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exclusive provider of such products to NWT. Under the terms of the agreement, NWT is required to reach minimum order quantities totaling $5.8 million over four years. Cytomedix has the right to terminate the agreement if these minimum order quantities are not met.
Results of Operations
Summary
Increased revenues driven by additional licensing agreements and a reduction in operating expenses driven by the completion of the Company’s clinical trial contributed to a 43% reduction in net loss to common stockholders. Additionally, the Company achieved a key operational milestone with its submission to the FDA of a 510(k) application for marketing clearance for AutoloGelTM for specific indications.
Revenues
Revenues rose $214,000 (79%) to $486,000 comparing the three months ended March 31, 2006 to the same period last year. Revenues are normally generated from two sources: the sale of disposable kits and reagents and royalties received from licensing activities.
The increase in revenue is attributable to increased royalties of $300,000 from five new licensing agreements entered into during 2005. This increase was partially offset by an $86,000 decrease in AutoloGelTM kit sales. AutoloGelTM kit sales decreased due to reduced sales to two large nursing homes and one government agency, as well as difficulty qualifying patients for commercial insurance reimbursement.
Since Cytomedix’s licensing activities are recent, it is premature to predict the future royalty streams from these licensing agreements. However, the Company believes there remain several companies with substantial current or future revenues associated with products and services that infringe its patents and will continue to pursue such companies for royalties or other damages.
Gross Profit
Gross profit rose $105,000 (90%) to $222,000 comparing the three months ended March 31, 2006 to the same period last year. For the same periods, gross margins rose to 46% from 43%.
The increase in gross profit is primarily attributable to the licensing agreements entered into after March 31, 2005 which carry a greater gross margin than previously existing licensing agreements. This increase in gross profit was partially offset by a decrease in gross profit from AutoloGelTM kit sales.
The DePuy royalties, inclusive of the amortization of deferred revenue associated with the initial deposit of $750,000, generates a gross margin of approximately 20%. The Company expects gross margins generated from all other licensing agreements to be in the range of 50-70%.
Operating Expenses
Operating expenses fell $550,000 (30%) to $1,309,000 comparing the three months ended March 31, 2006 to the same period last year.
Salaries and Wages
Salaries and wages rose $210,000 (41%) to $726,000 comparing the three months ended March 31, 2006 to the same period last year. The increase was primarily due to increased non-cash equity-based compensation ($166,000) and the addition of three employees.
Consulting and Related Party Consulting Expenses
Consulting and related party consulting expenses fell $109,000 (70%) to $46,000 comparing the three months ended March 31, 2006 to the same period last year. The decrease was primarily due to a $42,000 decrease in non-cash equity-based compensation and the overall reduction in the number of outside consultants.
Professional Fees
Professional fees fell $195,000 (69%) to $88,000 comparing the three months ended March 31, 2006 to the same period last year. Professional fees consist primarily of legal and accounting services.
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The decrease was due to decreases in patent litigation related expenditures ($74,000) due to the successful completion of several patent infringement actions in 2005, as well as decreases in auditing/accounting fees ($40,000), and decreases in fees to securities and general counsel attorneys ($81,000) due primarily to reduced activity related to the Company’s listing on the American Stock Exchange.
Clinical Trial Related Expenses
Clinical trial related expenses fell $466,000 (89%) to $58,000 comparing the three months ended March 31, 2006 to the same period last year. The Company completed the active phase of the trial in 2005 and in the first quarter of 2006 incurred only expenses associated with the close out of the trial. The Company does not expect to incur significant future expenditures related to this trial unless additional patient enrollment is requested by the FDA under their review of the Company’s 510(k) application.
General and Administrative Expenses
General and administrative expenses rose $10,000 (3%) to $372,000 comparing the three months ended March 31, 2006 to the same period last year. The increase was primarily due to an increase in non-cash equity-based compensation for the service providers and the board of directors ($61,000), partially offset by decreased travel related costs and American Stock Exchange filing fees.
Other Income/Expenses
Other income of $28,000 was generated during the three months ended March 31, 2006 compared to other expense of $204,000 during the same period last year.
The improvement was primarily attributable to a one time charge ($228,000) in 2005 recorded for the issuance of 65,000 shares of the Company’s Common stock in return for a full settlement and release of all claims from a lawsuit brought against the Company relating to its emergence from bankruptcy.
Liquidity and Capital Resources
In May 2006, the Company completed a Class D Warrant Offer whereby existing warrant holders committed to the exercise of certain outstanding warrants totaling $2.2 million in exchange for a predetermined amount of Class D Warrants. As of May 1, the Company had received $1.3 million under this offer. Per the Subscription Agreements, the remaining amounts are due by May 17, 2006.
