
      adsorbent technology is expected to address this shortcoming by removing toxins
      and toxic compounds largely untouched by dialysis technology.




Our
      initial products, CytoSorbTM and BetaSorbTM, are known in the medical field as
      hemoperfusion devices. During hemoperfusion, blood is removed from the body
      via
      a catheter or other blood access device, perfused through a filter medium where
      toxic compounds are removed, and returned to the body.




We
      believe that our polymer adsorbent technology may remove middle molecular weight
      toxins and toxic compounds, such as cytokines, from blood and physiologic
      fluids. We believe that our technology may have many applications in the
      treatment of common, chronic and acute healthcare complications including the
      adjunctive treatment and/or prevention of sepsis; the treatment of chronic
      kidney failure; the treatment of liver failure; the prevention of post-operative
      complications of cardiopulmonary bypass surgery; and the prevention of damage
      to
      organs donated by brain-dead donors prior to organ harvest. These applications
      vary by cause and complexity as well as by severity but share a common
      characteristic i.e. high concentrations of toxins in the circulating
      blood.


7


Both
      the
      CytoSorbTM and BetaSorbTM devices consist of a cylinder containing adsorbent
      polymer beads, although the polymers used in the two devices are physically
      different. The cylinders in both devices incorporate industry standard
      connectors at either end of the device which connect directly to the
      extra-corporeal circuit (bloodlines) in series with a dialyser, in the case
      of
      the BetaSorbTM device, or as a stand alone device in the case of the CytoSorbTM
device. Both devices will require no additional expensive equipment, and will
      require minimal training.




The
      extra-corporeal circuit consists of plastic blood tubing, our CytoSorbTM or
      BetaSorbTM cartridge, as applicable, containing adsorbent polymer beads, pressure
      monitoring gauges, and a blood pump to maintain blood flow. The patient’s blood
      is accessed through a catheter inserted into his or her veins. The catheter
      is
      connected to the extra-corporeal circuit and the blood pump draws blood from
      the
      patient, pumps it through the cartridge and returns it back to the patient
      in a
      closed loop system.




**Markets** ****




Sepsis




In
      the
      United States alone, there are more than one million new cases of sepsis
      annually; extrapolated to a global population, the worldwide incidence is
      several million cases per year. Severe trauma and community acquired pneumonia
      are often associated with sepsis. The Company estimates that the market
      potential in Europe for its products is substantially equivalent to that in
      the
      U.S.




Sepsis
      patients are critically ill and suffer a very high mortality rate of between
      28%
      and 60%. Because they are so expensive to treat, we believe that efficacy rather
      than cost will be the determining factor in the adoption of CytoSorbTM in the
      treatment of sepsis. Based on current pricing of charcoal hemoperfusion devices
      in the market today, we estimate that our CytoSorbTM device will sell for $500
      per unit. Our current pricing model represents a fraction of what is currently
      spent on the treatment of a sepsis patient.




Brain-Dead
      Organ Donors




There
      are
      in excess of 6,000 brain dead organ donors each year in the United States;
      worldwide, the number of these organ donors is estimated to be at least double
      the U.S. brain dead organ donor population. There is a severe shortage of donor
      organs. Currently, there are more than 95,000 individuals on transplant waiting
      lists in the United States. We expect that the use of our CytoSorbTM device in
      brain dead organ donors will increase the number of viable organs harvested
      from
      the donor pool and improve the survival of transplanted organs.




Cardiopulmonary
      Bypass Procedures




There
      are
      approximately 400,000 cardiopulmonary bypass (CPB) and cardiac surgery
      procedures performed annually in the U.S. and more than 800,000 worldwide.
      Some
      patients, nearly one-third, suffer from post-operative complications of
      cardiopulmonary bypass surgery, including complications from infection,
      pneumonia, pulmonary, and neurological dysfunction. A common characteristic
      of
      these post operative complications is the presence of cytokines in the blood.
      Extended surgery time leads to longer ICU recovery time and hospital stays,
      both
      leading to higher costs – approximately $32,000 per coronary artery bypass graft
      procedure. We believe that the use of CytoSorbTM during and after the surgical
      procedure may prevent or mitigate post-operative complications for many CPB
      patients.




We
      anticipate that the CytoSorbTM device, incorporated into the extra-corporeal
      circuit used with the by-pass equipment during surgery, and/or employed
      post-operatively for a period of time, will mitigate inflammation and speed
      recovery.


8


Chronic
      Kidney Failure




The
      National Kidney Foundation estimates that more than 20 million Americans have
      chronic kidney disease. Left untreated, chronic kidney disease can ultimately
      lead to chronic kidney failure, which requires a kidney transplant or chronic
      dialysis (generally three times per week) to sustain life. There are
      approximately 340,000 patients in the United States currently receiving chronic
      dialysis and more than 1.5 million worldwide. Approximately 89% of patients
      with
      chronic kidney disease are treated with hemodialysis.




Our
      BetaSorbTM device has been designed for use in conjunction with standard
      dialysis. Standard dialysis care typically involves three sessions per week,
      averaging approximately 150 sessions per year. Assuming BetaSorbTM use in each
      session, every 100,000 patients would require approximately 15 million devices
      annually.




**Products**




We
      believe that the polymer adsorbent technology used in our products has the
      potential to remove middle molecular weight toxins, such as cytokines, from
      blood and physiologic fluids. All of the potential applications described below
      ( i.e. ,
      the
      adjunctive treatment and/or prevention of sepsis; the treatment of chronic
      kidney failure; the treatment of liver failure; the prevention of post-operative
      complications of cardiopulmonary bypass surgery; and the prevention of damage
      to
      organs donated by brain-dead donors prior to organ harvest) share in common
      high
      concentrations of toxins in the circulating blood. However, because of the
      limited studies we have conducted to date, we are subject to substantial risk
      that our technology will have little or no effect on the treatment of any of
      these indications. We have only recently received approval from the German
      Ethics Committee to proceed with a clinical study of up to 80 patients with
      acute respiratory distress syndrome or acute lung injury in the setting of
      sepsis. If we are able to commence these studies in the second quarter of 2008
      as planned, these studies are successful and we obtain European regulatory
      approval, we anticipate that we will be able to begin sales of CytoSorbTM by late
      2009, at the earliest. However, there can be no assurance we will ever obtain
      regulatory approval for CytoSorbTM or any other device.




The
      CytoSorbTM Device (Critical Care)




*APPLICATION:
      Adjunctive Therapy in the Treatment of Sepsis*




Sepsis
      is
      defined by high levels of toxic compounds (“cytokines”) which are released into
      the blood stream as part of the body’s auto-immune response to severe infection
      or injury. These toxins cause severe inflammation and damage healthy tissues,
      which can lead to organ dysfunction and failure. Sepsis is very expensive to
      treat and has a high mortality rate.




Potential
      Benefits: To the
      extent our adsorbent blood purification technology is able to prevent or reduce
      the accumulation of cytokines in the circulating blood, we believe our products
      may be able to prevent or mitigate severe inflammation, organ dysfunction and
      failure in sepsis patients. Therapeutic goals as an adjunctive therapy include
      reduced ICU and total hospitalization time.




Background
      and Rationale: We
      believe that the effective treatment of sepsis is the most valuable potential
      application for our technology. Sepsis carries mortality rates of between 28%
      and 60%. Death can occur within hours or days, depending on many variables,
      including cause, severity, patient age and co-morbidities. Researchers estimate
      that there are approximately one million new cases of sepsis in the U.S. each
      year; extrapolated to a global population, this equates to several million
      new
      cases annually. In the U.S. alone, treatment of sepsis costs nearly $18 billion
      annually. According to the Centers for Disease Control, sepsis is the tenth
      leading cause of death in the U.S., as reported by (CDC). More than 1,000 people
      die each day from sepsis.




An
      effective treatment for sepsis has been elusive. Pharmaceutical companies have
      been trying to develop drug therapies to treat the condition. With the exception
      of a single drug, Xigris® from Eli Lilly, which demonstrated a small improvement
      in survival in a small segment of the patient population, to our knowledge,
      all
      other efforts to date have failed to significantly improve patient
      survival.


9


We
      believe that our technology presents a new therapeutic approach in the treatment
      of sepsis. The potential benefits of blood purification in the treatment of
      sepsis patients are widely acknowledged by medical professionals and have been
      studied using dialysis and hemofiltration technology. These studies, while
      encouraging, demonstrated that dialysis alone produced only limited benefit
      to
      sepsis patients. The reason for this appears to be rooted in a primary
      limitation of dialysis technology itself: the inability of standard dialysis
      to
      effectively and efficiently remove larger toxins from circulating blood. Limited
      studies of our CytoSorbTM device have provided us with data consistent with our
      belief that CytoSorbTM has the ability to remove these larger toxins. CytoSorb’sTM
ability to interact safely with blood (hemocompatibility) has been demonstrated
      through ISO 10993 testing. Data collected during the “emergency and
      compassionate use” treatment of a single sepsis patient has been encouraging to
      us.




CytoSorbTM
      has been designed to achieve broad-spectrum removal of both pro- and
      anti-inflammatory cytokines, preventing or reducing the accumulation of high
      concentrations in the bloodstream. This approach is intended to modulate the
      immune response without blocking or suppressing the function of any of its
      mediators. For this reason, researchers have referred to the approach reflected
      in our technology as ‘immunomodulatory’ therapy.




Projected
      Timeline: Previous
      clinical studies using our BetaSorbTM device in patients with chronic kidney
      failure have provided valuable data which underpin the development of the
      critical care applications for our technology. The BetaSorbTM device has been
      used in a total of three human pilot studies, involving 20 patients, in the
      U.S.
      and Europe. The studies included approximately 345 treatments, with some
      patients using the device for up to 24 weeks (in multiple treatment sessions
      lasting up to four hours, three times per week) in connection with the
      application of our products to patients suffering from chronic kidney failure.
      The BetaSorbTM device design was also tested on a single patient with bacterial
      sepsis, producing results that our management has found encouraging and
      consistent with our belief that our device design is appropriate for a more
      extensive sepsis study.




We
      received approval from the German Ethics Committee in October of 2007 to conduct
      a clinical study of up to 80 patients with acute respiratory distress syndrome
      or acute lung injury in the setting of sepsis, and are currently seeking
      additional financing to be able to conduct that study. We recently made
      arrangements with several hospitals in Berlin to conduct the clinical study,
      which we expect to commence in the second quarter of 2008. We expect to complete
      the study in approximately 9 months following enrollment of the first patient.
      Concurrent with the clinical study, we expect to commence the CE Mark submission
      process. Assuming a successful outcome of the study, management believes it
      will
      take an additional 6-9 months following its submission for CE Mark approval
      to
      receive the European regulatory approval. Assuming availability of adequate
      and
      timely funding, and a successful outcome to the study, management anticipates
      obtaining CE Mark approval in late 2009, at the earliest.




Because
      our technology pertains to a medical device, the regulatory pathway and approval
      process are faster and more straightforward than the process related to the
      approval of a drug. However, even if we ultimately obtain the CE Mark, because
      we cannot control the timing of the regulatory approval process, there can
      be no
      assurance as to when such approval will be obtained.




*APPLICATION* : *Prevention
      and treatment of organ dysfunction in brain-dead organ donors to increase the
      number and quality of viable organs harvested from donors*




Potential
      Benefits: If
      CytoSorbTM is able to prevent or reduce high-levels of cytokines from
      accumulating in the bloodstream of brain-dead organ donors, we believe CytoSorbTM
will be able to mitigate organ dysfunction and failure which results from severe
      inflammation following brain-death. The primary goals for this application
      are:




·
            improving
                the viability of organs which can be harvested from brain-dead organ
                donors, and




·
            increasing
                the likelihood of organ survival following
                transplant.




Background
      and Rationale: When
      brain death occurs, the body responds by generating large quantities of
      inflammatory cytokines. This process is similar to sepsis. A high percentage
      of
      donated organs are never transplanted due to this response, which damages
      healthy organs and prevents transplant. In addition, inflammation in the donor
      may damage organs that are harvested and reduce the probability of graft
      survival following transplant.


10


There
      is
      a shortage of donated organs worldwide, with approximately 95,000 people
      currently on the waiting list for organ transplants in the United States alone.
      Because there are an insufficient number of organs donated to satisfy demand,
      it
      is vital to maximize the number of viable organs donated, and optimize the
      probability of organ survival following transplant.




Projected
      Timeline: Studies
      have been conducted under a $1 million grant from the Health Resources and
      Services Administration (HRSA),  an
      agency
      of the U.S. Department of Health and Human Services. Researchers at the
      University of Pittsburgh Medical Center and the University of Texas, Houston
      Medical Center have completed the observational and dosing phases of the
      project. The results were published in Critical Care Medicine, January 2008.
      The
      next phase of this study, the treatment phase, will involve viable donors
      treated with the CytoSorbTM device.
      In this phase of the project, viable donors will be treated and the survival
      and
      function of organs in transplant recipients will be tracked and measured. The
      treatment phase will be contingent upon further discussion with the FDA and
      HRSA
      regarding study design, as well as obtaining additional funding.




*APPLICATION:
      Prevention and treatment of post-operative complications of cardiopulmonary
      bypass surgery*




Potential
      Benefits: If
      CytoSorbTM is able to prevent or reduce high-levels of cytokines from
      accumulating in the blood system during and following cardiac surgery, we
      anticipate that post-operative complications of cardiopulmonary bypass surgery
      may be able to be prevented or mitigated. The primary goals for this application
      are to:




·
            reduce
                ventilator and oxygen therapy requirements;




·
            reduce
                length of stay in hospital intensive care units; and




·
            reduce
                the total cost of patient care.




Background
      and Rationale: Due to
      the highly invasive nature of cardiopulmonary bypass surgery, high levels of
      cytokines are produced by the body, triggering severe inflammation. If our
      products are able to prevent or reduce the accumulation of cytokines in a
      patient’s blood stream, we expect to prevent or mitigate post-operative
      complications caused by an excessive or protracted inflammatory response to
      the
      surgery. While not all patients undergoing cardiac surgery suffer these
      complications, it is impossible to predict before surgery which patients will
      be
      affected.




Projected
      Timeline: We
      commissioned the University of Pittsburgh to conduct a study to characterize
      the
      production of cytokines as a function of the surgical timeline for
      cardiopulmonary bypass surgery. An observational study of 32 patients was
      completed, and information was obtained with respect to the onset and duration
      of cytokine release. We expect that this information will aid us in defining
      the
      appropriate time to apply the CytoSorbTM device to maximize therapeutic impact.
      We are not currently focusing our efforts on the commercialization of CytoSorbTM
for application to cardiac surgery. Upon successful commercialization of the
      sepsis application, we will pursue the use of our polymer adsorbent technology
      for other critical care uses, such as cardiopulmonary bypass surgery.




The
      BetaSorbTM Device (Chronic Care)




*APPLICATION:
      Prevention and treatment of health complications caused by the accumulation
      of
      metabolic toxins in patients with chronic renal failure*




Potential
      Benefits: If
      BetaSorbTM is able to prevent or reduce high levels of metabolic waste products
      from accumulating in the blood and tissues of long-term dialysis patients,
      we
      anticipate that the health complications characteristic to these patients can
      be
      prevented or mitigated. The primary goals for this application are to




·
            improve
                and maintain the general health of dialysis patients;




·
            improve
                the quality of life of these
                patients




·
            reduce
                the total cost of patient care; and




·
            increase
                life expectancy.




11


Background
      and Rationale: Our
      BetaSorbTM device is intended for use on patients suffering from chronic kidney
      failure who rely on long-term dialysis therapy to sustain life. Due to the
      widely recognized inability of dialysis to remove larger proteins from blood,
      metabolic waste products, such as Beta-2 microglobulin, accumulate to toxic
      levels and are deposited in the joints and tissues of patients. Specific toxins
      known to accumulate in these patients have been linked to their severe health
      complications, increased healthcare costs, and reduced quality of life.




Researchers
      also believe that the accumulation of toxins may play an important role in
      the
      significantly reduced life expectancy experienced by dialysis patients. In
      the
      U.S., the average life expectancy of a dialysis patient is five years. Industry
      research has identified links between many of these toxins and poor patient
      outcomes. If our BetaSorbTM device is able to routinely remove these toxins
      during dialysis and prevent or reduce their accumulation, we expect our
      BetaSorbTM device to maintain or improve patient health in the long-term. We
      believe that by reducing the incidence of health complications, the annual
      cost
      of patient care will be reduced and life expectancy increased.




The
      poor
      health experienced by chronic dialysis patients is illustrated by the fact
      that
      in the U.S. alone, more than $20 billion is spent annually caring for this
      patient population. While the cost of providing dialysis therapy alone is
      approximately $23,000 per patient per year, the total cost of caring for a
      patient ranges from $60,000 to more than $120,000 annually due to various health
      complications associated with dialysis.




Projected
      Timeline: We have
      collected a significant amount of empirical data for the development of this
      application. As the developer of this technology, we had to undertake extensive
      research, as no comparable technology was available for reference purposes.
      We
      have completed several pilot studies, including a clinical pilot of six patients
      in California for up to 24 weeks in which our BetaSorbTM device removed the
      targeted toxin, beta 2 -microglobulin,
      as expected. In total, we have sponsored clinical studies utilizing our
      BetaSorbTM device on 20 patients involving approximately 345 total treatments.
      Each study was conducted by a clinic or hospital personnel with MedaSorb
      providing technical assistance as requested.




As
      discussed above, due to practical and economic considerations, we are focusing
      our efforts and resources on commercializing our CytoSorbTM device for critical
      care application. Following commercial introduction of the CytoSorbTM device, we
      expect to conduct additional clinical studies using the BetaSorbTM device in the
      treatment of end stage renal disease patients.




**Commercial
      and Research Partners**




University
      of Pittsburgh Medical Center




Pursuant
      to a “SubAward Agreement” we entered into with the University of Pittsburgh in
      September 2005, we are working with researchers at the University of Pittsburgh
      - Critical Care Medicine Department in the development of the sepsis application
      for our technology. Consisting of more than twenty physicians, as well as
      numerous full-time scientists, educators and administrative assistants, the
      Critical Care Medicine Department at the University of Pittsburgh is one of
      the
      largest organizations of its type in the world and has established an
      international reputation for excellence in clinical care, education, and
      research.




The
      SubAward Agreement was entered into under a grant from NIH entitled “Systems
      Engineering of a Pheresis Intervention for Sepsis (SEPsIS) ” to study
      the use of adsorbent polymer technology in the treatment of severe sepsis.
      The
      study commenced in September 2005 and is expected to continue for a total of
      five years. Currently, we believe that the only polymers being used in this
      study are polymers we have developed specifically for use in the study, which
      are similar to the polymers used in our devices. Under the SubAward Agreement,
      for each of 2006 and 2007 we received approximately $102,000 for our efforts
      in
      support of the study. We have entered into a formal SubAward Agreement for
      year
      three of the study, and continue to supply UPMC with new samples based on our
      adsorbent polymer technology under the same terms as the initial SubAward
      Agreement, and expect to do so for the duration of the study. UPMC has indicated
      to us that the amounts currently budgeted for our participation under the study
      are approximately $59,000, $132,000 and $163,000, respectively, for years three,
      four and five of the study. The amounts are subject to change on an annual
      basis
      by the NIH, and our continued participation in the study is subject to our
      performance and an annual review by UPMC.


12


Researchers
      at UPMC have participated in nearly every major clinical study of potential
      sepsis intervention during the past twenty years. Drs. Derek Angus and John
      Kellum were investigators for Eli Lilly’s sepsis drug, Xigris®. Dr. Kellum, a
      member of the UPMC faculty since 1994, is our principal investigator for
      CytoSorbTM. Dr. Kellum, together with several other researchers at UPMC, serve on
      our Critical Care Advisory Board. Dr. Kellum’s research interests span various
      aspects of Critical Care Medicine, but center on critical care nephrology
      (including acid-base, and renal replacement therapy), sepsis and multi-organ
      failure, and clinical epidemiology. He is Chairman of the Fellow Research
      Committee at the University of Pittsburgh Medical Center **** and **** has
      authored more than 70 publications and has received numerous research grants
      from foundations and industry.




Fresenius
      Medical Care AG




In
      1999,
      we entered into an exclusive, long-term agreement with Fresenius Medical Care
      for the global marketing and distribution of our BetaSorbTM device and any
      similar product we may develop for the treatment of renal disease. We currently
      intend to pursue our BetaSorbTM product after the commercialization of the
      CytoSorbTM product. At such time as we determine to proceed with our proposed
      BetaSorbTM product, if ever, we will need to conduct additional clinical studies
      using the BetaSorbTM device to obtain European or FDA approval.




Fresenius
      Medical Care is the world's largest, integrated provider of products and
      services for individuals with chronic kidney failure. Through its network of
      more than 2,100 dialysis clinics in North America, Europe, Latin America and
      Asia-Pacific, Fresenius Medical Care provides dialysis treatment to more than
      163,000 patients around the globe. Fresenius Medical Care is also the world's
      largest provider of dialysis products, such as hemodialysis machines, dialyzers
      and related disposable products.




Advisory
      Boards




From
      time
      to time our management meets with scientific advisors who sit on our Scientific
      Advisory Board, our Medical Advisory Board – Critical Care Medicine, and our
      Medical Advisory Board – Chronic Kidney Failure / Dialysis.




Our
      Scientific Advisory Board consists of four scientists with expertise in the
      fields of fundamental chemical research, polymer research and development,
      and
      dialysis engineering technology.




Our
      Medical Advisory Board – Critical Care Medicine consists of seven medical
      doctors, four of whom are affiliated with UPMC, with expertise in critical
      care
      medicine, sepsis, multi-organ failure and related clinical study
      design.




Our
      Medical Advisory Board – Chronic Kidney Failure / Dialysis consists of four
      medical doctors with expertise in kidney function, kidney diseases and their
      treatment, and dialysis technology.




We
      compensate members of our Advisory Boards at the rate of $2,000 for each
      full-day meeting they attend in person; $1,200 if attendance is by telephone.
      When we consult with members of our Advisory Board (whether in person or by
      telephone) for a period of less than one day, we compensate them at the rate
      of
      $150 per hour, except with respect to one of our advisors, who we compensate
      at
      the rate of $200 per hour. We also reimburse members of our Advisory Boards
      for
      their travel expenses for attending our meetings.




**Royalty
      Agreements**




With
      Principal Stockholder




In
      August
      2003, in order to induce Guillermina Vega Montiel, a principal stockholder
      of
      ours, to make a $4 million investment in MedaSorb, we granted Ms. Montiel a
      perpetual royalty equal to three percent of all gross revenues received by
      us
      from sales of CytoSorb TM in
      the
      applications of sepsis, cardiopulmonary bypass surgery, organ donor,
      chemotherapy and inflammation control. In addition, for her investment, Ms.
      Montiel received 1,230,770 membership units of MedaSorb, which at the time
      was a
      limited liability company. Those membership units ultimately became 185,477
      shares of our Common Stock following our June 30, 2006 merger.


13


With
      Purolite




In
      2003,
      Purolite filed a lawsuit against us asserting, among other things, co-ownership
      and co-inventorship of certain of our patents. On September 1, 2006, the United
      States District Court for the Eastern District of Pennsylvania approved a
      Stipulated Order and Settlement Agreement under which we and Purolite agreed
      to
      the settlement of the action. The Settlement Agreement provides us with the
      exclusive right to use our patented technology and proprietary know how relating
      to adsorbent polymers for a period of 18 years. In particular, the Settlement
      Agreement relates to several of our issued patents and several of our pending
      patent applications covering our biocompatible polymeric resins, our methods
      of
      producing these polymers, and the methods of using the polymers to remove
      impurities from physiological fluids, such as blood.




