male1041...actually, for a startup, the share count is probably the most important item and they are not diluting heavily which is very good. I think the landfill gas biz is probably dead. Now it remains to be seen if the tissue welding will fly which I doubt...but that's just me....
We were incorporated on November 17, 1992 in the State of Texas. We conduct our business from our headquarters in Corpus Christi, Texas and our office in Kiev, Ukraine. We first had revenues from operations in 1995. We are a technology management company that finances, owns, develops, patents, manages, licenses and markets innovative technologies.
We have a formal relationship with several organizations in Ukraine. They have, as their stockholders or members, Ukraine scientists, engineers and technicians.
We believe we are unique in our business mission. We have developed and own technologies that we have brought to the United States and other developed countries that were invented by the scientists and engineers of Ukraine. Included in these technologies and independent of other Ukraine business interests are:
1) our live biological tissue bonding technology, which bonds human tissue without the use of sutures, staples, sealants or glues (“Live Tissue Bonding”); and
2) our patented landfill gas purification system that processes raw landfill gas up to pipeline quality.
In 1994 we organized United Engineering Company (“UEC”), a Ukrainian company. In Ukraine it is referred to as a “joint stock company with a foreign investor.” We own one-third of UEC. The remaining owners are Ukraine companies and individuals. UEC is authorized by Ukraine law, among other things, to perform classified and secret construction works related to the national security of Ukraine. From 1995 to 2002 UEC negotiated contracts with U.S. and German contractors to dismantle the Ukraine nuclear and non-nuclear missiles, silos and related equipment under the START treaty. Such contracts were for amounts of approximately $6 million for U.S. contractors and DM4.7 million for German contractors, primarily for dismantling ICBM silos.
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We identify state-of-the-art technologies that appear to have strong commercial application and in return for financing the costs of research and development, patent applications, manufacturing, and market distribution, we acquire ownership of these technologies, including all patents and other intellectual property in connection with these technologies. Our Live Tissue Bonding and CO2 separator technologies are examples of such projects.
Working through the Ukraine Academy of Sciences and the E.O. Paton Institute of Electric Welding, we have successfully negotiated technology transfer agreements for the Live Tissue Bonding Equipment Project and the Carbon Dioxide Separator Project set forth below.
Business of the Company
Live Tissue Bonding Equipment. The E.O. Paton Institute of Electric Welding of the Ukraine National Academy of Sciences, Kiev, Ukraine (the “Paton Institute”) and the International Association of Welding (“IAW”), developed equipment that bonds and reconnects blood vessels and other soft tissues and organs using radio frequency fusion in substantially less time than other technologies. Animal testing resulted in minimal scar tissue formation . To date this equipment and technology has been used in more than 7,000 human surgeries in Ukraine. In addition, our experience is that there is no need for prolonged special training of surgeons and surgical personnel to use this equipment.
To date, four United States patents, one European Union patent and one Australian patent have been issued and approximately 22 pending patent applications in the United States and overseas in connection with this live tissue bonding equipment. In addition, the Ukraine Ministry of Health has approved the technology for commercial development in Ukraine.
In 2002, we formed Live Tissue Connect, Inc., a Delaware corporation, through which we will develop the tissue bonding technology. We own 86% of Live Tissue Connect, Inc. In March 2005, Live Tissue Connect entered into an agreement with ConMed Corporation of Utica, New York involving a potential licensing of our technology. That agreement, and all rights and licenses granted to ConMed under that agreement, expired on May 31, 2005 without action by ConMed or us.
Until the end of 2006, all surgeries with the equipment were performed using prototype equipment in Ukraine hospitals during human clinical trials. During the Ukraine human clinical trials, we developed a device prototype that has performed more than 80 types of surgical procedures. Subsequently, we successfully developed and tested a specialized device for duct and vessel sealing. This is the first of several specialized devices we intend to develop using the prototype equipment. At the end of third quarter of 2006, we began developing a second specialized device designed for intestinal surgery that we expect to be ready for demonstration in May 2007. We believe that developing specialized devices for specific surgical procedures will enable us to license our technology for use in different surgical procedures to different medical device distribution companies. To date we have identified 13 different surgical procedure device types for license. We are currently in negotiations with potential licensees.