The Company’s operating revenues do not cover the costs of its operations. The cash position of the Company at March 31, 2006, adjusted for the D Warrant Offering, was as follows:
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Cash on hand at March 31, 2006 | | $ | 2,465,428 | |
Total cash expected from D Warrant Subscription Agreements | | | 2,200,000 | |
Expected cash available for operations | | $ | 4,665,428 | |
With a significant decrease in planned expenditures relating to the clinical trial as compared to prior periods, increasing royalty revenues related to license agreements, and the proceeds expected from the Class D Warrant Offer, the Company believes that it will have adequate cash on hand to fund operations for the next twelve months. However, additional cash will be required if operating revenues do not materialize, the cost of operations increases, or the FDA requires the enrollment of additional patients to supplement the existing data from the clinical trial.
The Company has no material commitments for capital expenditures.
Because the Company was in bankruptcy in 2002, the Company may not be able to obtain debt financing. All working capital required to implement the Company’s business plan will be provided by funds obtained through offerings of its equity securities, and revenues generated by the Company.
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Prospects for the Future
Cytomedix’s success is directly dependent on the success of AutoloGelTM, which the Company believes has a very good chance for success in the marketplace.
In capitated environments, which are not sensitive to direct reimbursement for AutoloGelTM (e.g., long-term care, long-term acute care, home healthcare), the weekly use of AutoloGelTM saves much of the labor costs associated with daily and multiple dressing changes, while at the same time increasing the rate of healing. The Company believes that data from its retrospective studies and current reports from clinicians, and a higher wound healing rate as compared to an enhanced control as evidenced in its recently completed clinical trial, prove greater efficacy than any competing treatment with FDA approval or clearance. The Company expects that both the facility/agency providing the care as well as the wound patient will realize direct benefits from the use of AutoloGelTM. Cytomedix is actively pursuing this market, primarily through its distributor, NWT. The Company may expand its distributor relationships to increase the chances of broad penetration into this market.
In addition, the Company is aggressively addressing the reimbursement market. The Company believes that in order to capture a significant share of this market, it must first obtain a CMS reimbursement code. Obtaining this code may be more likely if FDA clearance is obtained. The Company submitted a 510(k) application for marketing clearance to the FDA in January 2006. The Company cannot predict whether clearance will be granted, but Cytomedix does believe that the high levels of safety and effectiveness indicated by the data from the clinical trial more than meet the level of “reasonable assurance of safety and effectiveness” and demonstrates substantial equivalence to the predicate devices. Furthermore, the Company is completing a pharmaco-economic study which it believes will demonstrate superior clinical safety and efficacy of AutoloGelTM as well as the cost-effectiveness as compared to alternative treatments. However, even if FDA clearance is obtained, there is no guarantee the Company will receive a CMS reimbursement code. If CMS reimbursement is obtained, it is more likely that reimbursement may be obtained from the various commercial third-party insurers as well, which will help facilitate broad penetration into the reimbursement market. The Company refers the reader to a more detailed discussion regarding the clinical trials and reimbursement earlier in this section under the headingReimbursement and Clearance.
The Company continues to meet its operational goals. It has completed its clinical trial which yielded favorable results and submitted a 510(k) application for marketing clearance to the FDA. Obtainment of FDA clearance would allow the Company to broadly market its product for specific indications as well as enhance its chances of obtaining a national reimbursement code from CMS. Cytomedix continues to maintain a very strong patent position in the platelet gel arena. The Company remains optimistic that AutoloGelTM offers a patent protected treatment that is superior in several ways to most, if not all, of its competition and furthermore believes that it has achieved several critical milestones that bring it closer to broad commercialization of AutoloGelTM.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not enter into financial instruments for speculation or trading purposes. In accordance with the Company’s investment policy, cash is to be invested in bank and institutional money market funds, or in T-Bills or short-term T-Notes. At March 31, 2006, the Company’s cash balance of $2.5 million was maintained primarily in bank and institutional money market accounts. These accounts are sensitive to changes in the general level of interest rates. Based on the Company’s cash balances at March 31, 2006, a 100 basis point increase or decrease in interest rates would have an approximately $25,000 impact on the Company’s annual interest income and net loss. Actual changes in rates may differ from the hypothetical assumption used in computing this exposure.