Under
      the
      terms of the Settlement Agreement, we have agreed to pay Purolite royalties
      of
      2.5% to 5% on the sale of those of our products, if and when those products
      are
      sold commercially, that are used in direct contact with blood. However, if
      the
      first product we offer for commercial sale is a biocompatible polymer to be
      used
      in direct contact with a physiological fluid other than blood, royalties will
      be
      payable with respect to that product as well. The royalty payments provided
      for
      under the Settlement Agreement would apply to our currently envisioned CytoSorbTM
and BetaSorbTM products.




Following
      the expiration of the eighteen year term of the Settlement Agreement, the
      patents and patent applications that are the subject of the Settlement Agreement
      should have expired under current patent laws, and the technology claimed in
      them will be available to the public. However, following such time, we would
      continue to exclusively own any confidential and proprietary know
      how.




***Product
      Payment & Reimbursement*** ******




Critical
      Care Applications




**Europe**




Payment
      for our CytoSorbTM device for the removal of cytokines in patients with acute
      respiratory distress syndrome or acute lung injury in
      the
      setting of sepsis and other related acute care applications will be applied
      for
      on a country by country basis in Europe. We intend to initially apply for
      reimbursement in Germany where we expect to conduct clinical trials. If we
      are
      able to successfully introduce the CytoSorbTM
      device into the German market we
      intend
      to apply for reimbursement in France, England, Italy and Spain representing
      the
      five economic leaders in Europe and introduce our products in those countries
      accordingly. We will first need to establish the CE Mark for the CytoSorbTM
device, then pursue reimbursement on a country by country basis. Each country
      will determine reimbursement status of the device based on the data obtained
      from the clinical trial. There can be no assurances that reimbursement will
      be
      granted or that additional clinical data may not be required to establish
      reimbursement.




**United
      States**




Payment
      for our CytoSorbTM device in the treatment and prevention of sepsis and other
      related acute care applications is anticipated to fall under the
“diagnosis-related group” (DRG) in-patient reimbursement system, which is
      currently the predominant basis of hospital medical billing in the United
      States. Under this system, predetermined payment amounts are assigned to
      categories of medical patients with respect to their treatments at medical
      facilities based on the DRG that they fall within (which is a function of such
      characteristics as medical condition, age, sex, etc.) and the length of time
      spent by the patient at the facility. Reimbursement is not determined by the
      actual procedures used in the treatment of these patients, and a separate
      reimbursement decision would not be required to be made by Medicare, the HMO
      or
      other provider of medical benefits in connection with the actual method used
      to
      treat the patient.


14


Critical
      care applications such as those targeted by our CytoSorbTM device involve a high
      mortality rate and extended hospitalization, coupled with extremely expensive
      ICU time. In view of these high costs and high mortality rates, we believe
      acceptance of our proprietary technology by critical care practitioners and
      hospital administrators will primarily depend on safety and efficacy factors
      rather than cost.




Chronic
      Renal Failure




In
      Europe
      chronic dialysis is predominately provided by government supported clinics
      accounting for approximately 75% of dialysis treatment, with the remainder
      being
      provided by private clinics. However, these figures vary widely among countries
      within Europe. For example dialysis clinics in Denmark and Finland are 100%
      publicly managed facilities while those in Portugal are 90% privately managed
      facilities. Generally speaking ,
      dialysis services are always regulated and controlled by the healthcare
      authorities and not homogeneous between the various European
      countries.




There
      are
      three main types of reimbursement in Europe: budget transfer, fee for service
      and flat rate. In some cases, the reimbursement method varies within the same
      country depending on the type of provider (public or private). Europe is similar
      to the U.S. in that a product such as BetaSorbTM
      may be part of a composite rate or separate line item reimbursement. In either
      case, a country by country application for reimbursement must be
      made.





It
      is
      expected that in the U.S., Medicare will be the primary payer for the BetaSorbTM
device, either through the current “fee for service” mechanism or managed care
      programs. The large majority of costs not covered by federal programs are
      covered by the private insurance sector.




While
      the
      fee-for-service composite rate system is currently the dominant payment
      mechanism, many industry participants believe that a managed care system will
      become the dominant payment mechanism. We believe that movement to a full or
      shared-risk managed care system would speed market acceptance of BetaSorbTM
because, under such a system, providers will have a strong incentive to adopt
      technologies that lower overall treatment costs. Fresenius is a leading
      participant in the move to managed care and may play a leading role in the
      demonstration and introduction of our product to Medicare.




***Competition***




General




We
      believe that our products represent a unique approach to disease states and
      health complications associated with the presence of larger toxins (often
      referred to as middle molecular weight toxins) in the bloodstream, including
      sepsis, post-operative complications of cardiac surgery (cardiopulmonary bypass
      surgery), damage to organs donated for transplant prior to organ harvest, and
      renal disease. Researchers have explored the potential of using existing
      membrane-based dialysis technology to treat patients suffering from sepsis.
      These techniques are unable to effectively remove the middle molecular weight
      toxins. We believe that our devices may be able to remove middle molecular
      weight toxins from circulating blood. This concept has been tested at the
      University of Pittsburgh using a septic rat model based on lipopolysaccharide
      (a
      particular kind of toxin, known as a bacterial endotoxin) and the CytoSorbTM
polymer.




Both
      the
      CytoSorbTM and BetaSorbTM devices consist of a cylinder containing adsorbent
      polymer beads. The cylinder incorporates industry standard connectors at either
      end of the device which connect directly to an extra-corporeal circuit
      (bloodlines) on a stand alone basis. The extra-corporeal circuit consists of
      plastic tubing through which the blood flows, our cartridge (CytoSorbTM or
      BetaSorbTM depending on the condition being treated) containing our adsorbent
      polymer beads, pressure monitoring gauges, and a blood pump to maintain blood
      flow. The patient’s blood is accessed through a catheter inserted into his or
      her veins. The catheter is connected to the extra-corporeal circuit and the
      blood pump draws blood from the patient, pumps it through the cartridge and
      returns it back to the patient in a closed loop system. As blood passes over
      the
      polymer beads in the cylinder, toxins are adsorbed from the blood, without
      filtering any fluids from the blood or the need for replacement fluid or
      dialysate.


15


Although
      standard dialysis also uses extra-corporeal circuits and blood pumps, the
      technology used in dialysis to remove toxins (osmosis and convection) drains
      fluids out of the bloodstream in a process called ultrafiltration, and uses
      semi-permeable membranes as a filter, allowing the passage of certain sized
      molecules across the membrane, but preventing the passage of other, larger
      molecules.




MedaSorb’s
      technology uses the same extra-corporeal circuits as dialysis, however, our
      devices do not rely on membrane technology but instead use an adsorbent of
      specified pore size, which controls the size of the molecules which can pass
      into the adsorbent. As blood flows over our polymer adsorbent, middle molecules
      such as cytokines flow into the polymer adsorbent and are adsorbed. Our devices
      do not use semipermeable membranes or dialysate. In addition, our devices do
      not
      remove fluids from the blood like a dialyser. Accordingly, we believe that
      our
      technology has significant advantages as compared to traditional dialysis
      techniques.




Sepsis




Researchers
      have explored the potential of using existing membrane-based dialysis technology
      to treat patients suffering from sepsis. These techniques are unable to
      effectively remove middle molecular weight toxins, which leading researchers
      have shown to cause and complicate sepsis. The same experts believe that a
      blood
      purification technique that efficiently removes, or significantly reduces,
      the
      circulating concentrations of such toxins might represent a successful
      therapeutic option. We believe that the CytoSorbTM device may have the ability to
      remove middle molecular weight toxins from circulating blood.




Medical
      research during the past two decades has focused on drug interventions aimed
      at
      chemically blocking or suppressing the function of one or two inflammatory
      agents. In hindsight, some researchers now believe this approach has little
      chance of significantly improving patient outcomes because of the complex
      pathways and multiple chemical factors at play. Clinical studies of these drug
      therapies have been largely unsuccessful. An Eli Lilly drug, Xigris®, cleared by
      the FDA in November 2001, is the first and only drug to be approved for the
      treatment of severe sepsis. Clinical studies demonstrated that use of Xigris®
resulted in a 6% reduction in the absolute risk of death, and a 13% risk
      reduction in the most severe sepsis patients. The drug remains controversial
      and
      is considered extremely expensive when compared to the percentage of patients
      who benefit.




Pharmaceutical
      research for the treatment of sepsis continues with a number of Phase I and
      II
      drug trials being conducted presently. Using a medical device to treat sepsis
      remains a novel approach for the treatment of sepsis. There are a number of
      companies that claim enabling technology for the treatment of sepsis but to
      our
      knowledge have not presented clinical evidence to that effect, with the
      exception of Kaneka Corporation of Japan. Kaneka Corporation’s product, CTR
      Adsorber, which is still being tested, uses a similar approach to our
      technology. .




Cardiopulmonary
      Bypass Surgery




We
      are
      not aware of any practical competitive approaches for removing cytokines in
      CPB
      patients. Alternative therapies such as “off-pump” surgeries are available but
“post-bypass” syndrome has not been shown to be reduced in this less invasive
      procedure. If successful, CytoSorbTM is expected to be useful in both on-pump and
      off-pump procedures.




Chronic
      Dialysis




Although
      standard dialysis treatment effectively removes urea and creatinine from the
      blood stream (which are normally filtered by functioning kidneys), standard
      dialysis has not been effective in removing beta 2 -microglobulin
      toxins from the blood of patients suffering from chronic kidney failure. We
      know
      of no other device, medication or therapy considered directly competitive with
      our technology. Research and development in the field has focused primarily
      on
      improving existing dialysis technologies. The introduction of the high-flux
      dialyzer in the mid-1980s and the approval of Amgen’s EpogenTM, a recombinant
      protein used to treat anemia, are the two most significant developments in
      the
      field over the last two decades.


16


Efforts
      to improve removal of middle molecular weight toxins with enhanced dialyzer
      designs have achieved only marginal success. Many experts believe that dialyzer
      technology has reached its limit in this respect. A variation of high-flux
      hemodialysis, known as hemodiafiltration, has existed for many years. However,
      due to the complexity, cost and increased risks, this dialysis technique has
      not
      gained significant acceptance worldwide. In addition, many larger toxins are
      not
      effectively filtered by hemodiafiltration, despite its more open pore structure.
      As a result, hemodiafiltration does not approach the quantity of toxins removed
      by the BetaSorbTM device.




Treatment
      of Organ Dysfunction in Brain-Dead Organ Donors




We
      are
      not aware of any directly competitive products to address the application of
      our
      technology for the mitigation of organ dysfunction and failure resulting from
      severe inflammation following brain-death.




***Clinical
      Studies*** ******




Our
      first
      clinical studies were conducted in patients with chronic renal failure. The
      health of these patients is challenged by high levels of toxins circulating
      in
      their blood but, unlike sepsis patients, they are not at imminent risk of death.
      The toxins involved in chronic renal failure are completely different from
      those
      involved in sepsis, eroding health gradually over time. The treatment of
      patients with chronic renal failure is a significant target market for us,
      although not the current focus of our efforts and resources. Our clinical
      studies and product development work in this application functioned as a low
      risk method of evaluating the safety of the technology in a clinical setting,
      with direct benefit to development of the critical care applications on which
      we
      are now focusing our efforts.




We
      have
      not conducted any clinical studies of our products with respect to the treatment
      of any other indications, although data collected during the “emergency and
      compassionate use” treatment of a single sepsis patient has been encouraging to
      us. Because of the limited studies we have conducted, we are subject to
      substantial risk that our technology will have little or no effect on the
      treatment of any indications that we have targeted.




In
      August
      of 2007 the German Ethics Committee approved our application to proceed with
      a
      clinical study enrolling up to 80 patients with acute respiratory distress
      syndrome or acute lung injury in the setting of sepsis. We recently made
      arrangements with several hospitals in Berlin to conduct the clinical study,
      which we expect to commence in the second quarter of 2008.





***Government
      Research Grants***




Two
      government research grants by the National Institutes of Health (NIH) and Health
      and Human Services (HHS) have been awarded to investigators at the University
      of
      Pittsburgh to explore the use of adsorbent polymers in the treatment of sepsis
      and organ transplant preservation. Under “SubAward Agreements” with the
      University of Pittsburgh, we have been developing polymers for use in these
      studies.




A
      grant
      of $1 **** million
      was awarded to the University of Pittsburgh Medical Center in 2003. The project
      seeks to improve the quantity and viability of organs donated for transplant
      by
      using CytoSorbTM to detoxify the donor’s blood. The observational and dosing
      phases of the study, involving 30 viable donors and eight non-viable donors,
      respectively, have been completed. The next phase of this study, the treatment
      phase, will involve viable donors. The treatment phase will be contingent upon
      further discussion with the FDA and HRSA regarding study design, as well as
      obtaining additional funding.




In
      addition, in September 2005, the University of Pittsburgh Medical Center was
      awarded a grant of approximately $7 million from NIH entitled “Systems
      Engineering of a Pheresis Intervention for Sepsis (SEPsIS) ” to study
      the use of adsorbent polymer technology in the treatment of severe sepsis.
      The
      study, expected to last for a total of five years, commenced in September,
      2005
      and remains in progress. Under a SubAward Agreement, we are working with
      researchers at the University of Pittsburgh – Critical Care Medicine Department.
      Currently, we believe that the only polymers being used in this study are
      polymers we have developed specifically for use in the study, which are similar
      to the polymers used in our devices. Under the SubAward Agreement, for 2006
      and
      2007 we received approximately $102,000 each year for our efforts in support
      of
      the study. We have entered into a formal SubAward Agreement for year 3, and
      continue to supply UPMC with new samples based on our adsorbent polymer
      technology under the same terms as the initial SubAward Agreement, and expect
      to
      do so for the duration of the study. UPMC has indicated to us that the amounts
      currently budgeted for our participation under the study are approximately,
      $59,000, $132,000, and $163,000, respectively, for years three, four and five
      of
      the study. The amounts are subject to change on an annual basis by the NIH,
      and
      our continued participation in the study is subject to our performance and
      an
      annual review by UPMC. These grants represent a substantial research cost
      savings to us and demonstrate the strong interest of the medical and scientific
      communities in our technology.


17


***Regulation***




The
      medical devices that we manufacture are subject to regulation by numerous
      regulatory bodies, including the FDA and comparable international regulatory
      agencies. These agencies require manufacturers of medical devices to comply
      with
      applicable laws and regulations governing the development, testing,
      manufacturing, labeling, marketing and distribution of medical devices. Devices
      are generally subject to varying levels of regulatory control, the most
      comprehensive of which requires that a clinical evaluation program be conducted
      before a device receives approval for commercial distribution.




In
      the
      U.S., permission to distribute a new device generally can be met in one of
      two
      ways. The first process requires that a pre-market notification (510(k)
      Submission) be made to the FDA to demonstrate that the device is as safe and
      effective as, or substantially equivalent to, a legally marketed device that
      is
      not subject to pre-market approval (PMA). A legally marketed device is a device
      that (i) was legally marketed prior to May 28, 1976, (ii) has
      been reclassified from Class III to Class II or I, or (iii) has been
      found to be substantially equivalent to another legally marketed device
      following a 510(k) Submission. The legally marketed device to which equivalence
      is drawn is known as the “predicate” device. Applicants must submit descriptive
      data and, when necessary, performance data to establish that the device is
      substantially equivalent to a predicate device. In some instances, data from
      human clinical studies must also be submitted in support of a 510(k) Submission.
      If so, these data must be collected in a manner that conforms with specific
      requirements in accordance with federal regulations. The FDA must issue an
      order
      finding substantial equivalence before commercial distribution can occur.
      Changes to existing devices covered by a 510(k) Submission which do not
      significantly affect safety or effectiveness can generally be made by us without
      additional 510(k) Submissions.




The
      second process requires that an application for PMA be made to the FDA to
      demonstrate that the device is safe and effective for its intended use as
      manufactured. This approval process applies to certain Class III devices.
      In this case, two steps of FDA approval are generally required before marketing
      in the U.S. can begin. First, investigational device exemption (IDE) regulations
      must be complied with in connection with any human clinical investigation of
      the
      device in the U.S. Second, the FDA must review the PMA application which
      contains, among other things, clinical information acquired under the IDE.
      The
      FDA will approve the PMA application if it finds that there is a reasonable
      assurance that the device is safe and effective for its intended purpose.




In
      the
      United States, our CytoSorbTM and BetaSorbTM devices are classified as Class III
      (CFR 876.5870—Sorbent Hemoperfusion System) and will require 501(k) Submissions
      to the FDA. However, because the BetaSorbTM device is intended for chronic use,
      the FDA may require pre-market approval (PMA), which we will submit if required.
      In the case of CytoSorbTM, because the application is for acute care (short term,
      less than 30 days), management believes that FDA approval for this product
      may
      be obtained based solely on the 510(k) Submission accompanied with clinical
      data. In Europe, our devices are expected to be classified as class IIb, and
      will conform to the ISO 13485 Quality Standard in support of our planned
      applications to obtain CE Mark certification in Europe.




In
      the
      European Union, medical devices are required to comply with the Medical Devices
      Directive and obtain CE Mark certification in order to market medical devices.
      The CE Mark certification, granted following approval from an independent
      Notified Body, is an international symbol of adherence to quality assurance
      standards and compliance with applicable European Medical Devices Directives.
      Distributors of medical devices may also be required to comply with other
      foreign regulations such as Ministry of Health Labor and Welfare approval in
      Japan. The time required to obtain these foreign approvals to market our
      products may be longer or shorter than that required in the U.S., and
      requirements for those approvals may differ from those required by the FDA.




As
      discussed above, we intend to initially pursue CE Mark certification for the
      CytoSorbTM device in conjunction with German clinical studies before continuing
      with the approval process in the United States.


18


The
      process of obtaining clearance to market products is costly and time-consuming
      in virtually all of the major markets in which we expect to sell products and
      may delay the marketing and sale of our products. Countries around the world
      have recently adopted more stringent regulatory requirements which are expected
      to add to the delays and uncertainties associated with new product releases,
      as
      well as the clinical and regulatory costs of supporting those releases. No
      assurance can be given that any of our medical devices will be approved on
      a
      timely basis, if at all. In addition, regulations regarding the development,
      manufacture and sale of medical devices are subject to future change. We cannot
      predict what impact, if any, those changes might have on our business. Failure
      to comply with regulatory requirements could have a material adverse effect
      on
      our business, financial condition and results of operations.




Exported
      devices are subject to the regulatory requirements of each country to which
      the
      device is exported. Some countries do not have medical device regulations,
      but
      in most foreign countries medical devices are regulated. Frequently, regulatory
      approval may first be obtained in a foreign country prior to application in
      the
      U.S. to take advantage of differing regulatory requirements.




***Sales
      and Marketing***




We
      currently estimate, provided that we receive adequate and timely funding to
      support our planned activities and that our products perform as expected in
      clinical studies, that we will obtain CE Mark approval of our CytoSorbTM device
      in the treatment of sepsis in late 2009, at the earliest, assuming a successful
      pivotal study. We plan to initiate sales in several European countries which
      are
      known as early adopters of new medical device technology. These countries
      primarily include Italy, Germany, France, Spain and the United Kingdom. We
      plan
      to initially operate through local distributors in each European country where
      we launch sales operations. Only after establishment of a limited network of
      local distributors and actual generation of sales, will we formulate a broader
      distribution strategy on a global basis.




***Intellectual
      Property and Patent Litigation***




The
      medical device market in which we primarily participate is in large part
      technology driven. As a result, intellectual property rights, particularly
      patents and trade secrets, play a significant role in product development and
      differentiation. However, intellectual property litigation to defend or create
      market advantage is inherently complex, unpredictable and is expensive to
      pursue. Litigation often is not ultimately resolved until an appeal process
      is
      completed and appellate courts frequently overturn lower court patent decisions.




Moreover,
      competing parties frequently file multiple suits to leverage patent portfolios
      across product lines, technologies and geographies and to balance risk and
      exposure between the parties. In some cases, several competitors are parties
      in
      the same proceeding, or in a series of related proceedings, or litigate multiple
      features of a single class of devices. These forces frequently drive settlement
      not only of individual cases, but also of a series of pending and potentially
      related and unrelated cases. In addition, although monetary and injunctive
      relief is typically sought, remedies are generally not determined until the
      conclusion of the proceedings, and are frequently modified on appeal.
      Accordingly, the outcomes of individual cases are difficult to time, predict
      or
      quantify and are often dependent upon the outcomes of other cases in other
      forums, both domestic and international.




We
      rely
      on a combination of patents, trademarks, trade secrets and non-disclosure
      agreements to protect our intellectual property. We hold 25 **** U.S.
      patents, some of which have foreign counterparts, and additional patent
      applications pending worldwide that cover various aspects of our technology.
      There can be no assurance that pending patent applications will result in issued
      patents, that patents issued to us will not be challenged or circumvented by
      competitors, or that such patents will be found to be valid or sufficiently
      broad to protect our technology or to provide us with a competitive advantage.
      Our portfolio of patents includes:




·
            U.S.
                Pat. No. 5,545,131, which expires on November 30, 2014. This patent
                concerns an artificial kidney containing a polymeric resin to filter
                impurities from blood.





·
            U.S.
                Pat. Nos. 5,773,384, 5,904,663, 6,127,311, 6,136,424, 6,159,377 and
                6,582,811, which expire on or before February 6, 2018. These patents
                concern the use of macronet polymeric resins that are subsequently
                treated
                to make them biocompatible for the removal of impurities from
                physiological fluids.


19


·
            U.S.
                Pat. Nos. 6,087,300, 6,114,466, 6,133,393, 6,153,707, 6,156,851 and
                6,303,702, which expire on or before February 6, 2018. These patents
                concern the use of mesoporous polydivinylbenzene polymeric resins
                that are
                subsequently treated to make them biocompatible for the removal of
                impurities from physiological
                fluids.





·
            U.S.
                Pat. No. 6,416,487, which expires on July 30, 2017. This patent concerns
                a
                method of removing Beta-2 microglobulin using polymers with
                surface-exposed vinyl groups modified for
                biocompatibility.





·
            U.S.
                Pat. No. 6,878,127, which expires in 2021 and U.S. Pat. No.7,312,023,
                which expires in 2024. These patents concern devices, systems and
                methods
                for reducing levels of pro-inflammatory or anti-inflammatory stimulators
                or mediators in the blood.





·
            U.S.
                Pat. No. 6,884,829, which expires in 2022, U.S. Pat. No. 7,112,620
                which
                expires in 2023 and U.S. Pat. No. 7,201,962 which expires in 2025.
                These
                patents concern a hemocompatible polymer and a one-step method of
                producing it.





We
      also
      rely on non-disclosure and non-competition agreements with employees,
      consultants and other parties to protect, in part, trade secrets and other
      proprietary technology. There can be no assurance that these agreements will
      not
      be breached, that we will have adequate remedies for any breach, that others
      will not independently develop equivalent proprietary information or that third
      parties will not otherwise gain access to our trade secrets and proprietary
      knowledge.




Several
      years ago we engaged in discussions with the Dow Chemical Company, which had
      indicated a strong interest in being our polymer manufacturer. After a Dow
      representative on our Advisory Board resigned, Dow filed and received five
      patents naming our former Advisory Board member as an inventor. These patents,
      two of which subsequently lapsed for failure to pay maintenance fees, concern
      the area of coating high divinylbenzene-content polymers to render them
      hemocompatible, and using such coated polymers to treat blood or plasma. In
      management’s view the Dow patents improperly incorporate our technology, are
      based on our proprietary technology, and should not have been granted to Dow.
      While we believe that our own patents would prevent Dow from producing our
      products as they are currently envisioned, Dow could attempt to assert its
      patents against us. To date, to our knowledge, Dow has not utilized their
      patents for the commercial manufacture of products that would be competitive
      with us, and we currently have no plans to challenge Dow’s patents. However, the
      existence of these Dow patents could result in a potential dispute with Dow
      in
      the future and additional expenses for us.