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Approval of the process and equipment by the United States Food and Drug Administration (“FDA”) is required before we can market, distribute or use our equipment in the United States. We have begun the process for FDA discovery and developing the regulatory and commercial equipment models for submission to the FDA. Additional human testing may be required to obtain FDA approval. In November 2006, we engaged a regulatory and equipment consultant to assist in obtaining FDA approval. We plan to file with the FDA and for the European CE (Conformité Européne) Mark in early 2007. We are working with qualified US medical device and instrument manufacturers to manufacture the commercial equipment. Additionally, we have retained a qualified firm to complete FDA Filings.
We are beginning to market the bonding equipment in Ukraine or other Eastern European countries and plan to market the equipment in the United States and other countries if regulatory approval is received. We have continued our plans to manufacture prototypes in Ukraine and are continuing clinical trials in Ukraine for comprehensive human clinical product development. We began this clinical work in May 2000. To date, 7,000 successful human surgeries have been completed utilizing more than 80 types of surgical procedures . We are currently negotiating with international medical device companies for possible license agreements.
In late 2005, our Ukraine partner received its first commercial order, from the Ukraine Ministry of Health, for ten sets of equipment. We will not participate in the revenues of this sale but will benefit from the additional funding of the development of the technology. We will participate in the revenues from all future sales. Additionally, in 2006 we will be marketing the equipment in several countries that recognize the Ukraine Ministry of Health approval.
We estimate that in excess of $5.5 million have been expended in developing the tissue bonding technology and that $2.0 million of additional funds must be expended to commercialize this technology.
Anaerobic Farm-Waste Disposal Equipment. We have not found this product to be marketable and have discontinued the product.
Carbon Dioxide Separator. We own the patented technology and exclusive worldwide rights to the CO2 separator technology with most of the equipment being manufactured in Ukraine. The technology separates carbon dioxide and other impurities from the gas produced in landfills. The equipment converts the remaining gas to a cleaner, up to 98-percent pure methane gas for use in internal combustion engines or for sale to natural gas companies. This equipment was developed for us by the Institute of Gas, Ukraine National Academy of Sciences and will be manufactured for us only by Sumy Frunze in Sumy, Ukraine. We have installed the first set of equipment at a landfill in Chastang (Mobile), Alabama.
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We signed a contract with DuPont on February 14, 2006 to provide up to 500,000 MM BTU a year of commercial quality gas to their plant outside Mobile, Alabama. The gas does not need to meet national gas pipeline quality specifications to fulfill the DuPont contract, but based on current raw gas analysis, we believe the gas produced will be well above the required contractual specification.
We have installed the first unit at a landfill in Chastang County, Alabama in March 2003. Start-up and equipment adjustment were delayed while waiting for the landfill gas owner to complete installation of the end-user pipeline and gas metering system. This was installed near the end of March just as our Ukraine supervisory team had to return to Ukraine. In addition, the landfill gas quality was well below expected levels and required repairs to the gas gathering system to reduce air intake. The landfill gas owner coordinated and completed these repairs during the next few weeks, finishing toward the end of May. The Ukraine supervisory team returned in early June to oversee service, start-up and adjust the equipment. Poor weather caused some delays but this was completed in about two weeks.
As we prepared to begin start-up operations and equipment adjustment, Waste Management Inc. (“WMI”, the operator of the landfill) ordered Resource Technology Corporation “RTC” (the holder of the gas ownership contract) off the landfill for breach of contract. and contended that our CO2 separator equipment produces methane gas that fails to meet gas quality specifications and that, therefore, the agreement to buy the gas is terminated. This contention was litigated in RTC’s chapter 11 reorganization proceeding. During the court proceedings in February 2006 the company learned that RTC had erroneously misstated to WMI that the equipment was fully operational and processing the landfill gas into commercially usable gas after March 2003. In fact, CSMG had refused to bring the Ukraine start-up team back to the Chastang landfill until RTC properly replaced leaking well heads and closed other air leaks in the raw landfill gas collection system. During March 2003 the company made two tests of the processed raw landfill gas during a 30-minute period to evaluate the effectiveness of the CO2 removal equipment at the site for removing CO2 from the landfill gas.