Item 4. Controls and Procedures
The Company’s CEO and CFO have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934). Based on their evaluation, they have concluded that as of March 31, 2006, the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by Cytomedix in its reports filed with the SEC is recorded, processed, summarized, and reported within the governing time periods.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
At present, the Company is not engaged in or the subject of any legal proceedings.
Item 1A. Risk Factors
There were no material changes from the risk factors as previously disclosed on the Company’s Form 10-KSB filed with the Securities and Exchange Commission for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company issued 42,033 shares of Common stock during the three months ended March 31, 2006. The following table lists the sources of and the proceeds from those issuances:
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Source | | # of Shares | | Proceeds |
Conversion of series A convertible preferred shares | | | 213 | | | $ | — | |
Exercise of class B warrants | | | 18,750 | | | $ | 28,125 | |
Exercise of other warrants | | | 23,070 | | | $ | 23,070 | |
Totals | | | 42,033 | | | $ | 51,195 | |
The Company has used the cash proceeds from these issuances for general corporate purposes. All shares were issued in private offerings exempt from registration pursuant to Section 4(2) of the Securities Act.
No dividends were declared or paid on the Company’s Common Stock in any of the periods discussed in this report. The Company does not anticipate paying cash dividends on its Common Stock in the foreseeable future, but instead will retain any earnings to fund growth. The Company is prohibited from declaring dividends on its Common Stock as long as any shares of Series A, B, or C convertible preferred stock are outstanding unless all accrued dividends on these classes of preferred stock have been paid. Once there are no shares of Series A, B, or C convertible preferred stock outstanding, any decision to pay cash dividends on the Common Stock will depend on the ability to generate earnings, the need for capital, the overall financial condition, and other factors the Board deems relevant.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders during the first quarter of 2006.
Item 5. Other Information
N/A
Item 6. Exhibits
The exhibits listed in the accompanying Exhibit Index are furnished as part of this report.
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SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CYTOMEDIX, INC.
| By: | /s/ Kshitij Mohan
Kshitij Mohan, CEO and Chairman of the Board of Directors |
Date: November 14, 2007
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Kshitij Mohan
Kshitij Mohan, CEO and Chairman of the Board of Directors |
Date: November 14, 2007
| By: | /s/ Andrew S. Maslan
Andrew S. Maslan, Chief Financial Officer and Chief Accounting Officer |
Date: November 14, 2007
Signed originals of this written statement have been provided to Cytomedix, Inc. and will be retained by Cytomedix, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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EXHIBIT INDEX
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Number | | Exhibit Table |
2.1 | | First Amended Plan of Reorganization with All Technical Amendments (Previously filed on June 28, 2002, on Form 8-K, File No. 000-28443). |
2.2 | | Amended and Restated Official Exhibits to the First Amended Plan of Reorganization of Cytomedix, Inc. with All Technical Amendments (Previously filed on May 10, 2004, on Form 10-QSB for the quarter ended March 31, 2004, File No. 000-28443). |
3.1 | | Restated Certificate of Incorporation of Cytomedix, Inc. (Previously filed on November 7, 2002, on Form 10-QSB for quarter ended June 30, 2001, File No. 000-28443). |
3.2 | | Amendment to Restated Certificate of Incorporation of Cytomedix, Inc. (Previously filed on November 15, 2004, on Form 10-QSB for quarter ended September 30, 2004, File No. 000-28443). |
3.3 | | Restated Bylaws of Cytomedix, Inc. (Previously filed on November 7, 2002, on Form 10-QSB for quarter ended June 30, 2001, File No. 000-28443). |
4.1 | | Amended and Restated Certificate of Designation of the Relative Rights and Preferences of Series A Preferred, Series B Preferred and common stock of Cytomedix, Inc. (Previously filed on March 31, 2004, on Form 10-KSB for year ended December 31, 2003, File No. 000-28443). |
4.2 | | Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible Stock of Cytomedix, Inc. as filed with the Delaware Secretary of State on March 25, 2004 (Previously filed on March 29, 2004 on Form 8-K, File No. 000-28443). |