We
      may
      find it necessary to initiate litigation to enforce our patent rights, to
      protect our trade secrets or know-how and to determine the scope and validity
      of
      the proprietary rights of others. Patent litigation can be costly and
      time-consuming, and there can be no assurance that our litigation expenses
      will
      not be significant in the future or that the outcome of litigation will be
      favorable to us. Accordingly, we may seek to settle some or all of our pending
      litigation described below. Settlement may include cross-licensing of the
      patents which are the subject of the litigation as well as our other
      intellectual property and may involve monetary payments to or from third
      parties.




***Employees***




As
      of
      December 31, 2007, we had eight employees. None of our employees are represented
      by a labor union or are subject to collective-bargaining agreements. We believe
      that we maintain good relationships with our employees.


20


**RISK
      FACTORS**




*An
      investment in our Common Stock involves a high degree of risk. You should
      carefully consider the risks described below before deciding to purchase shares
      of our Common Stock. If any of the events, contingencies, circumstances or
      conditions described in the risks below actually occur, our business, financial
      condition or results of operations could be seriously harmed. The trading price
      of our Common Stock could, in turn, decline and you could lose all or part
      of
      your investment.*





**RISKS
      RELATED TO OUR INDUSTRY AND OUR BUSINESS**





***We
      require additional capital to continue operations.***




As
      of
      December 31, 2007 we had cash on hand of only $211,613, having depleted the
      proceeds of the private placement we completed in connection with our June
      30,
      2006 merger. Due to the lack of available funds, we have not paid certain of
      our
      senior executives since February 2008. We currently require additional financing
      to proceed with clinical studies and the attempted commercialization of our
      proposed products. Although we continue to discuss funding alternatives with
      potential institutional investors, our recent efforts to obtain additional
      financing have been unsuccessful, and there can be no assurance that financing
      will be available on acceptable terms or at all. Our future capital requirements
      will depend upon many factors, including, but not limited to, continued progress
      in our research and development activities, costs and timing of conducting
      clinical studies and seeking regulatory approvals and patent prosecutions,
      competing technological and market developments, and our ability to establish
      collaborative relationships with third parties. If adequate funds are
      unavailable, we may have to suspend, delay, or eliminate one or more of our
      research or development programs or product launches or marketing efforts or
      cease operations.




Our
      long-term capital requirements are expected to depend on many factors,
      including:




·
            continued
                progress and cost of our research and development
                programs;


·
            progress
                with pre-clinical studies and clinical
                studies;


·
            the
                time and costs involved in obtaining regulatory
                clearance;


·
            costs
                involved in preparing, filing, prosecuting, maintaining, defending
                and
                enforcing patent claims;


·
            costs
                of developing sales, marketing and distribution
                channels;


·
            market
                acceptance of our products; and


·
            cost
                for training physicians and other health care
                personnel.





In
      addition, in the event that additional funds are obtained through arrangements
      with collaborative partners or other sources, we may have to relinquish economic
      and/or proprietary rights to some of our technologies or products under
      development that we would otherwise seek to develop or commercialize by ourself.




***We
      currently have no commercial operations and there can be no assurance that
      we
      will be successful in developing commercial operations*** *.*




We
      are a
      development stage company and have been engaged primarily in research and
      development activities and have not generated any revenues to date. There can
      be
      no assurance that we will be able to successfully manage the transition to
      a
      commercial enterprise. Potential investors should be aware of the problems,
      delays, expenses and difficulties frequently encountered by an enterprise in
      the
      early stage of development, which include unanticipated problems relating to
      development of proposed products, testing, regulatory compliance, manufacturing,
      competition, marketing problems and additional costs and expenses that may
      exceed current estimates. Our proposed products will require significant
      additional research and testing, and we will need to overcome significant
      regulatory burdens prior to commercialization. We will also need to raise
      significant additional funds to complete clinical studies and obtain regulatory
      approvals before we can begin selling our products. There can be no assurance
      that after the expenditure of substantial funds and efforts, we will
      successfully develop and commercialize any products, generate any revenues
      or
      ever achieve and maintain a substantial level of sales of our products.


21


***We
      have a history of losses and expect to incur substantial future losses, and
      the
      report of our auditor on our consolidated financial statements expresses
      substantial doubt about our ability to continue as a going
      concern*** .




We
      have
      experienced substantial operating losses since inception. As of December 31,
      2007, we had an accumulated deficit of $71,538,209, which included losses from
      operations of $3,350,754 for the year ended December 31, 2007 and $7,671,580
      for
      the year ended December 31, 2006. In part due to these losses, our audited
      consolidated financial statements have been prepared assuming we will continue
      as a going concern, and the auditors’ report on those financial statements
      express substantial doubt about our ability to continue as a going concern.
      Our
      losses have resulted principally from costs incurred in the research and
      development of our polymer technology and general and administrative expenses.
      Because our predecessor was a limited liability company until December 2005,
      substantially all of these losses were allocated to that company’s members and
      will not be available for tax purposes to us in future periods. We intend to
      conduct significant additional research, development, and clinical study
      activities which, together with expenses incurred for the establishment of
      manufacturing arrangements and a marketing and distribution presence and other
      general and administrative expenses, are expected to result in continuing
      operating losses for the foreseeable future. The amount of future losses and
      when, if ever, we will achieve profitability are uncertain. Our ability to
      achieve profitability will depend, among other things, on successfully
      completing the development of our technology and commercial products, obtaining
      the requisite regulatory approvals, establishing manufacturing and sales and
      marketing arrangements with third parties, and raising sufficient funds to
      finance our activities. No assurance can be given that our product development
      efforts will be successful, that required regulatory approvals will be obtained,
      that any of our products will be manufactured at a competitive cost and will
      be
      of acceptable quality, or that the we will be able to achieve profitability
      or
      that profitability, if achieved, can be sustained.




***We
      depend upon key personnel who may terminate their employment with us at any
      time.***




We
      currently have only eight employees. Our success will depend to a significant
      degree upon the continued services of our key management and advisors,
      including, Al Kraus, our Chief Executive Officer; David Lamadrid, our Chief
      Financial Officer; Vincent Capponi, our Chief Operating Officer and Dr. James
      Winchester, our Chief Medical Officer, who is employed by us on a part time
      basis. These individuals do not have long-term employment agreements, and there
      can be no assurance that they will continue to provide services to us. In
      addition, our success will depend on our ability to attract and retain other
      highly skilled personnel. We may be unable to recruit such personnel on a timely
      basis, if at all. Management and other employees may voluntarily terminate
      their
      employment with us at any time. The loss of services of key personnel, or the
      inability to attract and retain additional qualified personnel, could result
      in
      delays in development or approval of our products, loss of sales and diversion
      of management resources.




***Our
      Chief Medical Officer’s primary employment is with another employer***




Dr.
      James
      Winchester, our Chief Medical Officer, serves as the Chief of Beth Israel
      Medical Center’s Nephrology division. Although the time Dr. Winchester provides
      to us varies from time to time, it is generally in the range of one-half day
      to
      one full day per week. Because Dr. Winchester’s primary employment is with Beth
      Israel Medical Center, Dr. Winchester may not always be available to provide
      us
      with his services when needed by us in a timely manner.




***Acceptance
      of our medical devices in the marketplace is uncertain, and failure to achieve
      market acceptance will prevent or delay our ability to generate
      revenues.***




Our
      future financial performance will depend, at least in part, upon the
      introduction and customer acceptance of our polymer products. Even if approved
      for marketing by the necessary regulatory authorities, our products may not
      achieve market acceptance. The degree of market acceptance will depend upon
      a
      number of factors, including:




·
            the
                receipt of regulatory clearance of marketing claims for the uses
                that we
                are developing;


·
            the
                establishment and demonstration of the advantages, safety and efficacy
                of
                the our polymer technology;


·
            pricing
                  and reimbursement policies of government and third-party payers
                  such as
                  insurance companies, health maintenance organizations and other
                  health
                  plan administrators;


22


·
            our
                ability to attract corporate partners, including medical device companies,
                to assist in commercializing our products;
                and


·
            our
                ability to market our products.





Physicians,
      patients, payers or the medical community in general may be unwilling to accept,
      utilize or recommend any of our products. If we are unable to obtain regulatory
      approval or commercialize and market our products when planned, we may not
      achieve any market acceptance or generate revenue.




Even
      if
      we receive the CE Mark, there can be no assurance that the data from our
      clinical studies will be viewed as sufficient by the medical community to
      support the purchase of our products in substantial quantities or at all.




***We
      may face litigation from third parties claiming that our products infringe
      on
      their intellectual property rights, or seek to challenge the validity of our
      patents.***




Our
      future success is also dependent on the strength of our intellectual property,
      trade secrets and know-how, which have been developed from years of research
      and
      development. In addition to the “Purolite” litigation discussed below which
      we’ve recently settled, we may be exposed to additional future litigation by
      third parties seeking to challenge the validity of our rights based on claims
      that our technologies, products or activities infringe the intellectual property
      rights of others or are invalid, or that we have misappropriated the trade
      secrets of others.




Since
      our
      inception, we have sought to contract with large, established manufacturers
      to
      supply commercial quantities of our adsorbent polymers. As a result, we have
      disclosed, under confidentiality agreements, various aspects of our technology
      with potential manufacturers. We believe that these disclosures, while necessary
      for our business, have resulted in the attempt by potential suppliers to assert
      ownership claims to our technology in an attempt to gain an advantage in
      negotiating manufacturing rights.




We
      have
      previously engaged in discussions with the Brotech Corporation and its
      affiliate, Purolite International, Inc. (collectively “Purolite”), which had
      demonstrated a strong interest in being our polymer manufacturer. For a period
      of time beginning in December 1998, Purolite engaged in efforts to develop
      and
      optimize the manufacturing process needed to produce our polymer products on
      a
      commercial scale. However, the parties eventually decided not to proceed. In
      2003, Purolite filed a lawsuit against us asserting, among other things,
      co-ownership and co-inventorship of certain of our patents. On September 1,
      2006, the United States District Court for the Eastern District of Pennsylvania
      approved a Stipulated Order and Settlement Agreement under which we and Purolite
      agreed to the settlement of the action. The Settlement Agreement provides us
      with the exclusive right to use our patented technology and proprietary know
      how
      relating to adsorbent polymers for a period of 18 years. Under the terms of
      the
      Settlement Agreement, we have agreed to pay Purolite royalties of 2.5% to 5%
      on
      the sale of certain of our products if and when those products are sold
      commercially.




Several
      years ago we engaged in discussions with the Dow Chemical Company, which had
      indicated a strong interest in being our polymer manufacturer. After a Dow
      representative on our Advisory Board resigned, Dow filed and received several
      patents naming our former Advisory Board member as an inventor. In management’s
      view the Dow patents improperly incorporate our technology and should not have
      been granted to Dow. The existence of these Dow patents could result in a
      potential dispute with Dow in the future and additional expenses for
      us.




***We
      have not yet commenced the process of seeking regulatory approval of our
      products. The approval process will involve clinical studies and is lengthy
      and
      costly. The failure to obtain government approvals, internationally or
      domestically, for our polymer products, or to comply with ongoing governmental
      regulations could prevent, delay or limit introduction or sale of our products
      and result in the failure to achieve revenues or maintain our
      operations.***




The
      manufacturing and marketing of our products will be subject to extensive and
      rigorous government regulation in the European market, the United States, in
      various states and in other foreign countries. In the United States and other
      countries, the process of obtaining and maintaining required regulatory
      approvals is lengthy, expensive, and uncertain. There can be no assurance that
      we will ever obtain the necessary approvals to sell our products. Even if we
      do
      ultimately receive CE Mark and/or FDA approval for any of our products, we
      will
      be subject to extensive ongoing regulation.


23


Our
      products will be subject to international regulation as medical devices under
      the Medical Device Directive. In Europe, which we expect to provide the initial
      market for our products, the Notified Body and Competent Authority govern,
      where
      applicable, development, clinical studies, labeling, manufacturing,
      registration, notification, clearance or approval, marketing, distribution,
      record keeping, and reporting requirements for medical devices. Different
      regulatory requirements may apply to our products depending on how they are
      categorized by the Notified Body under these laws. Current international
      regulations classify our CytoSorbTM device (the first product we intend to seek
      international approval for) as a Class IIb device. Concurrent with the clinical
      trial in Germany, we plan to pursue CE Mark certification of the CytoSorbTM
device. There can be no assurance that the clinical studies we conduct will
      demonstrate sufficient safety and efficacy to obtain the required regulatory
      approvals for marketing, or that we will be able to comply with international
      regulatory requirements. In addition, there can be no assurance that government
      regulations applicable to our products or the interpretation of those
      regulations will not change. The extent of potentially adverse government
      regulation that might arise from future legislation or administrative action
      cannot be predicted. There
      can
      be no assurances that reimbursement will be granted or that additional clinical
      data may be required to establish reimbursement.




***We
      have conducted limited clinical studies of our
      BetaSorb*** ***TM*** ***device
      and no clinical studies of our CytoSorb*** ***TM*** ***device. Clinical and pre-clinical data is susceptible to varying
      interpretations, which could delay, limit or prevent regulatory
      clearances.***




To
      date,
      we have conducted limited clinical studies on our products. There can be no
      assurance that we will successfully complete the clinical studies necessary
      to
      receive regulatory approvals. While studies conducted by us and others have
      produced results we believe to be encouraging and indicative of the potential
      efficacy of our products and technology, data already obtained, or in the future
      obtained, from pre-clinical studies and clinical studies do not necessarily
      predict the results that will be obtained from later pre-clinical studies and
      clinical studies. Moreover, pre-clinical and clinical data are susceptible
      to
      varying interpretations, which could delay, limit or prevent regulatory
      approval. A number of companies in the medical device and pharmaceutical
      industries have suffered significant setbacks in advanced clinical studies,
      even
      after promising results in earlier studies. The failure to adequately
      demonstrate the safety and effectiveness of an intended product under
      development could delay or prevent regulatory clearance of the device, resulting
      in delays to commercialization, and could materially harm our business.




***We
      rely extensively on research and testing facilities at various universities
      and
      institutions, which could be adversely affect us should we lose access to those
      facilities.***




Although
      we have our own research laboratories and clinical facilities, we collaborate
      with numerous institutions, universities and commercial entities to conduct
      research and studies of our products. We currently maintain a good working
      relationship with these parties. However, should the situation change, the
      cost
      and time to establish or locate alternative research and development could
      be
      substantial and delay gaining FDA approval and commercializing our
      products.




***We
      are and will be exposed to product liability risks, and clinical and preclinical
      liability risks, which could place a substantial financial burden upon us should
      we be sued*** ***.***




Our
      business exposes us to potential product liability and other liability risks
      that are inherent in the testing, manufacturing and marketing of medical
      devices. We cannot be sure that claims will not be asserted against us. A
      successful liability claim or series of claims brought against us could have
      a
      material adverse effect on our business, financial condition and results of
      operations.




We
      cannot
      give assurances that we will be able to continue to obtain or maintain adequate
      product liability insurance on acceptable terms, if at all, or that such
      insurance will provide adequate coverage against potential liabilities. Claims
      or losses in excess of any product liability insurance coverage that we may
      obtain could have a material adverse effect on our business, financial condition
      and results of operations.


24


***Certain
      university and other relationships are important to our business and may
      potentially result in conflicts of interests.***




Dr.
      John
      Kellum and Dr. David Powner, among others, are critical care advisors and
      consultants of ours and are associated with University of Pittsburgh Medical
      Center and University of Texas, respectively. Their association with these
      institutions may currently or in the future involve conflicting interests in
      the
      event they or these institutions enter into consulting or other arrangements
      with competitors of ours.




***We
      have limited manufacturing experience, and once our products are approved,
      we
      may not be able to manufacture sufficient quantities at an acceptable cost,
      or
      without shut-downs or delays.***




We
      remain
      in the research and development and clinical study phase of product
      commercialization. Accordingly, once our products are approved for commercial
      sale, we will need to establish the capability to commercially manufacture
      our
      products in accordance with international regulatory requirements. We have
      limited experience in establishing, supervising and conducting commercial
      manufacturing. If we or the third-party manufacturers of our products fail
      to
      adequately establish, supervise and conduct all aspects of the manufacturing
      processes, we may not be able to commercialize our products.




***Due
      to our limited marketing, sales and distribution experience, we may be
      unsuccessful in our efforts to sell our products.***




We
      expect
      to enter into agreements with third parties for the commercial manufacture
      and
      distribution of our products. There can be no assurance that parties we may
      engage to market and distribute our products will:




·
            satisfy
                their financial or contractual obligations to
                us;


·
            adequately
                market our products; or


·
            not
                offer, design, manufacture or promote competing
                products.





If
      for
      any reason any party we engage is unable or chooses not to perform its
      obligations under our marketing and distribution agreement, we would experience
      delays in product sales and incur increased costs, which would harm our business
      and financial results.




***If
      we are unable to convince physicians and other health care providers as to
      the
      benefits of our products, we may incur delays or additional expense in our
      attempt to establish market acceptance.***




Broad
      use
      of our products may require physicians and other health care providers to be
      informed about our products and their intended benefits. The time and cost
      of
      such an educational process may be substantial. Inability to successfully carry
      out this education process may adversely affect market acceptance of our
      products. We may be unable to educate physicians regarding our products in
      sufficient numbers or in a timely manner to achieve our marketing plans or
      to
      achieve product acceptance. Any delay in physician education may materially
      delay or reduce demand for our products. In addition, we may expend significant
      funds towards physician education before any acceptance or demand for our
      products is created, if at all.




***The
      market for our products is rapidly changing and competitive, and new devices
      and
      drugs which may be developed by others could impair our ability to maintain
      and
      grow our business and remain competitive.***




The
      medical device and pharmaceutical industries are subject to rapid and
      substantial technological change. Developments by others may render our
      technologies and products noncompetitive or obsolete. We also may be unable
      to
      keep pace with technological developments and other market factors.
      Technological competition from medical device, pharmaceutical and biotechnology
      companies, universities, governmental entities and others diversifying into
      the
      field is intense and is expected to increase. Many of these entities have
      significantly greater research and development capabilities and budgets than
      we
      do, as well as substantially more marketing, manufacturing, financial and
      managerial resources. These entities represent significant competition for
      us.


25


***If
      users of our products are unable to obtain adequate reimbursement from
      third-party payers, or if new restrictive legislation is adopted, market
      acceptance of our products may be limited and we may not achieve anticipated
      revenues.***




The
      continuing efforts of government and insurance companies, health maintenance
      organizations and other payers of healthcare costs to contain or reduce costs
      of
      health care may affect our future revenues and profitability, and the future
      revenues and profitability of our potential customers, suppliers and
      collaborative partners and the availability of capital. For example, in certain
      foreign markets, pricing or profitability of medical devices is subject to
      government control. In the United States, given recent federal and state
      government initiatives directed at lowering the total cost of health care,
      the
      U.S. Congress and state legislatures will likely continue to focus on health
      care reform, the cost of medical devices and on the reform of the Medicare
      and
      Medicaid systems. While we cannot predict whether any such legislative or
      regulatory proposals will be adopted, the announcement or adoption of these
      proposals could materially harm our business, financial condition and results
      of
      operations.




Our
      ability to commercialize our products will depend in part on the extent to
      which
      appropriate reimbursement levels for the cost of our products and related
      treatment are obtained by governmental authorities, private health insurers
      and
      other organizations, such as health maintenance organizations (“HMOs”).
      Third-party payers are increasingly challenging the prices charged for medical
      care. Also, the trend toward managed health care in the United States and the
      concurrent growth of organizations such as HMOs, which could control or
      significantly influence the purchase of health care services and medical
      devices, as well as legislative proposals to reform health care or reduce
      government insurance programs, may all result in lower prices for our products.
      The cost containment measures that health care payers and providers are
      instituting and the effect of any health care reform could materially harm
      our
      ability to operate profitably.




**INVESTMENT
      RISKS**




***Directors,
      executive officers and principal stockholders own a significant percentage
      of
      the shares of Common Stock, which will limit your ability to influence corporate
      matters.***




Our
      directors, executive officers and principal stockholders together beneficially
      own approximately 79% of our outstanding shares of Common Stock. Accordingly,
      these stockholders could have a significant influence over the outcome of any
      corporate transaction or other matter submitted to stockholders for approval,
      including mergers, consolidations and the sale of all or substantially all
      of
      our assets and also could prevent or cause a change in control. The interests
      of
      these stockholders may differ from the interests of our other stockholders.
      Third parties may be discouraged from making a tender offer or bid to acquire
      us
      because of this concentration of ownership.




***Our
      Series A Preferred Stock provides for the payment of
      penalties.***




Immediately
      following our June 30, 2006 merger, we issued 5,250,000 shares of Series A
      10%
      Cumulative Convertible Preferred Stock with an aggregate stated value of
      $5,250,000. We issued an additional 2,769,508 shares of Series A Preferred
      Stock
      through December 31, 2007 to additional investors, as dividends and in
      connection with the settlement of amounts owed to certain investors due to
      our
      failure to timely register shares of Common Stock issuable upon conversion
      of
      Series A Preferred Stock. We will likely issue additional shares of this series
      of preferred stock in the future as dividends. The Certificate of Designation
      designating the Series A Preferred Stock provides that upon the following
      events, among others, the dividend rate with respect to the Series A Preferred
      Stock increases to 20% per annum, which dividends would then be required to
      be
      paid in cash:





·
            the
                occurrence of “Non-Registration
                Events”;





·
            an
                uncured breach by us of any material covenant, term or condition
                in the
                Certificate of Designation or any of the related transaction documents;
                and




26




·
            any
                money judgment or similar final process being filed against us for
                more
                than $100,000.





In
      addition, the registration rights provided for in the subscription agreement
      we
      entered into with the purchasers in this offering:





·
            required
                us to file a registration statement with the SEC on or before 120
                days
                from the closing to register the shares of Common Stock issuable
                upon
                conversion of the Series A Preferred Stock and exercise of the Warrants,
                and cause such registration statement to be effective by February
                25, 2007
                (240 days following the closing);
                and





·
            entitles
                each of these investors to liquidated damages in an amount equal
                to two
                percent (2%) of the purchase price of the Series A Preferred Stock
                if we
                fail to timely file that registration statement with, or have it
                declared
                effective by, the SEC.





Because
      the registration statement we agreed to file was not declared effective within
      the time required under our agreements with the June 30, 2006 purchasers of
      the
      Series A Preferred Stock, dividends on the shares of Series A Preferred Stock
      issued to those purchasers accrued at the rate of 20% per annum from February
      26, 2007 until May 7, 2007, the date the registration statement was declared
      effective. Additionally during this time period, we were obligated to pay those
      purchasers cash dividends and an aggregate of $105,000 per 30-day period from
      February 26, 2007 through the date such registration statement was declared
      effective. Pursuant to a settlement agreement with the June 30, 2006 purchasers
      of Series A Preferred Stock, all cash dividends and damages were paid for in
      full with additional shares of Series A Preferred Stock.





The
      Certificate of Designation, Subscription Agreement and related transaction
      documents also provide for various penalties and fees for breaches or failures
      to comply with provisions of those documents, such as the timely payment of
      dividends, delivery of stock certificates, and obtaining and maintaining an
      effective registration statement with respect to the shares of Common Stock
      underlying the Series A Preferred Stock and Warrants sold in the offering.
      We
      may in the future default in our contractual obligations to the holders of
      our
      Series A Preferred Stock, and in such event we may be required to pay liquidated
      damages in cash or additional shares of Preferred Stock .