At the time of testing RTC had not adjusted the well heads to stop air leakage into the system. The raw gas specifications were 43% CH4 - 42% CO2 and 15% O2 and N combined. Test 1 of the processed gas showed CO2 to be at a 3.33% level and test 2 after minor equipment adjustments showed CO2 at a 2.5% level. The CO2 separator removes CO2 but not O2 and N. O2 and N control is a function of tuning or managing the gas collection system. CSMG has the additional technology to remove the N and O2 if such equipment is necessary. In May 2003 CSMG brought the Ukraine team to Chastang after the collection system had been repaired, but WMI filed a breach of contract action against RTC after learning of the misstatement.
We entered into a contract with WMI to operate the CO2 separator at Chastang, Alabama. The agreement was approved in February 2005 by the RTC trustee and the U.S. Bankruptcy Court; however, the settlement agreement was appealed by RTC insider creditors and on January 11, 2006 the appeals court refused to hear the appeal. There is a dispute between WMI and the company with regard to the Chastang Waste Site in Chastang, Alabama. WMI was to maintain the site so as to produce marketable levels of waste site gas. The site has failed to produce such volume and WMI has countered by demanding the company remove its equipment from the site. Discussions to resolve the issues are on-going. If the actions being taken at the site by WMI are deemed to be insufficient for supporting commercial sales of treated waste gas, the company expects to seek an alternate site.
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Manufacturing
Live Tissue Bonding equipment. To move the Live Tissue Bonding product into market, we are currently working with retained medical device experts, manufacturers, and FDA consultants to move the product into the commercial market in the United States and Europe. We expect to complete the first generation of U.S. devices and instruments in the second quarter of 2007. We expect to manufacture the tissue bonding/welding units in Eastern Europe for the Eastern Europe, China, and India markets. We expect to manufacture the Live Tissue Bonding units for the United States and European markets in the United States and Europe, respectively.
CO2 Separator. The carbon dioxide separator plants will be manufactured in Sumy, Ukraine by Sumy Frunze.
Competition
Live Tissue Bonding equipment. We have the only equipment in the world that reconnects live tissues without the use of staples, sutures, glues or sealant. We compete with existing conventional surgical methods of wound closing technologies such as sutures, staples, glues and sealant. We anticipate that our technology will supplement most other methods of bonding human soft tissue and blood vessels.
CO2 Separator. Numerous companies manufacture CO2 separators in the United States. Based upon our experience in the industry, we believe that we can compete successfully on the basis of the higher percentage of pure methane that can be produced by our CO2 separator, lower capital costs and the lower prices of production for our CO2 separator.
Patents, Trademarks and Licenses
Live Tissue Bonding equipment. We own the Live Tissue Bonding technology and all worldwide rights. Patents and patent applications for the United States, the European Patent Convention, Australia, Russia, Ukraine, China, India, Canada and Japan have been assigned to us. Four United States patents, one Australian patent, one Canadian patent and one European Patent Convention patent have been issued. One European patent has been approved and we are waiting its issuance. We have seven patents issued and 22 patent applications pending.
CO2 Separator. One U.S. patent covering the CO2 separator has been issued. We own the CO2 separator patented technology, equipment and all world rights. We are obligated to pay a five percent royalty to the Ukrainians when the equipment is installed and fully operational based on the adjusted retail price of the equipment.
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Government Approval and Regulations
Live Tissue Bonding equipment. The Live Tissue Bonding equipment must obtain the approval of the Federal Drug Administration (the “FDA”) before it can be sold to be used on humans in the United States. We expect to file with the FDA for such approval during 2007.
CO2 Separator. CO2 separator plants require no governmental approval before being placed into use, but the results of their usage are subject to the oversight authority of the Environmental Protection Agency.
Research and Development
During 2006, we expended $558,488 on research and development. During 2005, we expended $133,105 on research and development. We expect to invest an additional $2.0 million in 2007 for research and development in bring the Live Tissue Bonding product to market.
Employees
We employ six persons full time in the United States and two persons full time in Kiev, Ukraine.
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