4.3 | | Form of Class B Warrant issued to New Investors and DIP Lenders (Previously filed on December 5, 2002, on Form 10-QSB for quarter ended September 30, 2001, File No. 000-28443). |
4.4 | | Form of Series C-1 Warrant to Purchase Shares of common stock of Cytomedix, Inc. (Previously filed on March 29, 2004 on Form 8-K, File No. 000-28443.) |
4.5 | | Form of Series C-2 Warrant to Purchase Shares of common stock of Cytomedix, Inc. (Previously filed on March 29, 2004 on Form 8-K, File No. 000-28443). |
4.7 | | Form of warrant issued to investors in the 2004 Unit Offering (Previously filed on May 11, 2004, on Form SB-2, File No. 333-115364). |
10.1 | | Royalty Agreement, dated as of December 26, 2000, by and between Cytomedix, Inc. and Curative Health Services, Inc. (Previously filed on January 17, 2001, on Form 8-K, File No. 000-28443). |
10.2 | | First Amendment to Royalty Agreement, dated as of April 20, 2001, by and between Cytomedix, Inc. and Curative Health Services, Inc. (Previously filed on May 25, 2001, on SB-2/A, File No. 333-55818). |
10.3 | | Second Amendment to Royalty Agreement, dated as of December 5, 2002, by and between Cytomedix, Inc. and Curative Health Services, Inc. (Previously filed on March 31, 2003, on Form 10-KSB for year ended December 31, 2002, File No. 000-28443). |
10.4 | | Cytomedix, Inc. Long-Term Incentive Plan (Previously filed on November 7, 2002, on Form 10-QSB for quarter ended June 30, 2001, File No. 000-28443). |
10.5 | | License Agreement dated March 21, 2001, by and between Cytomedix, Inc. and DePuy AcroMed, Inc. (Previously filed on April 16, 2001, on Form 10-KSB for year ended December 31, 2000, File No. 000-28443). |
10.6 | | Amendment dated March 3, 2005, to the License Agreement by and between Cytomedix, Inc. and DePuy Spine, Inc. (f/k/a DePuy Acromed, Inc.) (Previously filed on March 31, 2005, on Form 10-KSB for year ended December 31, 2004, File No. 000-28443). |
10.7 | | Second License Agreement dated March 3, 2005, to the License Agreement by and between Cytomedix, Inc. and DePuy Spine, Inc. (f/k/a DePuy Acromed, Inc.) (Previously filed on March 31, 2005, on Form 10-KSB for year ended December 31, 2004, File No. 000-28443). |
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Number | | Exhibit Table |
10.8 | | Settlement and License Agreement dated May 1, 2005 by and between Cytomedix, Inc. and Medtronic, Inc. (Previously filed on May 10, 2005, on Form 8-K, File No. 000-28443). |
10.9 | | Settlement Agreement and License Agreement dated May 23, 2005, by and between Cytomedix, Inc., and Harvest Technologies Corporation (Previously filed on May 27, 2005, on Form 8-K, File No. 000-28443). |
10.10 | | Settlement and License Agreement dated June 26, 2005, by and between Cytomedix, Inc., and Perfusion Partners and Associates Inc. (Previously filed on August 15, 2005, on Form 10-QSB for the quarter ended June 20, 2005, File No. 000-28443). |
10.11 | | License Agreement dated October 7, 2005, by and between Cytomedix, Inc., and COBE Cardiovascular, Inc. (Previously filed on October 11, 2005, on Form 8-K, File No. 000-28443). |
10.12 | | Settlement and License Agreement dated October 12, 2005, by and between Cytomedix, Inc., and SafeBlood Technologies, Inc. (Previously filed on November 9, 2005, on Form 10-QSB, File No. 000-28443). |
10.13 | | Employment Agreement with Ms. Carelyn P. Fylling (Previously filed on December 5, 2002, on Form 10-QSB for quarter ended September 30, 2001, File No. 000-28443). |
10.14 | | Employment Agreement with Kshitij Mohan, Ph.D., dated April 20, 2004 (Previously filed on May 7, 2004, on Form 8-K, File No. 00028443). |
10.15 | | Employment Agreement dated June 3, 2005, by and between Cytomedix, Inc., and Andrew Maslan (Previously filed on June 20, 2005, on Form 8-K, File no. 000-28443). |
10.16 | | Distributor Agreement dated October 31, 2005 by and between Cytomedix, Inc. and National Wound Therapies, LLC. (Previously filed on March 23, 2006, on Form 10-KSB, File No. 001-32518) |
20.1 | | Definitive Proxy Statement (Previously filed on September 16, 2005, File No. 000-28443). |
31.1 | | Certification of Chief Executive Officer of Cytomedix, Inc., pursuant to Rule 13a-14(a)/15d-14. |
31.2 | | Certification of Chief Financial Officer of Cytomedix, Inc., pursuant to Rule 13a-14(a)/15d-14. |
32.1 | | Certificate of Chief Executive Officer of Cytomedix, Inc., pursuant to 18 U.S.C.ss.1350. |
32.2 | | Certificate of Chief Financial Officer of Cytomedix, Inc., pursuant to 18 U.S.C.ss.1350. |
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