***Anti-Dilution
      Provisions Of The Series A Preferred Stock And Warrants, As Well As The Terms
      Of
      The Employment Agreement With Our Chief Executive Officer, Could Result In
      Dilution Of Stockholders***




Both
      the
      conversion price of the Series A Preferred Stock and the exercise price of
      the
      Warrants issued to the June 30, 2006 purchasers of our Series A Preferred Stock
      are subject to “full-ratchet” anti-dilution provisions, so that upon future
      issuances of our Common Stock or equivalents thereof, subject to specified
      customary exceptions, at a price below the conversion price of the Series A
      Preferred Stock and/or exercise price of the Warrants, such conversion price
      and/or exercise price will be reduced to such lower price, further diluting
      holders of our Common Stock.




In
      addition, under our Employment Agreement with Al Kraus, our Chief Executive
      Officer, Mr. Kraus is entitled to be issued options to purchase Common Stock
      so
      that the combined total of Common Stock owned by Mr. Kraus, including upon
      exercise of options, equals 5% of our outstanding Common Stock on a fully
      diluted basis. Mr. Kraus has such right until such time as an aggregate of
      $4
      million of financing has been received by us following the commencement of
      his
      employment.




***Penny
      Stock Regulations May Affect Your Ability To Sell Our Common
      Stock*** **.**





To
      the
      extent the price of our Common Stock remains below $5.00 per share, our Common
      Stock will be subject to Rule 15g-9 under the Exchange Act, which imposes
      additional sales practice requirements on broker dealers which sell these
      securities to persons other than established customers and accredited investors.
      Under these rules, broker-dealers who recommend penny stocks to persons other
      than established customers and "accredited investors" must make a special
      written suitability determination for the purchaser and receive the purchaser's
      written agreement to a transaction prior to sale. Unless an exception is
      available, the regulations require the delivery, prior to any transaction
      involving a penny stock, of a disclosure schedule explaining the penny stock
      market and the associated risks. The additional burdens imposed upon
      broker-dealers by these requirements could discourage broker-dealers from
      effecting transactions in our Common Stock and may make it more difficult for
      holders of our Common Stock to sell shares to third parties or to otherwise
      dispose of them.




27




***Our
      Board of Directors may, without stockholder approval, issue and fix the terms
      of
      shares of preferred stock and issue additional shares of common stock adversely
      affecting the rights of holders of our common stock.***




Our
      certificate of incorporation authorizes the issuance of up to 100,000,000 shares
      of “blank check” preferred stock, with such designation rights and preferences
      as may be determined from time to time by the Board of Directors. We have
      designated 12,000,000 shares of Series A Preferred Stock as described above.
      Subject to the rights of the holders of the Series A Preferred Stock, our
      Board of Directors is empowered, without stockholder approval, to issue up
      to
      88,000,000 additional shares of preferred stock with dividend, liquidation,
      conversion, voting or other rights, which could adversely affect the rights
      of
      the holders of our common stock. In addition, our certificate of incorporation
      authorizes the issuance of up to 100,000,000 shares of common stock, of which
      approximately 75,000,000 shares remain available for issuance and may be issued
      by us without stockholder approval. Issuances of additional shares of common
      stock and/or preferred stock may be utilized as a method of discouraging,
      delaying or preventing a change in control of our company.




***Our
      Charter Documents and Nevada Law May Inhibit A Takeover That Stockholders May
      Consider Favorable.***




Provisions
      in our articles of incorporation and bylaws, and Nevada law, could delay or
      prevent a change of control or change in management that would provide
      stockholders with a premium to the market price of their Common Stock. The
      authorization of undesignated preferred stock, for example, gives our board
      the
      ability to issue preferred stock with voting or other rights or preferences
      that
      could impede the success of any attempt to effect a change in control of us,
      or
      otherwise adversely affect holders of Common Stock in relation to holders of
      preferred stock.




***Compliance
      with changing corporate governance and public disclosure regulations may result
      in additional expense.***





Keeping
      abreast of, and in compliance with, changing laws, regulations and standards
      relating to corporate governance and public disclosure, including the
      Sarbanes-Oxley Act of 2002, new SEC regulations will require an increased amount
      of management attention and external resources. In addition, prior to the
      merger, our current management team was not subject to these laws and
      regulations, as MedaSorb was a private corporation. We intend to continue to
      invest all reasonably necessary resources to comply with evolving standards,
      which may result in increased general and administrative expense and a diversion
      of management time and attention from revenue-generating activities to
      compliance activities.





***Our
      Common Stock is thinly traded on the OTC Bulletin Board, and we may be unable
      to
      obtain listing of our common stock on a more liquid market.***





Our
      Common Stock is quoted on the OTC Bulletin Board, which provides significantly
      less liquidity than a securities exchange (such as the American or New York
      Stock Exchange) or an automated quotation system (such as the Nasdaq Stock
      Market). There is uncertainty that we will ever be accepted for a listing on
      an
      automated quotation system or securities exchange.




**Item
      2.** **Description
      of Property.**




We
      currently operate a facility near Princeton, New Jersey with approximately
      7,375
      sq. ft, housing research laboratories, clinical manufacturing operations and
      administrative offices, under a lease agreement which expires in February 2009.
      In the opinion of management, the leased properties are adequately insured,
      are
      in good condition and suitable for the conduct of our business. We also
      collaborate with numerous institutions, universities and commercial entities
      who
      conduct research and testing of our products at their facilities.




28




**Item
      3.** **Legal
      Proceedings.**




We
      are
      not party to any material pending legal proceedings.




**Item
      4.** **Submission
      of Matters to a Vote of Security Holders.**




No
      matter
      was submitted to a vote of security holders during the fiscal year ended
      December 31, 2007.




**PART
      II**




**Item
      5.** **Market
      for Common Equity, Related Stockholder Matters and Small Business Issuer
      Purchases of Equity Securities.**




**Market
      Information**





Our
      Common Stock trades in the over-the-counter-market on the OTC Bulletin Board
      under the symbol “MSBT.” Our Common Stock began trading on such market on August
      9, 2006. The quotations listed below reflect inter-dealer prices, without retail
      mark-ups, mark-downs or commissions and may not necessarily represent actual
      transactions.


**Price****High**
              
              **Low****2006**Third
                  quarter (from August 9)
              
              $
              3.95
              
              $
              1.25Fourth
                  quarter
              
              $
              1.73
              
              $
              0.57**2007**First
                  quarter
              
              $
              2.85
              
              $
              1.04Second
                  quarter
              
              $
              1.45
              
              $
              0.40Third
                  quarter
              
              $
              0.63
              
              $
              0.16Fourth
                  quarter
              
              $
              0.44
              
              $
              0.14




The
      number of holders of record for our Common Stock as of December 31, 2007 was
      approximately 350. This number excludes individual stockholders holding stock
      under nominee security position listings.




**Dividend
      Policy**




We
      have
      not paid any cash dividends on our Common Stock and do not anticipate declaring
      or paying any cash dividends in the foreseeable future. In addition, the terms
      of our Series A Preferred Stock prohibit the payment of dividends on our Common
      Stock. Nonetheless, the holders of our Common Stock are entitled to dividends
      when and if declared by our board of directors from legally available
      funds.





29




**EQUITY
      COMPENSATION PLAN INFORMATION**




The
      following table summarizes outstanding options as of December 31, 2007, after
      giving effect to the merger.  The Registrant had no options outstanding
      prior to the merger, and all of the options below were issued in connection
      with
      the merger to former option holders of MedaSorb.


**Number of securities to be**
                **issued upon exercise of**
                **outstanding options**
              
              **Weighted-average**
                **exercise price of**
                **outstanding options**
              
              **Number of securities remaining**
                **available for future issuance under**
                **equity compensation plans**
                **(excluding securities reflected in**
                **first column)**Equity
                  compensation plans approved by stockholders
              
              
              0
              
              
              n/a
              
              
              400,000
              (1)Equity
                  compensation plans not approved by stockholders
              
              
              2,098,502
              
              $
              9.41
              
              
              1,772,099
              (2)Total
              
              
              2,098,502
              (3)
              $
              9.41
              (3)
              
              2,172,099






(1)
            Represents
                options that may be issued under our 2003 Stock Option
                Plan.




(2)
            Represents
                options that may be issued under our 2006 Long-Term Incentive Plan.




(3)
            Represents
                options to purchase (i) 133,737 shares of Common Stock at a price
                of
                $41.47 per share, (ii) 247,121 shares of Common Stock at a price
                of $31.52
                per share, (iii) 56,279 shares of Common Stock at a price of
                $21.57per
                share, (iv) 34,028 shares of Common Stock at a price of $19.91 per
                share,
                (v) 443,507 shares of Common Stock at a price of $6.64 per share,
                (vi) 452
                shares of Common Stock at a price of $3.32 per share, (vii) 306,000
                shares
                of Common Stock at a price of $1.65 per share, (viii) 166,756 shares
                of
                Common Stock at a price of $1.25 per share, (ix) 400,000 shares of
                Common
                Stock at a price of $1.26 per share, (x) 173,000 shares of Common
                Stock at
                a price of $1.90, and (xi) 137,622 shares of Common Stock at a price
                of
                $0.22.




**Item
      6.** **M** **anagement’s
      Discussion and Analysis of Plan of Operation.**




**Reverse
      Merger**





On
      June
      30, 2006, pursuant to an Agreement and Plan of Merger, by and among us (formerly
      known as Gilder Enterprises, Inc.), MedaSorb Technologies,
      Inc. ,
      a
      Delaware corporation and MedaSorb Acquisition Inc., a newly formed wholly-owned
      Delaware subsidiary of ours, MedaSorb Technologies,
      Inc. merged with MedaSorb Acquisition Inc. (now known as MedaSorb Technologies,
      Inc.), and the stockholders of MedaSorb Technologies, Inc. became our
      stockholders. MedaSorb Technologies, Inc. is now a wholly owned subsidiary
      of
      ours, and its business is now our only business.





**CRITICAL
      ACCOUNTING POLICIES**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates. We believe
      the following critical accounting policies have significant effect in the
      preparation of our consolidated financial statements.





**Development
      Stage Corporation**





The
      Company’s financial statements have been prepared in accordance with the
      provisions of Statement of Financial Accounting Standard (SFAS) No. 7,
      "Accounting and Reporting by Development Stage Enterprises."





**Patents**





Legal
      costs incurred to establish patents are capitalized. When patents are issued,
      capitalized costs are amortized on the straight-line method over the related
      patent term. In the event a patent is abandoned, the net book value of the
      patent is written off.





**Research
      and Development**





All
      research and development costs, payments to laboratories and research
      consultants are expensed when incurred.




30


**Stock
      Based-Compensation**





The
      Company accounts for its stock-based compensation under the recognition
      requirements of Statement of Financial Accounting Standards (“SFAS”) No. 123(R).
“ *Accounting
      for Stock-Based Compensation* ”,
      for
      employees and directors whereby each option granted is valued at fair market
      value on the date of grant. Under SFAS No. 123, the fair value of each option
      is
      estimated on the date of grant using the Black-Scholes option pricing
      model.




The
      Company also follows the guidance in EITF 96-18 “Accounting for Equity
      Instruments That Are Issued to Other Than Employees for Acquiring, or in
      Conjunction with Selling, Goods or Services” for equity instruments issued
      to consultants.





**PLAN
      OF OPERATIONS**





We
      are a
      development stage company and expect to remain so for at least the next twelve
      months. We have not generated revenues to date and do not expect to do so until
      we commercialize and receive the necessary regulatory approvals to sell our
      proposed products. We will seek to commercialize a blood purification technology
      that efficiently
      removes middle molecular weight toxins from circulating blood and physiologic
      fluids.




We
      are
      focusing our efforts on the commercialization of our CytoSorbTM product, which we
      believe will provide a relatively faster regulatory pathway to market. The
      first
      indication for CytoSorbTM will be in the adjunctive treatment of sepsis
      (bacterial infection of the blood), which causes systematic inflammatory
      response syndrome. CytoSorbTM has been designed to prevent or reduce the
      accumulation of high concentrates of cytokines in the bloodstream associated
      with sepsis. It is intended for short term use as an adjunctive device to the
      standard treatment of sepsis. To date, we have manufactured the CytoSorbTM device
      on a limited basis for testing purposes, including for use in clinical studies.
      We believe that current state of the art blood purification technology (such
      as
      dialysis) is incapable of effectively clearing the toxins intended to be
      adsorbed by our CytoSorbTM device.




Following
      the sepsis indication, we intend to continue our research in other acute
      conditions where CytoSorbTM has indicated potential in preliminary studies to
      prevent or reduce the accumulation of cytokines in the bloodstream. These
      conditions include the prevention of post-operative complications of cardiac
      surgery (cardiopulmonary bypass surgery) and damage to organs donated for
      transplant prior to organ harvest. We are also exploring the potential benefits
      the CytoSorbTM device may have in removing drugs from blood.




In
      December 2006, we submitted a proposed pilot study for approval to the FDA
      with
      respect to CytoSorbTM, the first device we intend to bring to market. In the
      first quarter of 2007, we received approval from the FDA to conduct a limited
      study of five patients in the adjunctive treatment of sepsis. Based on
      management’s belief that proceeding with the approved limited study would add at
      least one year to the approval process for the United States, we made a
      determination to focus our efforts on obtaining regulatory approval in Europe
      before proceeding with the FDA.




We
      estimate that the market potential in Europe for our products is substantially
      equivalent to that in the U.S. Given the opportunity to conduct a much larger
      clinical study in Europe, and management’s belief that the path to a CE Mark
      should be faster than FDA approval, we have targeted Europe for the initial
      market introduction of our CytoSorbTM product. To accomplish the European
      introduction, in July 2007 we prepared and filed a request for a clinical trial
      with a German Central Ethics Committee. We received approval of the final study
      design in October of 2007. The clinical study allows for enrollment of up to
      80
      patients with acute respiratory distress syndrome or acute lung injury in the
      setting of sepsis. We have recently made arrangements with several hospitals
      in
      Berlin to conduct the clinical studies, and those hospitals are now open for
      patient enrollment.




The
      clinical protocol for our European clinical study has been designed to allow
      us
      to gather information to support future U.S. studies. In the event we receive
      the CE Mark and are able to successfully commercialize our products in the
      European market, we will review our plans for the United States to determine
      whether to conduct clinical trials in support of 510K or PMA registration.
      No
      assurance can be given that our proposed CytoSorbTM product will work as intended
      or that we will be able to obtain CE Mark (or FDA) approval to sell CytoSorbTM.
      Even if we ultimately obtain CE Mark approval, because we cannot control the
      timing of responses from regulators to our submissions, there can be no
      assurance as to when such approval will be obtained.




31




Our
      research and development costs were $1,415,509 and $1,112,804 for the years
      ended December 31, 2007 and 2006, respectively. We have experienced substantial
      operating losses since inception. As of December 31, 2007, we had an accumulated
      deficit of $71,538,209 which included losses from operations of $3,350,754
      and
      $7,671,580 for the years ended December 31, 2007 and December 31, 2006
      respectively. Historically, our losses have resulted principally from costs
      incurred in the research and development of our polymer technology, and general
      and administrative expenses, which together were $2,677,475 and $2,051,932,
      for
      the years ended December 31, 2007 and December 31, 2006 respectively. Legal,
      financial, and other consulting costs were $389,155 and $912,379 for the years
      ended December 31, 2007 and 2006, respectively.




In
      addition, our loss for the year ended December 31, 2007 includes net interest
      and dividend income of $67,362.




**Liquidity
      and Capital Resources**




Since
      inception, our operations have been financed through the private placement
      of
      our debt and equity securities. At December 31, 2007, we had cash on hand of
      $211,613, and current liabilities of $906,868. Due
      to
      the lack of available funds, we have not paid certain of our senior executives
      since February 2008. We currently require additional financing to proceed with
      clinical studies and the attempted commercialization of our proposed products.
      Although we continue to discuss funding alternatives with potential
      institutional investors, our recent efforts to obtain additional financing
      have
      been unsuccessful, and there can be no assurance that financing will be
      available on acceptable terms or at all. If adequate funds are unavailable,
      we
      may have to suspend, delay or eliminate one or more of our research or
      development programs or product launches or marketing efforts or cease
      operations.




Due
      to
      our losses and lack of available cash, our audited consolidated financial
      statements for the year ended December 31, 2007 included in this Annual Report
      have been prepared assuming we will continue as a going concern, and the
      auditors’ report on those financial statements expresses substantial doubt about
      our ability to continue as a going concern.




**Item
      7.** **Financial
      Statements.**




The
      Financial Statements and Notes thereto can be found beginning on page F-1,
      "Index to Financial Statements," at the end of this Form
      10-KSB.





**Item
      8.** **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**




Not
      Applicable.




**Item
      8A. Controls and Procedures** **.**




An
      evaluation was performed, under the supervision of, and with the participation
      of, our management, including our Chief Executive Officer and Chief Financial
      Officer, of the effectiveness of the design and operation of our disclosure
      controls and procedures (as defined in Rules 13a-15(e) and 15d-(e) to the
      Securities and Exchange Act of 1934). Based on that evaluation, our management,
      including our Chief Executive Officer and Chief Financial Officer, concluded
      that our disclosure controls and procedures were adequate and effective, as
      of
      December 31, 2007, to ensure that information required to be disclosed by us
      in
      the reports that we file or submits under the Securities Exchange Act of 1934,
      is recorded, processed, summarized, and reported within the time periods
      specified in the SEC’s rules and forms, and that such information is accumulated
      and communicated to management, including our Chief Executive Officer and Chief
      Financial Officer, as appropriate, to allow timely decisions regarding required
      disclosure.




32




There
      has
      not been any changes in our internal controls over financial reporting that
      occurred during our quarter ended December 31, 2007 that has materially
      affected, or is reasonably likely to materially affect, the Company’s internal
      control over financial reporting.




In
      2007,
      management conducted tests of our internal controls over financial reporting
      in
      accordance with the standards set forth by the Public Company Accounting
      Oversight Board (“PCAOB”). In accordance with these standards, management
      assessed and tested, on a sample basis, the Company’s internal control over
      financial reporting according to a comprehensive risk analysis using the
      Internal Control — Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (“COSO”). It is management’s opinion
      that the testing methodology of the internal control framework is appropriate
      and provides reasonable assurance as to the integrity and reliability of our
      internal controls over financial reporting.




In
      management’s opinion, based on the assessment completed as at December 31,
      2007, our internal controls over financial reporting are operating
      effectively.




**Item
      8B. Other Information.**




Not
      Applicable




**PART
      III**




**Item
      9.** **Directors,
      Executive Officers and Control Persons; Compliance with Section 16(a) of the
      Exchange Act** **.**




**Directors
      and Executive Officers**





The
      following table sets forth our directors and executive officers, their ages
      and
      the positions they hold:


**Name**
              
              **Age**
              
              **Position**Al
                  Kraus
              
              63
              
              President
                  and Chief Executive Officer, DirectorWilliam
                  R. Miller
              
              79
              
              Chairman
                  of the BoardJoseph
                  Rubin, Esq.
              
              69
              
              DirectorKurt
                  Katz
              
              75
              
              DirectorEdward
                  R. Jones, MD, MBA
              
              59
              
              DirectorMartin
                  F. Whalen
              
              67
              
              DirectorVincent
                  Capponi
              
              50
              
              Chief
                  Operating OfficerDavid
                  Lamadrid
              
              37
              
              Chief
                  Financial OfficerJames
                  Winchester, MD
              
              64
              
              Chief
                  Medical Officer




***Al
      Kraus.*** Mr.
      Kraus
      has more than twenty-five years’ experience managing companies in the dialysis,
      medical device products, personal computer and custom software industries.
      He
      has been the President and Chief Executive Officer of MedaSorb since 2003.
      Prior
      to joining us, from 2001 to 2003, Mr. Kraus was President and CEO of
      NovoVascular Inc., an early stage company developing coated stent technology.
      From 1996 to 1998, Mr. Kraus was President and CEO of Althin Healthcare and
      from
      1998 to 2000, of Althin Medical Inc., a manufacturer of products for the
      treatment of end stage renal disease. While CEO of Althin, he provided strategic
      direction and management for operations throughout the Americas. From 1979
      to
      1985, Mr. Kraus was U.S. Subsidiary Manager and Chief Operating Officer of
      Gambro Inc., a leading medical technology and healthcare company. Mr.
      Kraus
      was the Chief Operating Officer of Gambro when it went public in the United
      States in an offering led by Morgan Stanley.




33




***William
      R. Miller*** .
      Mr.
      Miller has been the Chairman of the Board since January 1, 2007. Mr. Miller
      served as Vice Chairman of the Board of Directors of the Bristol-Myers Squibb
      Company from 1985 until 1991, at which time he retired. Mr. Miller serves as
      the
      Chairman of the Board of Vion Pharmaceuticals, Inc. and was a director of
      ImClone Systems Incorporated from June 1996 until August 2007. Mr. Miller
      previously served as Chairman of Cold Spring Harbor Laboratory, a non-profit
      institution, and the Pharmaceutical Manufacturers Association. Mr. Miller is
      also a Trustee of the Manhattan School of Music and a Managing Director of
      the
      Metropolitan Opera Association. Mr. Miller earned his M.A. in Philosophy,
      Politics and Economics from St. Edmund Hall, Oxford University, Oxford,
      England.




***Joseph
      Rubin, Esq.*** **** Mr.
      Rubin
      became a director of MedaSorb in 1997. Mr. Rubin is a founder and Senior Partner
      of Rubin, Bailin, and Ortoli, LLP an international and domestic corporate and
      commercial law firm in New York City, where he has practiced law since 1986.
      Mr.
      Rubin also teaches at the Columbia University School of International and Public
      Affairs, where he is also Executive Director of the International Technical
      Assistance Program for Public Affairs (ITAP). Mr. Rubin was Adjunct Professor
      at
      the Columbia University Graduate School of Business from 1973 to 1994, and
      taught at Columbia Law School in 1996. Mr. Rubin received his law degree from
      Harvard Law School, and his B.A., MIA, and M.Phil degrees in political science
      and international relations from Columbia University.




***Kurt
      Katz, M.Ch.E.*** Mr.
      Katz
      became a director of MedaSorb in 1997. Since retiring from Peabody International
      Corporation in 1986, Mr. Katz has pursued various business interests. He is
      currently the Chairman of Polymeric Resources Corporation, a polymer company
      engaged in the manufacture of nylon and compounding. Mr. Katz served as
      President and Chief Operating Officer of Peabody, which specializes in energy
      and environmental products. Mr. Katz served as Executive Vice President and
      Chief Operating Officer of Peabody from 1981 to 1983, and was a Director from
      1977 to 1985. Prior to joining Peabody in 1973, Mr. Katz held a variety of
      management positions with Westinghouse Electric Corporation, where he served
      for
      18 years and was directly involved in the launching of new products, divisions
      and subsidiaries. . Mr.
      Katz
      has a B.S. and M.S. in chemical engineering, and an MBA.




***Edward
      R. Jones, MD, MBA*** . **** Dr.
      Jones
      has been a director of ours since April 2007. Dr. Jones is an attending
      physician at the Albert Einstein Medical Center and Chestnut Hill Hospital
      as
      well as Clinical Professor of Medicine at Temple University Hospital. Dr. Jones
      has published or contributed to the publishing of 30 chapters, articles, and
      abstracts on the subject of treating kidney-related illnesses. He is a
      sixteen-year member of the Renal Physicians Association, the Philadelphia County
      Medical Society and a past board member of the National Kidney Foundation of
      the
      Delaware Valley. Dr. Jones has been elected to serve as the next President
      of
      the Renal Physicians Association starting in 2009. ******




***Martin
      F. Whalen.*** Mr.
      Whalen has been a director of ours since May 2007. Mr. Whalen was President
      and
      owner of M.W. Orthopedics, Inc., and has over forty years' experience in the
      hospital and surgical fields. Mr. Whalen served on the Board of Directors for
      Biomet Inc. from 1988 to 1992 and Founders Bank from 1987 to 2000. He also
      served on the Board of Trustees of New England College and La Salle College
      High
      School and was the President of The Blue White Scholarship Foundation. Mr.
      Whalen graduated from Villanova University with a B.S. in Economics and a major
      in Finance.




***Vincent
      Capponi*** .
      Mr.
      Capponi joined MedaSorb as Vice President of Operations in 2002 and became
      its
      Chief Operating Officer in July 2005. He has more than 20 years of management
      experience in medical device, pharmaceutical and imaging equipment at companies
      including Upjohn, Sims Deltec and Sabratek. Prior to joining MedaSorb in 2002,
      Mr. Capponi held several senior management positions at Sabratek and its
      diagnostics division GDS, and was interim president of GDS diagnostics in 2001.
      From 1998 to 2000, Mr. Capponi was Senior Vice President and Chief Operating
      Officer for Sabratek and Vice President Operations from 1996 to 1998. He
      received his MS in Chemistry and his BS in Chemistry and Microbiology from
      Bowling Green State University.




***David
      Lamadrid*** .  Mr.
      Lamadrid has been with MedaSorb since 2000 and has served as its Chief Financial
      Officer since October 2002. He
      has
      over 15 years of business experience in finance and operations. Prior to joining MedaSorb in
      2000,
      Mr. Lamadrid was a financial analyst at Chase Manhattan Bank working in the
      Middle Market Banking Group. Mr. Lamadrid received his MBA from New York
      University, a BS in Finance from St. John’s University, and an AAS in Accounting
      from S.U.N.Y. Rockland.




34




***James
      Winchester, M.D.*** Prior to
      joining MedaSorb in 2000, Dr. Winchester was Professor of Medicine and Director
      of Dialysis Programs at Georgetown University School of Medicine for more than
      25 years. Dr. Winchester is also currently the Chief of the Nephrology Division
      at Beth Israel Medical Center, a position he has held since July 2004. He has
      published more than 200 articles in scientific and medical journals, and has
      co-authored eight books in the fields of renal replacement therapy and clinical
      poisoning management. Dr. Winchester is editor-in chief of *Replacement
      of Renal Function* ,
      the
      most widely used textbook for nephrology fellows. Dr. Winchester has published
      more articles on hemoperfusion than any other nephrologist in the world. He
      is
      widely recognized as one of the world’s leading experts in hemoperfusion and
      toxicology. Dr. Winchester received his medical degree from the University
      of
      Glasgow and is a Fellow of the Royal College of Physicians and Surgeons of
      Glasgow, and a Fellow of the American College of Physicians.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




The
      members of our Board of Directors, our executive officers and persons who hold
      more than 10% of our outstanding Common Stock are subject to the reporting
      requirements of Section 16(a) of the Exchange Act, which requires them to file
      reports with respect to their ownership of our Common Stock and their
      transactions in such Common Stock. Based solely upon a review of Forms 3 and
      4
      and amendments filed with the SEC by persons subject to the reporting
      requirements of Section 16(a) of the Exchange Act, except for one Form 4 filed
      one day late by each of James Winchester, Vincent Capponi and William Miller,
      we
      believe that, all reporting requirements under Section 16(a) for the 2007 fiscal
      year were met in a timely manner by our directors, executive officers and
      beneficial owners of more than 10% of our Common Stock.




**Code
      of Conduct**




We
      maintain a Code of Business Conduct and Ethics that is applicable to all of
      our
      employees, including our Chief Executive Officer and Chief Financial Officer,
      and our directors. The Code of Conduct, which satisfies the requirements of
      a
“code of ethics” under applicable SEC rules, contains written standards that are
      designed to deter wrongdoing and to promote honest and ethical conduct,
      including the ethical handling of actual or apparent conflicts of interest;
      full, fair, accurate, timely and understandable public disclosures and
      communications, including financial reporting; compliance with applicable laws,
      rules and regulations; prompt internal reporting of violations of the code;
      and
      accountability for adherence to the code.




**Audit
      Committee Financial Expert**




The
      Board
      of Directors does not have an Audit Committee, and therefore does not have
      an
“audit committee financial expert,” as such term is defined in Item 401(e) of
      Regulation S-B.




**Item
      10.** **Executive
      Compensation.** ****




*Summary
      Compensation Table*




The
      following table shows for the fiscal year ended December 31, 2007, compensation
      awarded to or paid to, or earned by, our Chief Executive Officer, our Chief
      Operating Officer, our Chief Financial Officer, and our Chief Medical Officer
      (the “Named Executive Officers”).




35




Name
                    and Principal Position
                
                Year
                
                Salary
                  ($)
                
                Bonus
                  ($)
                
                Option
                  Awards (1)($)
                
                Total
                    ($)Al
                    Kraus*Chief
                    Executive Officer*
                
                
                2007
                
                
                216,351
                
                
                -0-
                
                
                251,446
                (2)
                
                467,7972006
                
                
                201,257
                
                
                -0-
                
                
                69,555
                (3)
                
                270,812Vincent
                    Capponi,*Chief
                    Operating Officer*
                
                
                2007
                
                
                195,527
                
                
                -0-
                
                
                -0-
                
                
                195,5272006
                
                
                178,441
                
                
                200
                
                
                40,297
                (4)
                
                218,939David
                    Lamadrid,*Chief
                    Financial Officer*
                
                
                2007
                
                
                145,801
                
                
                -0-
                
                
                137,781
                (5)
                
                283,5822006
                
                
                135,629
                
                
                200
                
                
                -0-
                
                
                135,829Dr.
                    James Winchester*Chief
                    Medical Officer*
                
                
                2007
                
                
                120,000
                
                
                -0-
                
                
                2,431
                (6)
                
                122,4312006
                
                
                120,000
                
                
                -0-
                
                
                40,297
                (7)
                
                160,297




(1)
            The
                value of option awards granted to the Named Executive Officers has
                been
                estimated pursuant to SFAS No. 123(R) for the options described in
                the
                footnotes below, except that for purposes of this table, we have
                assumed
                that none of the options will be forfeited. The Named Executive Officers
                will not realize the estimated value of these awards in cash until
                these
                awards are vested and exercised or sold. For information regarding
                our
                valuation of option awards, see “Stock-Based Compensation” in Note 2 of
                our financial statements for the period ended December 31, 2007.




(2)
            Options
                to purchase 400,000 shares of Common Stock at an exercise price of
                $1.26
                per share and 80,122 shares of Common Stock at an exercise price
                of $0.22
                per share.




(3)
            Reflects
                options to purchase 413,920 shares of Common Stock, all of which
                are
                currently exercisable at an exercise price of $6.64 per share. Options
                to
                purchase 332,094 of these shares were granted on September 30, 2006
                and
                expire on September 30, 2016, and options to purchase 81,826 of these
                shares were granted on December 31, 2006 and expire on December 31,
                2016.




(4)
            Reflects
                options to purchase 50,000 shares of Common Stock at an exercise
                price of
                $1.65 per share, which were granted on December 31, 2006 and expire
                on
                December 31, 2016. This option vested and became exercisable as to
                16,667
                shares on the date of grant, vested and become exercisable as to
                16,667
                shares on December 31, 2007; and will vest as to 16,666 shares on
                December
                31, 2008.




(5)
            Option
                to purchase 150,000 shares of Common Stock at an exercise price of
                $1.90
                per share.




(6)
            Option
                to purchase 25,000 shares of Common Stock at an exercise price of
                $0.22
                per share.




(7)
            Reflects
                options to purchase 50,000 shares of Common Stock at an exercise
                price of
                $1.65 per share, which were granted on December 31, 2006 and expire
                on
                December 31, 2016. This option vested and became exercisable as to
                16,667
                shares on the date of grant, vested and become exercisable as to
                16,667
                shares on December 31, 2007; and will vest as to 16,666 shares on
                December
                31, 2008.




*Outstanding
      Equity Awards at Fiscal Year End*




The
      following table shows for the fiscal year ended December 31, 2007, certain
      information regarding outstanding equity awards at fiscal year end for the
      Named
      Executive Officers .




36




**Outstanding
      Equity Awards At December 31, 2007**


Option
                  AwardsName
              
              Number of
                Securities Underlying
                Unexercised Options
                (#)
                Exercisable
              
              Number of Securities
                Underlying Unexercised
                Options
                (#)
                Unexercisable
              
              Option
                Exercise
                Price
                ($)
              
              Option
                Expiration DateAl
                  Kraus
              
              
              332,094
              
              
              
              
              
              6.64
              (1)
              
              9/30/1681,826
              
              
              
              
              
              6.64
              (1)
              
              12/31/16400,000
              
              
              
              
              
              1.26
              (1)
              
              02/08/1780,122
              
              
              
              
              
              0.22
              (1)
              
              12/31/17Vincent
                  Capponi
              
              
              33,334
              
              
              16,666
              
              
              1.65
              (2)
              
              12/31/16David
                  Lamadrid
              
              
              50,000
              
              
              100,000
              
              
              1.90
              (3)
              
              01/16/17Dr.
                  James Winchester
              
              
              33,334
              
              
              16,666
              
              
              1.65
              (4)
              
              12/31/168,333
              
              
              16,667
              
              
              0.22
              (5)
              
              12/31/17




(1)
            Fully
                vested




(2)
            Vests
                and becomes exercisable as to (i) 16,667 shares on December 31, 2006;
                (ii)
                16,667 shares on December 31, 2007; and (iii) 16,666 shares on December
                31, 2008.




**(3)**
            Vests
                and becomes exercisable as to (i) 50,000 shares on January 16, 2007;
                (ii)
                50,000 shares on January 16, 2008; and (iii) 50,000 shares on January
                16,
                2009.




**(4)**
            Vests
                and becomes exercisable as to (i) 16,667 shares on December 31, 2006;
                (ii)
                16,667 shares on December 31, 2007; and (iii) 16,666 shares on December
                31, 2008.




**(5)**
            Vests
                and becomes exercisable as to (i) 8,333 shares on December 31, 2007;
                (ii)
                8,333 shares on December 31, 2008; and (iii) 8,334 shares on December
                31,
                2009.




**Director
      Compensation**




The
      following table shows for the fiscal year ended December 31, 2007 certain
      information with respect to the compensation of all non-employee directors
      of
      the Company.




**Director
      Compensation for Fiscal 2007**


Name
              
              Fees Earned orPaid
                  inCash($)
              
              OptionAwards($)
                  (1)
              
              Total($)William
                  R. Miller
              
              
              20,000
              
              
              159,536
              (2)(3)
              
              179,536Joseph
                  Rubin
              
              
              10,000
              
              
              972
              (2)(4)
              
              10,972Kurt
                  Katz
              
              
              10,000
              
              
              972
              (2)(5)
              
              10,972Edward
                  R. Jones
              
              
              6,000
              
              
              729
              (2)(6)
              
              6,729Martin
                  F. Whalen
              
              
              4,000
              
              
              486
              (2)(7)
              
              4,486




37




(1)
            The
                value of option awards granted to directors has been estimated pursuant
                to
                SFAS No. 123(R) for the options described in the footnotes below,
                except
                that for purposes of this table, we have assumed that none of the
                options
                will be forfeited. The directors will not realize the estimated value
                of
                these awards in cash until these awards are vested and exercised
                or sold.
                For information regarding our valuation of option awards, see “Stock-Based
                Compensation” in Note 2 of our financial statements for the period ended
                December 31, 2006.




(2)
            Fully
                vested




(3)
            At
                December 31, 2007, Mr. Miller held options to purchase 200,000 shares
                of
                our Common Stock.




(4)
            At
                December 31, 2007, Mr. Rubin held options to purchase 71,715 shares
                of our
                Common Stock.




(5)
            At
                December 31, 2007, we had issued on behalf of Mr. Katz options to
                purchase
                66,817 shares of our Common Stock in connection with his service
                as a
                director. All of these options have been issued to a trust established
                by
                Mr. Katz for the benefit of his
                children.




(6)
            At
                December 31, 2007, Dr. Jones held options to purchase 7,500 shares
                of our
                Common Stock.




(7)
            At
                December 31, 2007, Mr. Whalen held options to purchase 5,000 shares
                of our
                Common Stock.




In
      2007,
      we approved arrangements under which each non-employee director receives a
      fee
      of $2,000 for each Board meeting attended in person and a fee of $1,000 for
      each
      Board meeting participated in by telephone. In addition, our Board approved
      a
      policy under which each non-employee director will be eligible to be issued
      options to purchase up to 10,000 shares of our Common Stock on December 31,
      2007
      based on attendance at quarterly Board meetings held during 2007. Such options
      will be exercisable at the closing price of our Common Stock on the date of
      grant. Our directors are also reimbursed for actual out-of-pocket expenses
      incurred by them in connection with their attendance at meetings of the Board
      of
      Directors.




In
      connection with his appointment as Chairman of the Board, we agreed to
      compensate Mr. Miller at the rate of $20,000 per annum, and on January 1, 2007
      we issued Mr. Miller a ten year option to purchase 200,000 shares of our Common
      Stock at a price of $1.65 per share (the last reported sales price on the OTC
      Bulletin Board on December 29, 2006). In January 2008 we issued Mr. Miller
      an
      additional option to purchase 100,000 shares of Common Stock at an exercise
      price of $0.25 per share.





In
      2008,
      the Board approved the issuance to each non-employee director, with the
      exception of the Chairman, options to purchase up to 30,000 shares of Common
      Stock on December 31, 2008 based on attendance at quarterly Board meetings
      held
      during 2008.





**Employment
      Agreements with Named Executive Officers**




Agreement
      with Chief Executive Officer




Effective
      December 31, 2007, we entered into a new Employment Agreement with Al Kraus,
      our
      President and Chief Executive Officer. The new Employment Agreement is
      substantially similar to the previous Employment Agreement that we had entered
      into with Mr. Kraus, which it replaces, and has the following principal
      terms.




38




The
      Employment Agreement provides for a one-year term of employment as our President
      and Chief Executive Officer. Under the terms of the Employment Agreement, Mr.
      Kraus will continue to receive his current base salary of $216,351 per annum.
      The Employment Agreement also provides that Mr. Kraus will be issued options
      on
      a quarterly basis, if necessary, so as to maintain a 5% beneficial ownership
      interest in our outstanding Common Stock on a fully diluted basis. Mr. Kraus
      will have this right until such time as an aggregate of $4 million of financing
      has been received by us following December 31, 2007. Options granted pursuant
      to
      the Employment Agreement would have an exercise price equal to the market price
      of our shares of Common Stock on the applicable grant date.




In
      the
      event that Mr. Kraus’s employment is terminated as a result of his death, his
      heirs will be entitled to 120-days of salary. In the event Mr. Kraus is
      terminated for “justifiable cause” we will pay him his accrued and unpaid base
      salary through the date of termination. If Mr. Kraus’s employment is terminated
      without cause or in the event of a Change of Control, he will be entitled to
      one-year’s base salary payable monthly over a period of one year.




Mr.
      Kraus
      is prohibited under the Employment Agreement from disclosing any of our
      confidential information (as defined in the agreement) during the term of his
      employment and any time thereafter and, following the termination of the
      agreement with us, from competing with us and directly or indirectly soliciting
      any of our customers or suppliers for a period of one year, and from soliciting
      our employees for a period of three years.





Agreement
      with Chief Operating Officer




We
      are a
      party to an Employment Agreement, dated as of July 1, 2005, with Vincent
      Capponi, our Chief Operating Officer. The Employment Agreement provides for
      an
      initial term of one-year, with automatic annual renewals unless either party
      provides notice to the other within 120 days prior to the end of the year of
      its
      intention not to renew. Under the terms of the Employment Agreement, Mr. Capponi
      received an annual base salary of $181,886 through December 31, 2006. Effective
      January 1, 2007, Mr. Capponi’s annual base salary was increased to $195,527.
      Under the Employment Agreement, Mr. Capponi was also granted Management Units
      equal to 1.5% of the outstanding equity interests of MedaSorb (which was then
      a
      limited liability company) on a fully-diluted basis. As a result of the
      conversion of MedaSorb to a corporation and the merger, these Management Units
      were exchanged for 418,086 shares of our Common Stock.




In
      the
      event that Mr. Capponi’s employment is terminated as a result of his death, his
      heirs will be entitled to 120-days of salary. In the event Mr. Capponi is
      terminated for “justifiable cause” we will pay him his accrued and unpaid base
      salary through the date of termination. If Mr. Capponi’s employment is
      terminated without cause or in the event of Change of Control, he will be
      entitled to one-year’s base salary payable monthly for a period of one year.




Mr.
      Capponi is prohibited under the Employment Agreement from disclosing any of
      our
      confidential information (as defined in the agreement) during the term of his
      employment and any time thereafter, and following the termination of the
      agreement with us, from competing with us and directly or indirectly soliciting
      any of our customers or suppliers for a period of one year, and from soliciting
      our employees for a period of three years.





Agreement
      with Chief Financial Officer




We
      are a
      party to an Employment Agreement, dated as of July 1, 2005, with David Lamadrid,
      our Chief Financial Officer. The Employment Agreement provides for an initial
      term of one-year, with automatic annual renewals unless either party provides
      notice to the other within 120 days prior to the end of the year of its
      intention not to renew. Under the terms of the Employment Agreement, Mr.
      Lamadrid received an annual base salary of $135,629 through December 31, 2006.
      Effective January 1, 2007, Mr. Lamadrid’s annual base salary was increased to
      $145,801. Under the Employment Agreement, Mr. Lamadrid was also granted
      Management Units equal to 1.8% of the outstanding equity interests of MedaSorb
      (which was then a limited liability company) on a fully-diluted basis. As a
      result of the conversion of MedaSorb to a corporation and the merger, these
      Management Units were exchanged for 501,704 shares of our Common
      Stock.




In
      the
      event that Mr. Lamadrid’s employment is terminated as a result of his death, his
      heirs will be entitled to 120-days of salary. In the event Mr. Lamadrid is
      terminated for “justifiable cause” we will pay him his accrued and unpaid base
      salary through the date of termination. If Mr. Lamadrid’s employment is
      terminated without cause or in the event of Change of Control, he will be
      entitled to one-year’s base salary payable monthly for a period of one year.




39




Mr.
      Lamadrid is prohibited under the Employment Agreement from disclosing any of
      our
      confidential information (as defined in the agreement) during the term of his
      employment and any time thereafter, and following the termination of the
      agreement with us, from competing with us and directly or indirectly soliciting
      any of our customers or suppliers for a period of one year, and from soliciting
      our employees for a period of three years.





Agreement
      with Chief Medical Officer




We
      are a
      party to an Employment Agreement, dated as of July 1, 2004, with Dr. James
      Winchester, our Chief Medical Officer. The Employment Agreement provides for
      an
      initial term of one-year, with automatic annual renewals unless either party
      provides notice to the other within 90 days prior to the end of the year of
      its
      intention not to renew. Under the terms of the Employment Agreement, Dr.
      Winchester receives an annual base salary of $120,000. Dr. Winchester’s primary
      employment is with Beth Israel Medical Center, as the Chief of its Nephrology
      division. Although the time Mr. Winchester provides to us varies from time
      to
      time, it is generally in the range of one-half day to one full day per week.




Dr.
      Winchester is prohibited under his Employment Agreement from disclosing any
      of
      our confidential information (as defined in the agreement) during the term
      of
      his employment and any time thereafter, and following the termination of this
      agreement with us, from competing with us and directly or indirectly soliciting
      any of our customers, suppliers or employees for a period of one year.





**Item
      11.** **Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters.**




The
      following table sets forth information known to us with respect to the
      beneficial ownership of Common Stock held of record as of April 7, 2008, by
      (1)
      all persons who are owners of 5% or more of our Common Stock, (2) each of our
      named executive officers (see “Summary Compensation Table”), (3) each director,
      and (4) all of our executive officers and directors as a group. Each of the
      stockholders can be reached at our principal executive offices located at 7
      Deer
      Park Drive, Suite K, Monmouth Junction, New Jersey 08852.





**SHARES**
              **BENEFICIALLY**
              **OWNED****1****Number**
            
            **Percent (%)***Beneficial
                Owners of more than 5% of Common Stock (other than directors and
                executive
                officers)*Margie
                Chassman(2)
            
            
            6,758,546
            (2)
            
            25.0
            %Guillermina
                Montiel(3)
            
            
            5,052,456
            
            
            20.1
            %Margery
                Germain(4)
            
            
            2,000,000
            
            
            8.0
            %Robert
                Shipley(5)
            
            
            1,538,865
            
            
            5.9
            %*Directors
                and Executive Officers*Al
                Kraus(6)
            
            
            2,287,673
            
            
            8.8
            %William
                R. Miller(7)
            
            
            300,000
            
            
            1.2
            %David
                Lamadrid(8)
            
            
            1,075,400
            
            
            4.2
            %Vince
                Capponi(9)
            
            
            818,086
            
            
            3.2
            %Joseph
                Rubin(10)
            
            
            397,424
            
            
            1.6
            %James
                Winchester(11)
            
            
            152,519
            
            
            *Kurt
                Katz(12)
            
            
            69,077
            
            
            *Edward
                R. Jones(13)
            
            
            7,500
            
            
            *Martin
                F. Whalen(14)
            
            
            5,000
            
            
            **All
                directors and executive officers as a group (nine
                persons)*(15)
            
            
            5,112,679
            
            
            18.5
            %




40




*
              Less
                    than 1%.




1
            Gives
                effect to the shares of Common Stock issuable upon the exercise of
                all
                options exercisable within 60 days of April 7, 2008 and other rights
                beneficially owned by the indicated stockholders on that date. Beneficial
                ownership is determined in accordance with the rules of the Securities
                and
                Exchange Commission and includes voting and investment power with
                respect
                to shares. Unless otherwise indicated, the persons named in the table
                have
                sole voting and sole investment control with respect to all shares
                beneficially owned. Percentage ownership is calculated based on 25,044,932
                shares of Common Stock outstanding as of April 7, 2008.




2
            Based
                on information reflected in a Schedule 13G filed by Ms. Chassman
                with the
                SEC on November 20, 2006, and includes 630,000 shares of Common Stock
                ultimately issuable upon exercise and conversion of the Series A
                Preferred
                Stock and warrants underlying the warrant we issued Ms. Chassman
                upon the
                closing of our Series A Preferred Stock private placement, 920,212
                shares
                of Common Stock issuable upon conversion of Series A Preferred Stock
                and
                400,000 shares of Common Stock issuable upon exercise of warrants.
                Ms.
                Chassman has waived her registration rights with respect to the Series
                A
                Preferred Stock and warrants. Margie Chassman is married to David
                Blech.
                Mr. Blech disclaims beneficial ownership of these shares. Since 1980
                Mr.
                Blech has been a founder of companies and venture capital investor
                in the
                biotechnology sector. His initial venture investment, Genetic Systems
                Corporation, which he helped found and served as treasurer and a
                member of
                the board of directors, was sold to Bristol Myers in 1986 for $294
                million
                of Bristol Myers stock. Other companies he helped found include DNA
                Plant
                Technology, Celgene Corporation, Neurogen Corporation, Icos Corporation,
                Incyte Pharmaceuticals, Alexion Pharmaceuticals and Neurocrine
                Biosciences. He was also instrumental in the turnaround of Liposome
                Technology, Inc. and Biotech General Corporation. In 1990 Mr. Blech
                founded D. Blech & Company, which, until it ceased doing business in
                September 1994, was a registered broker-dealer involved in underwriting
                biotechnology issues. In May 1998, David Blech pled guilty to two
                counts
                of criminal securities fraud, and, in September 1999, he was sentenced
                by
                the U.S. District Court for the Southern District of New York to
                five
                years’ probation, which was completed in September 2004. Mr. Blech also
                settled administrative charges by the Commission in December 2000
                arising
                out of the collapse in 1994 of D. Blech & Co., of which Mr. Blech was
                President and sole stockholder. The settlement prohibits Mr. Blech
                from
                engaging in future violations of the federal securities laws and
                from
                association with any broker-dealer. In addition, the District Business
                Conduct Committee for District No.10 of NASD Regulation, Inc. reached
                a
                decision, dated December 3, 1996, in a matter styled District Business
                Conduct Committee for District No. 10 v. David Blech, regarding the
                alleged failure of Mr. Blech to respond to requests by the staff
                of the
                National Association of Securities Dealers, Inc. (“NASD”) for documents
                and information in connection with seven customer complaints against
                various registered representatives of D. Blech & Co. The decision
                found that Mr. Blech failed to respond to such requests in violation
                of
                NASD rules and that Mr. Blech should, therefore, be censured, fined
                $20,000 and barred from associating with any member firm in any capacity.
                Furthermore, Mr. Blech was discharged in bankruptcy in the United
                States
                Bankruptcy Court for the Southern District of New York in March 2000.




41




3
            Includes
                58,472 shares issuable upon exercise of stock options.





4
            Includes
                1,700,000 shares of Common Stock held directly by Ms. Germain and
                300,000
                shares of Common Stock held by her minor
                children.





5
            Includes
                371,557 shares of Common Stock issuable upon conversion of Series
                A
                Preferred Stock and 661,293 shares of Common Stock issuable upon
                exercise
                of warrants and options.





6
            Includes
                494,042 shares of Common Stock issuable upon exercise of stock options
                pursuant to Mr. Kraus’s Employment Agreement described above, and an
                additional 400,000 shares of Common Stock. issuable upon other currently
                exercisable stock options.





7
            These
                shares are issuable upon exercise of stock
                options.





8
            Includes
                566,666 shares of Common Stock issuable upon exercise of stock options.





9
            Includes
                400,000 shares of Common Stock issuable upon exercise of stock options.





10
            Includes
                2,320 shares of Common Stock issuable upon conversion of Series A
                Preferred Stock and 312,840 shares of Common Stock issuable upon
                exercise
                of warrants and stock options. Does not include shares of Common
                Stock
                beneficially owned by Mr. Rubin’s spouse, as to which he disclaims
                beneficial ownership.





11
            Includes
                100,000 shares of Common Stock issuable upon exercise of stock options.





12
            Includes
                66,817 shares of Common Stock issuable upon exercise of stock options,
                all
                of which are held by a trust established for the benefit of Mr. Katz’s
                children. Mr. Katz does not exercise voting control over these shares
                and
                disclaims beneficial ownership of the
                shares.





13
            These
                shares are issuable upon exercise of stock
                options.





14
            These
                shares are issuable upon exercise of stock
                options.





15
            Includes
                an aggregate of 2,655,185 shares of Common Stock issuable upon exercise
                of
                stock options and warrants and conversion of Series A Preferred
                Stock.




**Item
      12.** **Certain
      Relationships and Related Transactions.**




Joseph
      Rubin is a director of ours and performs legal services for us from time to
      time. At December 31, 2007, we owed Mr. Rubin’s firm approximately $2,500 in
      respect of legal services provided by his firm to us.




***Director
      Independence*** **




All
      members of our Board of Directors, other than Joseph Rubin, who performs legal
      services for us as disclosed above, and Al Kraus, our Chief Executive Officer,
      are independent under the standards set forth in Nasdaq Marketplace Rule
      4200(a)(15).





42




**Item
      13.** **Exhibits.** ****




(a) The
      following documents are filed as part of this report:


Exhibit
                  No.
              
              Description2.1
              
              Agreement
                  and Plan of Merger, dated as of June 29, 2006, by and among Gilder
                  Enterprises, Inc., MedaSorb Corporation and MedaSorb Acquisition
                  Inc.
                  *3.1
              
              Articles
                  of Incorporation of Gilder Enterprises, Inc. (filed as Exhibit
                  3.1 to
                  Registrant’s Registration Statement on Form SB-2 filed on March 29, 2004,
                  and incorporated herein by reference).3.2
              
              Amendment
                  to Registrant’s Articles of Incorporation effected August 1, 2006 (filed
                  as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on August
                  7, 2006, and incorporated herein by reference).3.3
              
              By-Laws
                  of Gilder Enterprises, Inc. (filed as Exhibit 3.2 to Registrant’s
                  Registration Statement on Form SB-2 filed on March 29, 2004, and
                  incorporated herein by reference).4.1
              
              Certificate
                  To Set Forth Designations, Voting Powers, Preferences, Limitations,
                  Restrictions, And Relative Rights Of Series A 10% Cumulative Convertible
                  Preferred Stock, $.001 Par Value Per Share**4.2
              
              Form
                  of Warrant issued to purchasers of Series A Preferred Stock.
                  **4.3
              
              Form
                  of Subscription Agreement, dated as of June 29, 2006, by and among
                  Gilder
                  Enterprises, Inc. and the purchasers party thereto. **10.1‡
              
              Employment
                  Agreement, dated as of December 31, 2007, between Al Kraus and
                  MedaSorb
                  Technologies Corporation (filed as Exhibit 10.1 to Registrant’s Current
                  Report on Form 8-K filed on January 7, 2008, and incorporated herein
                  by
                  reference)10.2‡
              
              Employment
                  Agreement, dated as of July 1, 2005, between Vincent Capponi and
                  MedaSorb
                  Technologies, LLC. *10.3‡
              
              Employment
                  Agreement, dated as of July 1, 2005, between David Lamadrid and
                  MedaSorb
                  Technologies, LLC. *10.4‡
              
              Employment
                  Agreement, dated as of July 1, 2004, between Dr. James Winchester
                  and
                  MedaSorb Technologies, LLC. *10.5‡
              
              Gilder
                  Enterprises, Inc. 2006 Long Term Incentive Plan. **10.6
              
              Stipulated
                  Order and Settlement Agreement by and Between Bro-Tech Corporation
                  and
                  Purolite International Ltd. and MedaSorb Corporation. *10.7
              
              Subaward
                  Agreement, dated May 2006, between MedaSorb Technologies and University
                  of
                  Pittsburgh. *10.8
              
              Letter
                  Agreement, dated August 11, 2003, between RenalTech International
                  and
                  Guillermina Vega Montiel *10.9
              
              Term
                  Sheet For An Investment In MedaSorb Technologies, LLC, dated October
                  26,
                  2005, between MedaSorb and Margie Chassman
                  *
  43
  10.10
              
              Form
                  of Voting Agreement entered into by Margie Chassman and her transferees
                  in
                  connection with 10,000,000 shares of Common Stock. *21
              
              Subsidiaries
                  of the Registrant **
              
              Incorporated
                  by reference to the similarly described exhibit previously filed
                  as an
                  exhibit to Registrant’s Registration Statement on Form SB-2, Registration
                  No. 333-138247.**
              
              Incorporated
                  by reference to the similarly described exhibit previously filed
                  as an
                  exhibit to Registrant’s Current Report on Form 8-K, as filed with the SEC
                  on July 6, 2006.‡
              
              Indicates
                  a management contract or compensatory plan or
                  arrangement.




**Item
      14.** **Principal
      Accountant Fees and Services.**




The
      following table presents fees for professional audit services rendered by
      WithumSmith+Brown, A Professional Corporation, for the audit of our annual
      financial statements for the years ended December 31, 2007 and 2006, and fees
      billed for other services rendered by WithumSmith+Brown during those years.




**2007**
            
            **2006**Audit
                fees(1)
            
            $
            80,347
            
            $
            127,772Audit
                related fees
            
            
            —
            
            
            —Tax
                fees
            
            
            —
            
            
            26,110All
                other fees
            
            $
            —
            
            $
            —Total
                fees
            
            $
            80,347
            
            $
            153,882










(1)
            Includes
                fees paid for professional services rendered in connection with the
                audit
                of annual financial statements and the review of quarterly financial
                statements, and the review of such financial statements in the Company’s
                Annual Report on Form 10-KSB, Quarterly Reports on Form 10-QSB,
                Registration Statement on Form SB-2 and Current Reports on Form
                8-K.




**Pre-Approval
      Policies And Procedures**




We
      do not
      have an audit committee or a formal pre-approval process for the performance
      for
      us by our independent auditor of non-audit services. For the year ended December
      31, 2007, our independent auditor performed non-attest tax services. We
      anticipate that any non-audit services to be performed for us by our independent
      auditor, subject to the de minimis exceptions for non-audit services described
      in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended,
      will
      be approved prior to our auditor’s engagement for such services by our Board of
      Directors, acting in the capacity of an audit committee.




44




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, MedaSorb Technologies
      Corporation has caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized, on this 15th day of April,
      2008.


MEDASORB
                TECHNOLOGIES CORPORATION
  By:
              /s/
                  Al KrausAl
                  KrausChief
                  Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.


**Signature**
              
              **Title**
              
              **Date**/s/
                  Al Kraus
              
              Chief
                  Executive Officer (Principal
              
              April
                  15, 2008Al
                  Kraus
              
              Executive
                  Officer) and Director/s/
                  David Lamadrid
              
              Chief
                  Financial Officer (Principal
              
              April
                  15, 2008David
                  Lamadrid
              
              Accounting
                  and Financial Officer)/s/
                  William R. Miller
              
              Chairman
                  of the Board
              
              April
                  15, 2008William
                  R. Miller/s/
                  Joseph Rubin
              
              Director
              
              April
                  15, 2008Joseph
                  Rubin, Esq./s/
                  Kurt Katz
              
              Director
              
              April
                  15, 2008Kurt
                  Katz/s/
                  Edward R. Jones
              
              Director
              
              April
                  15, 2008Edward
                  R. Jones/s/
                  Martin F. Whalen
              
              Director
              
              April
                  15, 2008Martin
                  F. Whalen




45




FINANCIAL
        STATEMENTS
 
 PageReport
                  of Independent Accounting Firms
              
              F-2Consolidated
                  Balance Sheets at December 31, 2007 and December 31, 2006
              
              F-4Consolidated
                  Statements of Operations for the years ended December 31, 2007
                  and 2006,
                  and from inception to December 31, 2007
              
              F-5Consolidated
                  Statements of Changes in Stockholders’ Equity (Deficiency) period from
                  inception to December 31, 2007
              
              F-6Consolidated
                  Statements of Cash Flows for the for the years ended December 31,
                  2007 and
                  2006, and from inception to December 31, 2007
              
              F-11Notes
                  to Financial Statements
              
              F-13
 
 F-1


**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Stockholders,


MedaSorb
      Technologies Corporation:





We
      have
      audited the accompanying consolidated balance sheets of Medasorb Technologies
      Corporation (a development stage company), as of December 31, 2007 and 2006 ,
      and the
      consolidated related statements of operations, stockholders’ equity (deficiency)
      and cash flows for the years then ended and the cumulative period from January
      1, 2001 to December 31, 2007 .
      These
      consolidated financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those
      standards require that we plan and perform the audit to obtain reasonable
      assurance about whether the consolidated financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the consolidated financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Medasorb Technologies
      Corporation as of December 31, 2007 and 2006 and the
      consolidated results of its operations and cash flows for the years then ended
      and the cumulative period from January 1, 2001 to December 31, 2007 in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the consolidated financial
      statements, the Company has suffered recurring net losses and negative cash
      flows from operations. These matters raise substantial doubt about its ability
      to continue as a going concern. Management’s plans in regard to these matters
      are also described in Note 1. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.




**/s/
      WithumSmith+Brown, A Professional Corporation**





New
      Brunswick, New Jersey


April
      10,
      2008




F-2




**Report
      of Independent Public Accountants**





To
      the
      Board of Directors and Stockholders,


Medasorb
      Corporation:





We
      have
      audited the accompanying balance sheets of Medasorb Corporation (a development
      stage company), as of December 31, 2000 and 1999, and the related statements
      of
      operations, changes in members’ equity and cash flows for the period from
      inception (January 22, 1997) through December 31, 2000. These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with auditing standards generally accepted
      in
      the United States. Those
      standards require that we plan and perform the audit to obtain reasonable
      assurance about whether the financial statements are free of material
      misstatement. An audit includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Medasorb Corporation as of December
      31, 2000 and 1999, and the results of its operations and its cash flows for
      the
      period from inception (January 22, 1997) to December 31, 2000, in conformity
      with accounting principles generally accepted in the United States.





Arthur
      Andersen, LLP





New
      York,
      New York


December
      27, 2001




F-3


**MEDASORB
        TECHNOLOGIES CORPORATION**
 **(a
        development stage company)**
 
 **CONSOLIDATED
        BALANCE SHEETS**
 
 
 **December
                  31,**
              
              **2007**
              
              **2006****ASSETS**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              211,613
              
              $
              2,873,138Prepaid
                  expenses and other current assets
              
              
              200,682
              
              
              24,880**Total
                  current assets**
              
              
              412,295
              
              
              2,898,018Property
                  and equipment - net
              
              
              144,457
              
              
              303,560Other
                  assets
              
              
              245,820
              
              
              243,471**Total
                  long-term assets**
              
              
              390,277
              
              
              547,031**Total
                  Assets**
              
              $
              802,572
              
              $
              3,445,049**LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIENCY)**Current
                  Liabilities:Accounts
                  payable
              
              $
              775,342
              
              $
              942,265Accrued
                  expenses and other current liabilities
              
              
              131,526
              
              
              69,779Accrued
                  interest
              
              
              —
              
              
              70,000**Total
                  current liabilities**
              
              
              906,868
              
              
              1,082,044Stockholders'
                  Equity (Deficiency):10%
                  Series A Preferred Stock, Par Value $0.001, 100,000,000 shares
                  authorized
                  at December 31, 2007 and 2006 8,019,508 and 7,403,585 shares issued
                  and
                  outstanding, respectively
              
              
              8,019
              
              
              7,403Common
                  Stock, Par Value $0.001, 100,000,000 shares authorized at December
                  31,
                  2007 and 2006 25,044,932 and 24,628,274 shares issued and outstanding,
                  respectively
              
              
              25,045
              
              
              24,629Additional
                  paid-in capital
              
              
              71,400,849
              
              
              69,757,556Deficit
                  accumulated during the development stage
              
              
              (71,538,209
              )
              
              (67,426,583
              )**Total
                  stockholders' equity (deficiency)**
              
              
              (104,296
              )
              
              2,363,005**Total
                  Liabilities and Stockholders' Equity (Deficiency)**
              
              $
              802,572
              
              $
              3,445,049
 
 The
        Notes
        to Consolidated Financial Statements are an integral part of these
        statements.
 
 F-4
 
 **MEDASORB
        TECHNOLOGIES CORPORATION**
 **(a
        development stage company)**
 
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 
 **Period from****January 22,1997****(date of inception) to**
              
              **Year ended**
              
              **Year ended****December 31,**
              
              **December 31,**
              
              **December 31,****2007**
              
              **2007**
              
              **2006**Revenue
              
              $
              —
              
              $
              —
              
              $
              —Expenses:Research
                  and development
              
              
              42,308,280
              
              
              1,415,509
              
              
              1,112,804Legal,
                  financial and other consulting
              
              
              6,648,668
              
              
              389,155
              
              
              912,379General
                  and administrative
              
              
              21,400,075
              
              
              1,261,966
              
              
              939,128Change
                  in fair value of management and incentive units
              
              
              (6,055,483
              )
              
              —
              
              
              —Total
                  expenses
              
              
              64,301,540
              
              
              3,066,630
              
              
              2,964,311Other
                  (income) expenses:Gain
                  on disposal of property and equipment
              
              
              (21,663
              )
              
              —
              
              
              —Gain
                  on extinguishment of debt
              
              
              (216,617
              )
              
              (10,009
              )
              
              (31,608
              )Interest
                  (income) expense, net
              
              
              5,577,046
              
              
              (67,362
              )
              
              4,738,877Penalties
                  associated with non-registration of Series A Preferred
                  Stock
              
              
              361,495
              
              
              361,495
              
              
              —Total
                  other (income) expense, net
              
              
              5,700,261
              
              
              284,124
              
              
              4,707,269Net
                  loss
              
              
              (70,001,801
              )
              
              (3,350,754
              )
              
              (7,671,580
              )Series
                  A preferred stock dividend
              
              
              1,536,408
              
              
              760,872
              
              
              775,536Net
                  loss available to common shareholders
              
              $
              (71,538,209
              )
              $
              (4,111,626
              )
              $
              (8,447,116
              )Basic
                  and diluted net loss per common share
              
              
              
              
              $
              (0.17
              )
              $
              (0.56
              )Weighted
                  average number of common stock outstanding
              
              
              
              
              
              24,848,562
              
              
              14,956,072
 
 The
        Notes
        to Consolidated Financial Statements are an integral part of these
        statements.
  F-5
  **MEDASORB
        TECHNOLOGIES CORPORATION**
 **(a
        development stage company)**
  **CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**
 
 
 **Period
        from January 22, 1997 (date of inception) to December 31,
        2007**
  **Members'**
                
                
                
                
                
                
                
                **Additional**
                
                **Deficit**
                  **Accumulated**
                  **D****uring
                    the**
                
                **Total****Equity**
                
                **Deferred**
                
                **Common Stock**
                
                **Preferred Stock**
                
                **Paid-In**
                
                **Development**
                
                **Stockholders'****(Deficiency)**
                
                **Compensation**
                
                **Shares**
                
                **Par value**
                
                **Shares**
                
                **Par Value**
                
                **Capital**
                
                **Stage**
                
                **Equity (Deficit)****Balance
                    at January 22, 1997 (date of inception)**
                
                $
                —
                
                $
                —
                
                
                —
                
                $
                —
                
                
                —
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —Equity
                    contributions
                
                
                1,143,487
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,143,487Subscriptions
                    receivable
                
                
                440,000
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                440,000Technology
                    contribution
                
                
                4,550,000
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                4,550,000Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (5,256,012
                )
                
                (5,256,012
                )**Balance
                    at December 31, 1997**
                
                
                6,133,487
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (5,256,012
                )
                
                877,475Equity
                    contributions
                
                
                2,518,236
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                2,518,236Options
                    issued to consultants
                
                
                1,671
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,671Subscriptions
                    receivable
                
                
                50,000
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                50,000Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (1,867,348
                )
                
                (1,867,348
                )**Balance
                    at December 31, 1998**
                
                
                8,703,394
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (7,123,360
                )
                
                1,580,034Equity
                    contributions
                
                
                1,382,872
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,382,872Equity
                    issued to consultants
                
                
                88,363
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                88,363Recognition
                    of deferred compensation
                
                
                47,001
                
                
                (47,001
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Amortization
                    of deferred compensation
                
                
                —
                
                
                15,667
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                15,667Subscriptions
                    receivable
                
                
                100,000
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                100,000Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (3,066,388
                )
                
                (3,066,388
                )**Balance
                    at December 31, 1999**
                
                
                10,321,630
                
                
                (31,334
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (10,189,748
                )
                
                100,548Equity
                    contributions
                
                
                14,407,916
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                14,407,916Equity
                    issued to consultants
                
                
                1,070,740
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,070,740
  The
          Notes
          to Consolidated Financial Statements are an integral part of these financial
          statements.
  F-6
  **MEDASORB
          TECHNOLOGIES CORPORATION**
 **(a
          development stage company)**
  **CONSOLIDATED
          STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**
 
 
 **Period
          from January 22, 1997 (date of inception) to December 31,
          2007**
  **Members'**
                  
                  
                  
                  
                  
                  
                  
                  **Additional**
                  
                  **Deficit**
                    **Accumulated**
                    **D****uring
                      the**
                  
                  **Total****Equity**
                  
                  **Deferred**
                  
                  **Common Stock**
                  
                  **Preferred Stock**
                  
                  **Paid-In**
                  
                  **Development**
                  
                  **Stockholders'****(Deficiency)**
                  
                  **Compensation**
                  
                  **Shares**
                  
                  **Par value**
                  
                  **Shares**
                  
                  **Par Value**
                  
                  **Capital**
                  
                  **Stage**
                  
                  **Equity (Deficit)**Warrants
                      issued to consultants
                  
                  
                  468,526
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  468,526Recognition
                      of deferred compensation
                  
                  
                  27,937
                  
                  
                  (27,937
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Amortization
                      of deferred compensation
                  
                  
                  —
                  
                  
                  46,772
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  46,772Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (10,753,871
                  )
                  
                  (10,753,871
                  )**Balance
                      at December 31, 2000**
                  
                  
                  26,296,749
                  
                  
                  (12,499
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (20,943,619
                  )
                  
                  5,340,631Equity
                      contributions
                  
                  
                  13,411,506
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  13,411,506Equity
                      issued to consultants
                  
                  
                  161,073
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  161,073Options
                      issued to employee
                  
                  
                  2,847
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,847Fees
                      incurred in raising capital
                  
                  
                  (1,206,730
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,206,730
                  )Amortization
                      of deferred compensation
                  
                  
                  —
                  
                  
                  12,499
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  12,499Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (15,392,618
                  )
                  
                  (15,392,618
                  )**Balance
                      at December 31, 2001**
                  
                  
                  38,665,445
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (36,336,237
                  )
                  
                  2,329,208Equity
                      contributions
                  
                  
                  6,739,189
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  6,739,189Equity
                      issued to consultants
                  
                  
                  156,073
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  156,073Options
                      issued to consultant
                  
                  
                  176,250
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  176,250Options
                      issued to employee
                  
                  
                  2,847
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,847Fees
                      incurred in raising capital
                  
                  
                  (556,047
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (556,047
                  )Forgiveness
                      of loan receivable in exchange for equity
                  
                  
                  (1,350,828
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,350,828
                  )Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (11,871,668
                  )
                  
                  (11,871,668
                  )**Balance
                      at December 31, 2002**
                  
                  
                  43,832,929
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (48,207,905
                  )
                  
                  (4,374,976
                  )
  The
            Notes
            to Consolidated Financial Statements are an integral part of these financial
            statements.
  F-7
  **MEDASORB
          TECHNOLOGIES CORPORATION**
 **(a
          development stage company)**
  **CONSOLIDATED
          STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**
 
 
 **Period
          from January 22, 1997 (date of inception) to December 31,
          2007**
  **Members'**
                  
                  
                  
                  
                  
                  
                  
                  **Additional**
                  
                  **Deficit**
                    **Accumulated**
                    **D****uring
                      the**
                  
                  **Total****Equity**
                  
                  **Deferred**
                  
                  **Common Stock**
                  
                  **Preferred Stock**
                  
                  **Paid-In**
                  
                  **Development**
                  
                  **Stockholders'****(Deficiency)**
                  
                  **Compensation**
                  
                  **Shares**
                  
                  **Par value**
                  
                  **Shares**
                  
                  **Par Value**
                  
                  **Capital**
                  
                  **Stage**
                  
                  **Equity (Deficit)**Equity
                      contributions
                  
                  
                  4,067,250
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,067,250Equity
                      issued to consultants
                  
                  
                  16,624
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  16,624Change
                      in fair value of management units
                  
                  
                  2,952,474
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,952,474Options
                      issued to consultant
                  
                  
                  65,681
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  65,681Fees
                      incurred in raising capital
                  
                  
                  (343,737
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (343,737
                  )Forgiveness
                      of loan receivable in exchange for equity
                  
                  
                  (281,340
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (281,340
                  )Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (6,009,283
                  )
                  
                  (6,009,283
                  )**Balance
                      at December 31, 2003**
                  
                  
                  50,309,881
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (54,217,188
                  )
                  
                  (3,907,307
                  )Equity
                      contributions
                  
                  
                  512,555
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  512,555Change
                      in fair value of management units
                  
                  
                  (2,396,291
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (2,396,291
                  )Fees
                      incurred in raising capital
                  
                  
                  (80,218
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (80,218
                  )Net
                      Loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,096,683
                  )
                  
                  (1,096,683
                  )**Balance
                      at December 31, 2004**
                  
                  
                  48,345,927
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (55,313,871
                  )
                  
                  (6,967,944
                  )Equity
                      contributions
                  
                  
                  92,287
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  92,287Settlement
                      of accounts payable in exchange for equity
                  
                  
                  836,319
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  836,319Conversion
                      of convertible notes payable and accrued interest for
                      equity
                  
                  
                  51,565
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  51,565Change
                      in fair value of management units
                  
                  
                  (14,551
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (14,551
                  )Fees
                      incurred in raising capital
                  
                  
                  (92,287
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (92,287
                  )Reorganization
                      from an LLC to "C" corporation
                  
                  
                  (49,219,260
                  )
                  
                  —
                  
                  
                  4,829,120
                  
                  
                  4,829
                  
                  
                  —
                  
                  
                  —
                  
                  
                  49,214,431
                  
                  
                  
                  
                  
                  —
  The
            Notes
            to Consolidated Financial Statements are an integral part of these financial
            statements.
 F-8
  **MEDASORB
          TECHNOLOGIES CORPORATION**
 **(a
          development stage company)**
  **CONSOLIDATED
          STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**
 
 
 **Period
          from January 22, 1997 (date of inception) to December 31,
          2007**
  **Members'**
                  
                  
                  
                  
                  
                  
                  
                  **Additional**
                  
                  **Deficit**
                    **Accumulated**
                    **D****uring
                      the**
                  
                  **Total****Equity**
                  
                  **Deferred**
                  
                  **Common Stock**
                  
                  **Preferred Stock**
                  
                  **Paid-In**
                  
                  **Development**
                  
                  **Stockholders'****(Deficiency)**
                  
                  **Compensation**
                  
                  **Shares**
                  
                  **Par value**
                  
                  **Shares**
                  
                  **Par Value**
                  
                  **Capital**
                  
                  **Stage**
                  
                  **Equity (Deficit)**Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3,665,596
                  )
                  
                  (3,665,596
                  )**Balance
                      at December 31, 2005**
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,829,120
                  
                  
                  4,829
                  
                  
                  —
                  
                  
                  —
                  
                  
                  49,214,431
                  
                  
                  (58,979,467
                  )
                  
                  (9,760,207
                  )Issuance
                      of common stock for stock subscribed
                  
                  
                  —
                  
                  
                  —
                  
                  
                  240,929
                  
                  
                  241
                  
                  
                  —
                  
                  
                  —
                  
                  
                  799,644
                  
                  
                  —
                  
                  
                  799,885Issuance
                      of common stock to investor group for price protection
                  
                  
                  —
                  
                  
                  —
                  
                  
                  100,000
                  
                  
                  100
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (100
                  )
                  
                  —
                  
                  
                  —Issuance
                      of stock options to employees, consultants and directors
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  143,352
                  
                  
                  —
                  
                  
                  143,352Issuance
                      of 10% Series A Preferred Stock for cash
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  5,300,000
                  
                  
                  5,300
                  
                  
                  5,530,143
                  
                  
                  (235,443
                  )
                  
                  5,300,000Cost
                      of raising capital associated with issuance of preferred
                      stock
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (620,563
                  )
                  
                  —
                  
                  
                  (620,563
                  )Shares
                      held by original stockholders of Parent immediately prior to
                      merger
                  
                  
                  —
                  
                  
                  —
                  
                  
                  3,750,000
                  
                  
                  3,750
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3,750
                  )
                  
                  —
                  
                  
                  —Conversion
                      of convertible debt, related accrued interest and shares to
                      induce
                      conversion into common stock
                  
                  
                  —
                  
                  
                  —
                  
                  
                  5,170,880
                  
                  
                  5,171
                  
                  
                  —
                  
                  
                  —
                  
                  
                  11,376,939
                  
                  
                  —
                  
                  
                  11,382,110Issuance
                      of common stock in consideration for funding '$1,000,000 convertible
                      note
                      payable per terms of merger transaction
                  
                  
                  —
                  
                  
                  —
                  
                  
                  10,000,000
                  
                  
                  10,000
                  
                  
                  —
                  
                  
                  —
                  
                  
                  990,000
                  
                  
                  —
                  
                  
                  1,000,000Issuance
                      of common stock in exchange for accounts payable and services
                      rendered
                  
                  
                  —
                  
                  
                  —
                  
                  
                  778,274
                  
                  
                  779
                  
                  
                  —
                  
                  
                  —
                  
                  
                  587,035
                  
                  
                  —
                  
                  
                  587,814Conversion
                      of common stock issued prior to reverse merger for 10% Series
                      A Preferred
                      Stock
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (240,929
                  )
                  
                  (241
                  )
                  
                  799,885
                  
                  
                  800
                  
                  
                  30,194
                  
                  
                  (30,753
                  )
                  
                  —Non-cash
                      stock dividends on 10% Series A Preferred Stock
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  303,700
                  
                  
                  303
                  
                  
                  303,397
                  
                  
                  (303,700
                  )
                  
                  —Issuance
                      of preferred stock for redemption of convertible note
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,000,000
                  
                  
                  1,000
                  
                  
                  1,204,640
                  
                  
                  (205,640
                  )
                  
                  1,000,000Issuance
                      of warrants to consultants for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  9,883
                  
                  
                  —
                  
                  
                  9,883Issuance
                      of warrants in exchange for accounts payable
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  192,311
                  
                  
                  —
                  
                  
                  192,311
  The
            Notes
            to Consolidated Financial Statements are an integral part of these financial
            statements.
  F-9
  **MEDASORB
            TECHNOLOGIES CORPORATION**
 **(a
            development stage company)**
  **CONSOLIDATED
            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**
 
 
 **Period
            from January 22, 1997 (date of inception) to December 31,
            2007**
  **Members'**
                    
                    
                    
                    
                    
                    
                    
                    **Additional**
                    
                    **Deficit**
                      **Accumulated**
                      **D****uring
                        the**
                    
                    **Total****Equity**
                    
                    **Deferred**
                    
                    **Common Stock**
                    
                    **Preferred Stock**
                    
                    **Paid-In**
                    
                    **Development**
                    
                    **Stockholders'****(Deficiency)**
                    
                    **Compensation**
                    
                    **Shares**
                    
                    **Par value**
                    
                    **Shares**
                    
                    **Par Value**
                    
                    **Capital**
                    
                    **Stage**
                    
                    **Equity (Deficit)**Net
                        loss
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (7,671,580
                    )
                    
                    (7,671,580
                    )**Balance
                        at December 31, 2006**
                    
                    $
                    —
                    
                    $
                    —
                    
                    
                    24,628,274
                    
                    $
                    24,629
                    
                    
                    7,403,585
                    
                    $
                    7,403
                    
                    $
                    69,757,556
                    
                    $
                    (67,426,583
                    )
                    $
                    2,363,005Issuance
                        of stock options to employees, consultants and directors
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    498,955
                    
                    
                    —
                    
                    
                    498,955Issuance
                        of common stock in settlement of accounts payable
                    
                    
                    —
                    
                    
                    —
                    
                    
                    11,501
                    
                    
                    11
                    
                    
                    —
                    
                    
                    —
                    
                    
                    22,991
                    
                    
                    —
                    
                    
                    23,002Conversion
                        of preferred stock into common stock
                    
                    
                    —
                    
                    
                    —
                    
                    
                    405,157
                    
                    
                    405
                    
                    
                    (506,446
                    )
                    
                    (506
                    )
                    
                    101
                    
                    
                    —
                    
                    
                    —Issuance
                        of Series A Preferred Stock as dividends and settlement of
                        dividends/penalties payable in connection with non-registration
                        event
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    1,122,369
                    
                    
                    1,122
                    
                    
                    1,121,246
                    
                    
                    (760,872
                    )
                    
                    361,496Net
                        loss
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    (3,350,754
                    )
                    
                    (3,350,754
                    )**Balance
                        at December 31, 2007**
                    
                    $
                    —
                    
                    $
                    —
                    
                    
                    25,044,932
                    
                    $
                    25,045
                    
                    
                    8,019,508
                    
                    $
                    8,019
                    
                    $
                    71,400,849
                    
                    $
                    (71,538,209
                    )
                    $
                    (104,296
                    )
 
 The
            Notes
            to Consolidated Financial Statements are an integral part of these financial
            statements.
  F-10
  **MEDASORB
        TECHNOLOGIES CORPORATION**
 **(a
        development stage company)**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
 
 **For the Period from****January 22, 1997****(date of inception) to**
              
              **Year ended**
              
              **Year ended****December 31,**
              
              **December 31,**
              
              **December 31,****2007**
              
              **2007**
              
              **2006**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (70,001,801
              )
              $
              (3,350,754
              )
              $
              (7,671,580
              )Adjustments
                  to reconcile net loss to net cash used by operating
                  activities:Common
                    stock issued as inducement to convertconvertible
                    notes payable and accrued interest
              
              
              3,351,961
              
              
              —
              
              
              3,351,961Issuance
                  of common stock to consultants for services
              
              
              30,000
              
              
              —
              
              
              30,000Depreciation
                  and amortization
              
              
              2,237,065
              
              
              190,440
              
              
              255,526Amortization
                  of debt discount
              
              
              1,000,000
              
              
              —
              
              
              1,000,000Gain
                  on disposal of property and equipment
              
              
              (21,663
              )
              
              —
              
              
              —Gain
                  on extinguishment of debt
              
              
              (216,617
              )
              
              (10,009
              )
              
              (31,608
              )Abandoned
                  patents
              
              
              183,556
              
              
              —
              
              
              —Bad
                  debts - employee advances
              
              
              255,882
              
              
              —
              
              
              —Contributed
                  technology expense
              
              
              4,550,000
              
              
              —
              
              
              —Consulting
                  expense
              
              
              237,836
              
              
              —
              
              
              —Management
                  unit expense
              
              
              1,334,285
              
              
              —
              
              
              —Expense
                  for issuance of warrants
              
              
              478,409
              
              
              —
              
              
              9,883Expense
                  for issuance of options
              
              
              889,932
              
              
              498,955
              
              
              143,352Amortization
                  of deferred compensation
              
              
              74,938
              
              
              —
              
              
              —Penalties
                  in connection with non-registration event
              
              
              361,496
              
              
              361,496
              
              
              —Changes
                  in operating assets and liabilities:Prepaid
                  expenses and other current assets
              
              
              (472,230
              )
              
              (175,802
              )
              
              (5,619
              )Other
                  assets
              
              
              (53,893
              )
              
              —
              
              
              (2,730
              )Accounts
                  payable and accrued expenses
              
              
              2,726,079
              
              
              (72,165
              )
              
              (421,677
              )Accrued
                  interest
              
              
              1,823,103
              
              
              (70,000
              )
              
              493,310**Net
                  cash used by operating activities**
              
              
              (51,231,662
              )
              
              (2,627,839
              )
              
              (2,849,182
              )Cash
                  flows from investing activities:Proceeds
                  from sale of property and equipment
              
              
              32,491
              
              
              —
              
              
              —Purchases
                  of property and equipment
              
              
              (2,220,521
              )
              
              (21,427
              )
              
              —Patent
                  costs
              
              
              (405,678
              )
              
              (12,259
              )
              
              (64,863
              )Loan
                  receivable
              
              
              (1,632,168
              )
              
              —
              
              
              —**Net
                  cash used by financing activities**
              
              
              (4,225,876
              )
              
              (33,686
              )
              
              (64,863
              )Cash
                  flows from financing activities:Proceeds
                  from issuance of common stock
              
              
              400,490
              
              
              —
              
              
              400,490Proceeds
                  from issuance of preferred stock, net of related issuance
                  costs
              
              
              4,679,437
              
              
              —
              
              
              4,679,437Equity
                  contributions - net of fees incurred
              
              
              41,711,198
              
              
              —
              
              
              —Proceeds
                  from borrowing
              
              
              8,378,631
              
              
              —
              
              
              —Proceeds
                  from subscription receivables
              
              
              499,395
              
              
              —
              
              
              —**Net
                  cash provided by financing activities**
              
              
              55,669,151
              
              
              —
              
              
              5,079,927
  The
        Notes
        to Consolidated Financial Statements are an integral part of these
        statements.
  F-11
  **MEDASORB
          TECHNOLOGIES CORPORATION**
 **(a
          development stage company)**
 
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 
 
 **For the Period from****January 22, 1997****(date of inception) to**
                
                **Year ended**
                
                **Year ended****December 31,**
                
                **December 31,**
                
                **December 31,****2007**
                
                **2007**
                
                **2006**Net
                    increase (decrease) in cash and cash equivalents
                
                
                211,613
                
                
                (2,661,525
                )
                
                2,165,882Cash
                    and cash equivalents at beginning of period
                
                
                —
                
                
                2,873,138
                
                
                707,256Cash
                    and cash equivalents at end of period
                
                $
                211,613
                
                $
                211,613
                
                $
                2,873,138**Supplemental
                    disclosure of cash flow information:**Cash
                    paid during the period for interest
                
                $
                590,189
                
                $
                78,409
                
                $
                —**Supplemental
                    schedule of noncash financing activities:**Note
                    payable principal and interest conversion to equity
                
                $
                10,201,714
                
                $
                —
                
                $
                9,030,149Issuance
                    of member units for leasehold improvements
                
                $
                141,635
                
                $
                —
                
                $
                —Issuance
                    of management units in settlement of cost of raising
                    capital
                
                $
                437,206
                
                $
                —
                
                $
                —Change
                    in fair value of management units for cost of raising
                    capital
                
                $
                278,087
                
                $
                —
                
                $
                —Exchange
                    of loan receivable for member units
                
                $
                1,632,168
                
                $
                —
                
                $
                —Issuance
                    of equity in settlement of accounts payable
                
                $
                1,609,446
                
                $
                23,002
                
                $
                750,125Issuance
                    of common stock in exchange for stock subscribed
                
                $
                399,395
                
                $
                —
                
                $
                399,395Costs
                    paid from proceeds in conjunction with issuance of preferred
                    stock
                
                $
                620,563
                
                $
                —
                
                $
                620,563Series
                    A Preferred stock dividends
                
                $
                1,536,408
                
                $
                760,872
                
                $
                775,536Net
                    effect of conversion of common stock to preferred stock prior
                    to
                    merger
                
                $
                559
                
                $
                —
                
                $
                559
  During
          the years ended December 31, 2007 and 2006, 506,446 and -0- Series A Preferred
          Shares were converted into 405,157 and -0- Common Shares, respectively.
          For the
          period from January 22, 1997 (date of inception) to December 31, 2007,
          506,446
          Series A Preferred Shares were converted into 405,157 Common
          Shares.
 
 During
          the years ended December 31, 2007 and 2006, 553,629 and -0- Series A Preferred
          Shares were issued in connection with the non-registration event as settlement
          of dividends/penalties payable, respectively, For the period from January
          22,
          1997 (date of inception) to December 31, 2007, 553,629 Series A Preferred
          Shares
          were issued in connection with the non-registration event as settlement
          of
          dividends/penalties payable.
 
 The
          Notes
          to Consolidated Financial Statements are an integral part of these
          statements.
  F-12


**1.**
            **BASIS
                OF PRESENTATION**





The
      accompanying consolidated financial statements include the results of MedaSorb
      Technologies Corporation (the “Parent”), formerly known as Gilder Enterprises,
      Inc., and MedaSorb Technologies, Inc., its wholly-owned subsidiary (the
“Subsidiary”), collectively referred to as “the Company.”





On
      June
      30, 2006, pursuant to an Agreement and Plan of Merger, by and among the Parent,
      MedaSorb Technologies, Inc., a Delaware corporation (formerly known as MedaSorb
      Corporation) (“MedaSorb Delaware”) and the Parent’s subsidiary (formerly known
      as MedaSorb Acquisition Inc.), MedaSorb Delaware merged (the “Merger”) with the
      Parent’s subsidiary, and the stockholders of MedaSorb Delaware became
      stockholders of the Parent. The business of the Subsidiary (the business
      conducted by MedaSorb Delaware prior to the Merger) is now the Company’s only
      business.





In
      connection with the Merger (i) the former stockholders of MedaSorb Delaware
      were
      issued an aggregate of 20,340,929 shares of Common Stock of the Parent in
      exchange for the same number of shares of common stock of MedaSorb Delaware
      previously held by such stockholders, (ii) outstanding warrants and options
      to
      purchase a total of 1,697,648 shares of the common stock of MedaSorb Delaware
      were cancelled in exchange for warrants and stock options to purchase the same
      number of shares of the Parent’s Common Stock at the same exercise prices and
      otherwise on the same general terms as the options and warrants that were
      cancelled, and (iii) certain providers of legal services to MedaSorb Delaware
      who previously had the right to be issued approximately 997,000 **** shares
      of
      MedaSorb Delaware common stock as payment toward accrued legal fees, became
      entitled to instead be issued the same number of shares of the Parent’s Common
      Stock as payment toward such services. Immediately prior to the Merger, after
      giving effect to a share cancellation transaction effected by the former
      principal stockholder of the Parent, the Parent had outstanding 3,750,000 shares
      of Common Stock and no warrants or options to purchase Common Stock. MedaSorb
      Delaware prior to the Merger had 300,000,000 authorized shares of common stock.
      Following the Merger, the Parent has authorized 100,000,000 shares of common
      stock and 100,000,000 shares of preferred stock.





For
      accounting purposes, the Merger has been accounted for as a reverse merger,
      since the Parent was a shell company prior to the Merger, the former
      stockholders of MedaSorb Delaware owned a majority of the issued and outstanding
      shares of the Parent’s Common Stock immediately following the Merger, and
      directors and executive officers of MedaSorb Delaware became the Parent’s
      directors and executive officers. Accordingly, MedaSorb Delaware is treated
      as
      the acquiror in the Merger, which is treated as a recapitalization of MedaSorb
      Delaware, and the pre-merger financial statements of MedaSorb Delaware are
      now
      deemed to be the historical financial statements of the Parent. Historical
      information described in this report refers to the operations of MedaSorb
      Delaware prior to the Merger.





The
      Company is a development stage company and has not yet generated any revenues.
      Since inception, the Company's expenses relate primarily to research and
      development, organizational activities, clinical manufacturing, regulatory
      compliance and operational strategic planning. Although the Company has made
      advances on these matters, there can be no assurance that the Company will
      continue to be successful regarding these issues, nor can there be any assurance
      that the Company will successfully implement its long-term strategic
      plans.





The
      accompanying consolidated financial statements have been prepared on a going
      concern basis, which contemplates the realization of assets and satisfaction
      of
      liabilities in the normal course of business. The Company has experienced
      negative cash flows from operations since inception and has a deficit
      accumulated during the development stage at December 31, 2007 of $71,538,209.
      The Company is not currently generating revenue and is dependent on the proceeds
      of present and future financings to fund its research, development and
      commercialization program. The Company is continuing its fund-raising efforts.
      Although the Company has historically been successful in raising additional
      capital through equity and debt financings, there can be no assurance that
      the
      Company will be successful in raising additional capital in the future or that
      it will be on favorable terms. Furthermore, if the Company is successful in
      raising the additional financing, there can be no assurance that the amount
      will
      be sufficient to complete the Company's plans. These matters raise substantial
      doubt about the Company’s ability
      to
      continue as a going concern. These consolidated financial statements do not
      include any adjustments related to the outcome of this uncertainty.




F-13




The
      Company has developed an intellectual property portfolio, including 25 issued
      and multiple pending  patents,  covering
      materials, methods of production, systems incorporating the technology and
      multiple medical uses.





**2.**
            **PRINCIPAL
                BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
                POLICIES:**





**Nature
      of Business**





The
      Company is engaged in the research, development and commercialization of medical
      devices with its platform blood purification technology incorporating a
      proprietary adsorbent polymer technology. The Company is focused on developing
      this technology for multiple applications in the medical field, specifically
      to
      provide improved blood purification for the treatment of acute and chronic
      health complications associated with blood toxicity. As of December 31, 2007,
      the Company has not commenced commercial operations and, accordingly, is in
      the
      development stage. The Company has yet to generate any revenue and has no
      assurance of future revenue.





**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of the Parent, MedaSorb
      Technologies Corporation, and its wholly-owned subsidiary, MedaSorb
      Technologies, Inc. All significant intercompany transactions and balances have
      been eliminated in consolidation.





**Development
      Stage Corporation**





The
      accompanying consolidated financial statements have been prepared in accordance
      with the provisions of Statement of Financial Accounting Standard (SFAS) No.
      7,
      "Accounting and Reporting by Development Stage Enterprises."




**Cash
      and Cash Equivalents**





The
      Company considers all highly liquid debt instruments purchased with an original
      maturity of three months or less to be cash equivalents.





**Property
      and Equipment**





Property
      and equipment are recorded at cost less accumulated depreciation. Depreciation
      of property and equipment is provided for by the straight-line method over
      the
      estimated useful lives of the related assets. Leasehold improvements are
      amortized over the lesser of their economic useful lives or the term of the
      related leases. Gains and losses on depreciable assets retired or sold are
      recognized in the statements of operations in the year of disposal. Repairs
      and
      maintenance expenditures are expensed as incurred.





**Patents**





Legal
      costs incurred to establish patents are capitalized. When patents are issued,
      capitalized costs are amortized on the straight-line method over the related
      patent term. In the event a patent is abandoned, the net book value of the
      patent is written off.





**Impairment
      or Disposal of Long-Lived Assets**





The
      Company assesses the impairment of patents and other long-lived assets under
      SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
whenever events or changes in circumstances indicate that the carrying value
      may
      not be recoverable. For long-lived assets to be held and used, the Company
      recognizes an impairment loss only if its carrying amount is not recoverable
      through its undiscounted cash flows and measures the impairment loss based
      on
      the difference between the carrying amount and fair value.




F-14




**Research
      and Development**





All
      research and development costs, payments to laboratories and research
      consultants are expensed when incurred.





**Income
      Taxes**





Income
      taxes are accounted for under the asset and liability method prescribed by
      SFAS
      No. 109, “Accounting for Income Taxes.” Deferred income taxes are recorded for
      temporary differences between financial statement carrying amounts and the
      tax
      basis of assets and liabilities. Deferred tax assets and liabilities reflect
      the
      tax rates expected to be in effect for the years in which the differences are
      expected to reverse. A valuation allowance is provided if it is more likely
      than
      not that some or all of the deferred tax asset will not be realized. Under
      Section 382 of the Internal Revenue Code the net operating losses generated
      prior to the reverse merger may be limited due to the change in ownership.
      Additionally, net operating losses generated subsequent to the reverse merger
      may be limited in the event of changes in ownership.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities. Actual results
      could differ from these estimates.




**Concentration
      of Credit Risk**





The
      Company maintains cash balances, at times, with financial institutions in excess
      of amounts insured by the Federal Deposit Insurance Corporation. Management
      monitors the soundness of these institutions and considers the Company’s risk
      negligible.





**Financial
      Instruments**





The
      carrying values of accounts payable and other debt obligations approximate
      their
      fair values due to their short-term nature.





**Net
      Loss per Common Share**





Basic
      EPS
      is computed by dividing income (loss) available to common stockholders by the
      weighted average number of common shares outstanding during the period. Diluted
      EPS gives effect to all dilutive potential common shares outstanding during
      the
      period. The computation of diluted EPS does not assume conversion, exercise
      or
      contingent exercise of securities that would have an anti-dilutive effect on
      earnings. Refer to Note 9 for methodology for determining net loss per
      share.




**Stock-Based
      Compensation**




The
      Company accounts for its stock-based compensation under the recognition
      requirements of Statement of Financial Accounting Standards (“SFAS”) No. 123(R).
“ *Accounting
      for Stock-Based Compensation* ”,
      for
      employees and directors whereby each option granted is valued at fair market
      value on the date of grant. Under SFAS No. 123, the fair value of each option
      is
      estimated on the date of grant using the Black-Scholes option pricing
      model.




The
      Company also follows the guidance in EITF 96-18 “Accounting for Equity
      Instruments That Are Issued to Other Than Employees for Acquiring, or in
      Conjunction with Selling, Goods or Services” for equity instruments issued
      to consultants.




**Effects
      of Recent Accounting Pronouncements**




In
      September 2006 the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value in accordance with accounting principles generally accepted in the United
      States, and expands disclosures about fair value measurements. SFAS No. 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, with earlier application encouraged. Any amounts recognized
      upon adoption as a cumulative effect adjustment will be recorded to the opening
      balance of retained earnings in the year of adoption. The Company has not yet
      determined the impact of this statement on its results of operations or
      financial condition.




F-15




The
      Company has adopted the provisions of FASB Interpretation No. 48, “Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”
(“FIN 48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty
      in income taxes recognized in an enterprise’s financial statements in accordance
      with FASB Statement 109 “Accounting for Income Taxes”, and prescribes a
      recognition threshold and measurement process for financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance on derecognition classification,
      interest and penalties accounting in interim periods disclosure and
      transition.





Based
      on
      our evaluation, we have concluded that there are no significant uncertain tax
      positions requiring recognition in our financial statements or adjustments
      to
      our deferred tax assets and related valuation allowance. Our evaluation was
      performed for the tax years ended December 31, 2004, 2005, 2006 and 2007, the
      tax years which remain subject to examination by major tax jurisdictions as
      of
      December 31, 2007.





The
      Company may from time to time be assessed interest or penalties by major tax
      jurisdictions, although such assessments historically have been minimal and
      immaterial to our financial results. In the event we have received an assessment
      for interest and/or penalties, it has been classified in the financial
      statements as general and administrative expense.





In
      February 2007, the FASB issued SFAS No. 159, “Establishing the Fair Value Option
      for Financial Assets and Liabilities” to permit all entities to choose to elect
      to measure eligible financial instruments and certain other items at fair value.
      The decision whether to elect the fair value option may occur for each eligible
      items either on a specified election date or according to a preexisting policy
      for specified types of eligible items. However, that decision must also take
      place on a date on which criteria under SFAS 159 occurs. Finally, the decision
      to elect the fair value option shall be made on an instrument-by-instrument
      basis, except in certain circumstances. An entity shall report unrealized gains
      and losses on items for which the fair value option has been elected in earnings
      at each subsequent reporting date. SFAS No. 159 applies to fiscal years
      beginning after November 15, 2007, with early adoption permitted for an entity
      that has also elected to apply the provisions of SFAS No. 157. The Company
      is
      currently evaluating this pronouncement in connection with SFAS No.
      157.





**3.**
            **PROPERTY
                AND EQUIPMENT, NET:**





Property
      and equipment - net, consists of the following:





December
                31,
            
            2007
            
            2006
            
            Depreciation/
              Amortization
              PeriodFurniture
                and fixtures
            
            $
            130,015
            
            $
            130,015
            
            
            7
                yearsEquipment
                and computers
            
            
            1,731,242
            
            
            1,709,815
            
            
            3
                to 7 yearsLeasehold
                improvements
            
            
            462,980
            
            
            462,980
            
            
            Term
                of lease2,324,237
            
            
            2,302,810Less
                  accumulated depreciation and
                  amortization
            
            
            2,179,780
            
            
            1,999,250**Property
                and Equipment, Net**
            
            $
            144,457
            
            $
            303,560





F-16




Depreciation
      expense for the years ended December 31, 2007 and 2006 amounted to $180,530
      and
      $250,096, respectively. Depreciation expense from inception to December 31,
      2007
      amounted to $2,206,868.





**4.**
            **OTHER
                ASSETS:**





Other
      assets consist of the following:





December
                31,
            
            2007
            
            2006Intangible
                assets, net
            
            $
            191,926
            
            $
            189,577Security
                deposits
            
            
            53,894
            
            
            53,894**Total**
            
            $
            245,820
            
            $
            243,471





Intangible
      assets consist of the following:





December
                31,
            
            2007
            
            2006Gross
            
            Accumulated
            
            Gross
            
            AccumulatedAmount
            
            Amortization
            
            Amount
            
            AmortizationPatents
            
            $
            222,121
            
            $
            30,195
            
            $
            209,863
            
            $
            20,286




The
      issued patents that are capitalized are being amortized over the patents
      remaining legal life. Pending patents are not amortized. Amortization expense
      amounted to $9,910 and $5,428 for the years ended December 31, 2007 and 2006,
      respectively. Amortization expense from inception to December 31, 2007 amounted
      to $30,196.





Amortization
      expense is anticipated to be approximately $11,300 for the next five years
      ended
      December 31, 2012.





**5.**
            **ACCOUNTS
                PAYABLE AND ACCRUED
                EXPENSES:**





Accounts
      Payable and accrued expenses consist of the following:





December 31,2007
            
            2006Other
                payable
            
            $
            255,418
            
            $
            151,241Legal,
                financial and consulting
            
            
            242,891
            
            
            290,168Research
                and development
            
            
            329,177
            
            
            451,414Filing
                fees
            
            
            79,382
            
            
            119,221$
            906,868
            
            $
            1,012,044





**6.**
            **INCOME
                TAXES:**





From
      inception through December 31, 2005, the Company incurred losses which, as
      a
      limited liability company, were passed through to its members. Tax losses
      amounted to approximately $2,900,000 and $3,400,000 for the years ended December
      31, 2007 and December 31, 2006, respectively, the sum of which also represents
      the Company’s net operating loss carryforward which expires through 2027. These
      loss carryforwards are subject to limitation in future years should certain
      ownership changes occur. A full valuation allowance equal to the deferred tax
      asset has been recorded due to the uncertainty that the Company will have the
      ability to utilize such asset.




F-17




For
      the
      years ended December 31, 2007 and December 31, 2006, respectively, the Company’s
      effective tax rate differs from the federal statutory rate principally due
      to
      net operating losses offset by certain non-deductible expenses for which no
      benefit has been recorded.





A
      reconciliation of the Federal statutory rate to the Company’s effective tax rate
      for the years ended December 31, 2007 and December 31, 2006 is as
      follows:





2007
            
            2006Federal
                statutory rate
            
            
            (34.0
            )%
            
            (34.0
            )%Decrease
                resulting from:Non-deductible
                expenses
            
            
            4.9
            
            
            18.6Operating
                losses
            
            
            29.1
            
            
            15.4Effective
                tax rate
            
            
            —
            %
            
            —
            %




**7.**
            **COMMITMENTS
                AND CONTINGENCIES:**





The
      Company is obligated under non-cancelable operating leases for office space
      and
      equipment expiring at various dates through September 2009. The aggregate
      minimum future payments under these leases are approximately as
      follows:





Year
      ending December 31,




2008
            
            $
            163,0002009
            
            
            30,000**Total**
            
            
            
            
            $
            193,000





The
      preceding data reflects existing leases and does not include replacements upon
      their expiration. In the normal course of business, operating leases are
      normally renewed or replaced by other leases.





Rent
      expense for the years ended December 31, 2007 and 2006 amounted to approximately
      $253,000 and $226,000, respectively.





**Employment
      Agreements**





The
      Company has employment agreements with certain key executives through December
      2008. The
      agreements provide for annual base salaries of varying amounts.




One
      of
      these agreements includes an anti-dilution provision whereby the employee is
      granted options for the right to obtain 5% of the outstanding stock of the
      Company on a fully diluted basis. For the years ended December 31, 2007 and
      2006, the Company’s financial statements reflect the issuance of options to
      purchase 480,122 and 413,920 shares of common stock to this employee consistent
      with his employment agreement and includes a bonus grant. These options were
      valued at approximately $251,000 and $69,600 and have been included as a charge
      to the consolidated statements of operations for the years ended December 31,
      2007 and 2006, respectively.





**Litigation**





The
      Company is involved in various claims and legal actions. Management is of the
      opinion that these claims and legal actions have no merit, but may have a
      material adverse impact on the consolidated financial position of the Company
      and/or the results of its operations. ****




F-18




**Royalty
      Agreements**





In
      an
      agreement dated August 11, 2003 an existing investor agreed to make a $4 million
      equity investment in the Company. These amounts were received by the Company
      in
      2003. In connection with this agreement the Company granted the investor a
      future royalty of 3% on all gross revenues received by the Company from the
      sale
      of its CytoSorb device. The Company has not generated any revenue from this
      product and has not incurred any royalty costs through December 31, 2007. The
      amount of future revenue subject to the royalty agreement could not be
      reasonably estimated nor has a liability been incurred, therefore, an accrual
      for royalty payments has not been included in the consolidated financial
      statements.





**License
      Agreements**





In
      an
      agreement dated September 1, 2006, the Company entered into a license agreement
      which provides the Company the exclusive right to use its patented technology
      and proprietary know how relating to adsorbent polymers for a period of 18
      years. Under the terms of the agreement, MedaSorb has agreed to pay royalties
      of
      2.5% to 5% on the sale of certain of its products if and when those products
      are
      sold commercially for a term not greater than 18 years commencing with the
      first
      sale of such product. The Company has not generated any revenue from its
      products and has not incurred any royalty costs through December 31, 2007.
      The
      amount of future revenue subject to the Settlement Agreement could not be
      reasonably estimated nor has a liability been incurred, therefore, an accrual
      for royalty payments has not been included in the consolidated financial
      statements.




**8.**
            **STOCKHOLDERS'
                EQUITY**





**10%
      Series A Preferred Stock**




Each
      share of Series A Preferred Stock has a stated value of $1.00, and is
      convertible at the holder’s option into that number of shares of Common Stock
      equal to the stated value of such share of Series A Preferred Stock divided
      by
      an initial conversion price of $1.25. Upon the occurrence of a stock split,
      stock dividend, combination of the Common Stock into a smaller number of shares,
      issuance of any of shares of Common Stock or other securities by
      reclassification of the Common Stock, merger or sale of substantially all of
      the
      Company’s assets, the conversion rate will be adjusted so that the conversion
      rights of the Series A Preferred Stock stockholders will be equivalent to the
      conversion rights of the Series A Preferred Stock stockholders prior to such
      event. In addition, in the event the Company sells shares of Common Stock (or
      the equivalent thereof) at a price of less than $1.25 per share, the conversion
      price of the shares of Series A Preferred Stock will be reduced to such lower
      price. In addition, in the event the Company sells shares of Common Stock (or
      the equivalent thereof) at a price of less than $2.00 per share, the exercise
      price of the warrants issued to the holders of the Series A Preferred Stock
      will
      be reduced to such lower price.





The
      Series A Preferred Stock bears a dividend of 10% per annum payable quarterly,
      at
      the Company’s election in cash or additional shares of Series A Preferred Stock
      valued at the stated value thereof; provided, however, that the Company must
      pay
      the dividend in cash if an “Event of Default” as defined in the Certificate of
      Designation designating the Series A Preferred Stock has occurred and is then
      continuing. In addition, upon an Event of Default, the dividend rate increases
      to 20% per annum. An Event of Default includes, but is not limited to, the
      following:





·
            the
                occurrence of “Non-Registration
                Events”;


·
            an
                uncured breach by the Company of any material covenant, term or condition
                in the Certificate of Designation or any of the related transaction
                documents; and


·
            any
                money judgment or similar final process being filed against the Company
                for more than $100,000.





In
      the
      event of the Company’s dissolution, liquidation or winding up, the holders of
      the Series A Preferred Stock will receive, in priority over the holders of
      Common Stock, a liquidation preference equal to the stated value of such shares
      plus accrued dividends thereon.




F-19




The
      Series A Preferred Stock is not redeemable at the option of the holder but
      may
      be redeemed by the Company at its option following the third anniversary of
      the
      issuance of the Series A Preferred Stock for 120% of the stated value thereof
      plus any accrued but unpaid dividends upon 30 days' prior written notice, during
      which time the Series A Preferred Stock may be converted, provided a
      registration statement is effective under the Securities Act with respect to
      the
      Common Stock into which such Preferred is convertible and an Event of Default
      is
      not then continuing.





Holders
      of Series A Preferred Stock do not have the right to vote on matters submitted
      to the holders of Common Stock.


The
      registration rights provided for in the subscription agreements entered into
      with the purchasers of the Series A Preferred Stock: 1)
      required that the Company file a registration statement with the SEC on or
      before 120 days from the closing to register the shares of Common Stock issuable
      upon conversion of the Series A Preferred Stock and exercise of the warrants,
      and cause such registration statement to be effective within 240 days following
      the closing; and 2)
      entitles each of these investors to liquidated damages in an amount equal to
      two
      percent (2%) of the purchase price of the Series A Preferred Stock if the
      Company fails to timely file that registration statement with, or have it
      declared effective by, the SEC.





The
      transaction documents entered into with the purchasers of the Series A Preferred
      Stock also provide for various penalties and fees for breaches or failures
      to
      comply with provisions of those documents, such as the timely payment of
      dividends, delivery of stock certificates upon conversion of the Series A
      Preferred Stock or exercise of the warrants, and obtaining and maintaining
      an
      effective registration statement with respect to the shares of Common Stock
      underlying the Series A Preferred Stock and warrants sold in the
      offering.





The
      Company has recorded non-cash stock dividends in connection with the issuance
      of
      Series A Preferred Stock as a stock dividend to its preferred shareholders
      as of
      December 31, 2007. Prior to February 26, 2007 and after May 7, 2007, the
      dividend rate was 10% per annum. Effective February 26, 2007 due to the
      Company’s failure to have the registration statement it filed declared effective
      by the Commission within the time required under agreements with the June 30,
      2006 purchasers of the Series A Preferred Stock (i) dividends on the shares
      of
      Series A Preferred Stock issued to those purchasers were required to be paid
      in
      cash, (ii) the dividend rate increased from 10% per annum to 20% per annum,
      and
      (iii) such purchasers were entitled to liquidated damages of 2% of their
      principal investment payable in cash per 30 day period until the registration
      statement was declared effective. In connection with such cash dividend and
      penalty obligations, as modified by the Settlement Agreement described below,
      the Company’s financial statements for the year ending December 31, 2007 also
      reflect an aggregate charge of $361,496. On
      May 7,
      2007 the Company’s registration statement filed in connection with the Company’s
      obligations to the June 30, 2006 purchasers of its Series A Preferred Stock
      was
      declared effective by the Commission.





Pursuant
      to a settlement agreement entered into in August 2007 with the June 30, 2006
      purchasers of the Series A Preferred Stock, cash dividends stopped accruing
      on
      the Series A Preferred Stock effective on the date the Company’s registration
      statement was declared effective (May 7, 2007) and all cash dividends and
      penalties due through that date were paid with additional shares of Series
      A
      Preferred Stock at its stated value of $1.00 per share in lieu of cash. The
      settlement, did not result in a gain or loss on extinguishment of debt
      for the year ended December 31, 2007. Additionally, as part of the settlement,
      the dividend rate on the Series A Preferred Stock issued to these purchasers
      was
      reset to 10% effective as of May 7, 2007.





During
      the years ended December 31, 2007 and 2006, the Company issued 760,873 and
      303,700 shares of Series A Preferred Stock respectively as payment of stock
      dividends at the stated value of $1.00 per share. During the year ended December
      31, 2007, the Company issued 361,496 shares of Series A Preferred Stock as
      settlement of the cash dividends and penalties payable to the purchasers under
      the agreement.  The shares were valued at $361,495 and included as a charge
      to operations under other (income) expenses for the year ended December 31,
      2007.




F-20




In
      accordance with Emerging Issues Task Force (EITF) 00-27, the Company allocates
      the proceeds associated with the issuance of preferred stock based on the
      relative fair value of the preferred stock and warrants. Additionally, the
      Company evaluates if the embedded conversion option results in a beneficial
      conversion feature by comparing the relative fair value allocated to the
      preferred stock to the market value of the underlying common stock subject
      to
      conversion. In connection with the preferred stock issuances during the year
      ended December 31, 2006, the Company received total proceeds of $7,099,885.
      The
      Company allocated the total proceeds in accordance with EITF 00-27 based on
      the
      related fair value as follows: $6,776,667 was allocated to the preferred stock
      and $323,218 to the warrants. Additionally, the embedded conversion option
      resulted in a beneficial conversion feature in the amount of $148,618. In
      accordance with EITF 98-5, the value assigned to the warrants resulting from
      the
      relative fair value calculation as well as the value of the beneficial
      conversion feature is recorded as a preferred stock dividend and is presented
      in
      the consolidated statements of operations. In addition, the Company considers
      the guidance of EITF 00-19, “Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in, a Company’s Own Common Stock,” and SFAS
      133, “Accounting for Derivative Instruments and Hedging Activities (as
      amended),” and concluded that the conversion feature embedded in the preferred
      stock only provides for physical settlement and there are no net settlement
      features. Accordingly, the Company has concluded that the conversion feature
      is
      not considered a derivative under EITF 00-19 and SFAS 133.





**Stock
      Option Plans**




As
      of
      December 31, 2007, the Company had a Long Term Incentive Plan (“2006 Plan”) to
      attract, retain, and provide incentives to employees, officers, directors,
      and
      consultants. The Plan generally provides for the granting of stock, stock
      options, stock appreciation rights, restricted shares, or any combination of
      the
      foregoing to eligible participants.





A
      total
      of 2,500,000 shares of common stock are reserved for issuance under the 2006
      Plan. As of December 31, 2007 there were outstanding options to purchase
      1,208,023 shares of common stock reserved under the plan. Additionally, as
      of
      December 31, 2007 there were options to purchase 890,479 shares of Common Stock
      that were issued outside of the 2006 Plan.





The
      2006
      Plan as well as grants issued outside of the Plan are administered by the Board
      of Directors.  The Board is authorized to select from among eligible
      employees, directors, advisors and consultants those individuals to whom
      incentives are to be granted and to determine the number of shares to be subject
      to, and the terms and conditions of the options.  The Board is also
      authorized to prescribe, amend and rescind terms relating to options granted
      under the Plans.  Generally, the interpretation and construction of any
      provision of the Plans or any options granted hereunder is within the discretion
      of the Board.





The
      Plan
      provides that options may or may not be Incentive Stock Options (ISOs) within
      the meaning of Section 422 of the Internal Revenue Code.  Only employees of
      the Company are eligible to receive ISOs, while employees and non-employee
      directors, advisors and consultants are eligible to receive options which are
      not ISOs, i.e. “Non-Qualified Options.”  Because the Company has not yet
      obtained shareholder approval of the 2006 Plan, all options granted thereunder
      to date are “Non-Qualified Options” and until such shareholder approval is
      obtained, all future options issued under the 2006 Plan will also be
“Non-Qualified Options.”





**Stock-based
      Compensation**




Effective
      January 1, 2006, the Company implemented the fair value recognition provisions
      of SFAS 123(R) and guidance of SAB 107 for all share-based compensation.
      Share-based employee compensation for the years ended December 31, 2007 and
      December 31, 2006 in the amounts of approximately $37,000 and $462,000 (net
      of
      related tax) and $31,300 and $112,000 (net of related tax), are included in
      the
      net loss of $3,350,754 and $7,671,580, respectively under the captions research
      and development and general and administrative.




F-21




The
      summary of the stock option activity for the year ended December 31, 2007 is
      as
      follows:





WeightedWeighted
            
            AverageAverage
            
            RemainingExercise
            
            ContractualShares
            
            per Share
            
            Life (Years)Outstanding,
                January 1, 2007
            
            
            1,185,001
            
            $
            15.66
            
            
            7.5Granted
            
            
            913,622
            
            
            1.31
            
            
            9.2Cancelled
            
            
            (121
            )
            
            41.47
            
            
            0.0Exercised
            
            
            —
            
            
            —
            
            
            —Outstanding,
                December 31, 2007
            
            
            2,098,502
            
            $
            9.41
            
            
            7.7




The
      weighted-average grant date fair value for options granted during the years
      ended December 31, 2007 and 2006 amounted to approximately $0.63 and $0.30
      per
      share, respectively.





At
      December 31, 2007, the aggregate intrinsic value of options outstanding and
      options currently exercisable amounted to $0.





The
      summary of the status of the Company’s non-vested options for the year ended
      December 31, 2007 is as follows:





WeightedAverageGrant DateShares
            
            Fair ValueNon-vested,
                January 1, 2007
            
            
            79,665
            
            $
            0.77Granted
            
            
            913,622
            
            $
            0.63Cancelled
            
            
            —
            
            $
            —Vested
            
            
            (819,957
            )
            $
            0.57Exercised
            
            
            —
            
            
            —Non-vested,
                December 31, 2006
            
            
            173,330
            
            $
            0.80




As
      of
      December 31, 2007, approximately $139,004 of total unrecognized compensation
      cost related to stock options is expected to be recognized over a weighted
      average period of 0.74 years.




As
      of
      December 31, 2007, the Company has the following warrants to purchase common
      stock outstanding:




Number of Shares
            
            Warrant Exercise
            
            WarrantTo be Purchased
            
            Price per Share
            
            Expiration Date15,569
            
            $
            6.64
            
            
            March
                31, 2010816,691
            
            $
            4.98
            
            
            June
                30, 20112,100,000
            
            $
            2.00
            
            
            June
                30, 2011339,954
            
            $
            2.00
            
            
            September 30, 201152,080
            
            $
            2.00
            
            
            July
                31, 2011400,000
            
            $
            2.00
            
            
            October
                31, 2011240,125
            
            $
            2.00
            
            
            October
                24, 2016




F-22




As
      of
      December 31, 2007, the Company has the following warrant to purchase preferred
      stock outstanding:





Number of
            
            Warrant Exercise
            
            WarrantShares to be
            
            Price per
            
            ExpirationPurchased
            
            Preferred Share
            
            Date525,000
            
            $
            1.00
            
            
            June 30, 2011





If
      the
      holder of warrants for preferred stock exercises in full, the holder will
      receive additional 5 year warrants to purchase a total of 210,000 shares of
      common stock at $2.00 per share.





**Equity
      Instruments Issued for Services Rendered**




During
      the years ended December 31, 2007 and 2006 the Company issued stock options,
      warrants and shares of common stock in exchange for services rendered to the
      Company. The fair value of each stock option and warrant was valued using the
      Black Scholes pricing model which takes into account as of the grant date the
      exercise price (ranging from $0.22 to $1.90 per share) and expected life of
      the
      stock option or warrant (5-10 years), the current price of the underlying stock
      and its expected volatility (approximately 26 percent), expected dividends
      (-0-
      percent) on the stock and the risk free interest rate (ranging from 4 to 4.5
      percent) for the term of the stock option or warrant. Shares of common stock
      are
      valued at the quoted market price on the date of grant. The fair value of each
      grant was charged to the related expense in the statement of operations for
      the
      services received.




**9.**
            **NET
                LOSS PER SHARE**





Basic
      earnings per share and diluted earnings per share for the years ended December
      31, 2007 and 2006 have been computed by dividing the net loss for each
      respective period by the weighted average number of shares outstanding during
      that period. All outstanding warrants and options representing
      approximately 3,964,419 and 2,098,502 incremental shares ,
      respectively, as well as shares issuable upon conversion of Series A Convertible
      Preferred Stock and Preferred Stock Warrant representing approximately 7,045,606
      incremental shares have been excluded from the computation of diluted EPS as
      they are anti-dilutive.





**10.**
            **SUBSEQUENT
                EVENTS**




In
      January 2008, the Board approved an increase in the number of shares of common
      stock issuable under the Company’s 2006 Long Term Incentive Plan from 2,500,000
      to 20,000,000.





In
      January 2008, the Company issued options to purchase 3,014,000 shares of Common
      Stock to eligible employees and a consultant exercisable at $.25 per share.




F-23