UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 0-28443
-------
Cytomedix, Inc.
---------------
(Exact name of small business issuer as specified in its charter)
Delaware 23-3011702
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1523 South Bowman Rd., Suite A, Little Rock, AR 72211
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (501) 219-2111
-------------------------------------------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 12, 2003: 12,541,639 shares of Common Stock, $.0001 par
value
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
CYTOMEDIX, INC.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements. Page 1
Item 2. Management's Discussion and Analysis or Plan of Operation. Page 13
Overview of Business Page 13
Results of Operations Page 14
Liquidity and Capital Resources as of June 30, 2003 Page 16
Risk Factors Page 17
Prospects for the Future Page 21
Item 3. Controls and Procedures. Page 22
PART II
Item 1. Legal Proceedings. Page 22
Item 2. Changes in Securities. Page 24
Outstanding Common Stock and Dividends Page 24
Issuance of Non-Registered Securities in
Second Quarter of 2003 Page 24
Issuance of Non-Registered Securities Subsequent
to Second Quarter of 2003 Page 25
Item 4. Submission of Matters to a Vote of Security Holders. Page 25
Item 6. Exhibits and Reports on Forms 8-K. Page 25
Signatures Page 25
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Cytomedix, Inc.
(A Development Stage Entity)
Condensed Balance Sheets
ASSETS
------
Successor Company
--------------------------------
June 30, December 31,
2003 2002
----------- -----------
(Unaudited) (Audited)
Current assets
Cash $ 1,020,418 $ 945,298
Receivables 193,905 238,273
Prepaid expenses, other current assets and inventory 206,058 255,967
----------- -----------
Total current assets 1,420,381 1,439,538
Cash - restricted 20,305 20,000
Property and equipment, net 275,317 312,706
Intangibles 4,295,308 4,358,465
Other assets 40,250 23,000
----------- -----------
$ 6,051,561 $ 6,153,709
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable and accrued expenses $ 653,422 $ 745,124
Deferred revenue 81,448 81,448
Note payable 55,356 37,054
----------- -----------
Total current liabilities 790,226 863,626
----------- -----------
Long-term liabilities
Dividends payable on Series A and Series B preferred stock 221,512 110,759
Deferred revenue 478,507 519,230
----------- -----------
Total long-term liabilities 700,019 629,989
----------- -----------
Total liabilities 1,490,245 1,493,615
----------- -----------
Commitments and contingencies
Stockholders' equity
Series A Convertible preferred stock; $.0001 par value, $1.00 liquidation
value, authorized 5,000,000 shares; at 2003 issued - 1,359,067 shares,
issuable - 6,855 shares; at 2002 issued - 759,760
shares, issuable - 606,163 shares 137 137
Series B Convertible preferred stock; $.0001 par value, $1.00
liquidation value, authorized 5,000,000 shares; at 2003 issued -
1,402,650 shares; at 2002 issued - 1,224,034 shares, issuable -
178,616 shares 140 140
Common stock; $.0001 par value, authorized 40,000,000 shares; at
2003 issued - 11,103,772 shares, issuable - 877,936 shares; at
2002 issued - 10,070,173 shares, issuable - 649,104 shares 1,203 1,073
Additional paid-in capital 9,446,816 6,942,297
Deferred compensation (869,371) (155,833)
Deficit accumulated in the development stage (4,017,609) (2,127,720)
----------- -----------
Total stockholders' equity 4,561,316 4,660,094
----------- -----------
$ 6,051,561 $ 6,153,709
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements.
1
Cytomedix, Inc.
(A Development Stage Entity)
Condensed Statements of Operations - Unaudited
Successor Successor Successor Predecessor Predecessor
Company Company Company Company Company
------------- ------------- ------------- ------------- -------------
Three Months Six Months July 1, 2002 Three Months Six Months
Ended Ended Through Ended Ended
June 30, 2003 June 30, 2003 June 30, 2003 June 30, 2002 June 30, 2002
------------- ------------- ------------- ------------- -------------
Revenue
Sales $ 80,540 $ 124,515 $ 458,345 $ 90,250 $ 117,500
Royalties 180,357 381,165 713,518 166,530 309,770
------------ ------------ ------------ ------------ ------------
Total revenue 260,897 505,680 1,171,863 256,780 427,270
------------ ------------ ------------ ------------ ------------
Cost of revenue
Cost of sales 46,039 72,599 134,646 11,088 16,073
Cost of royalties 147,687 313,399 579,133 122,887 234,376
------------ ------------ ------------ ------------ ------------
Total cost of revenue 193,726 385,998 713,779 133,975 250,449
------------ ------------ ------------ ------------ ------------
Gross profit 67,171 119,682 458,084 122,805 176,821
------------ ------------ ------------ ------------ ------------
Operating expenses
Salaries and wages 230,066 457,458 854,440 150,319 285,906
Consulting expense 382,318 435,153 667,596 58,178 74,178
Consulting expense - related party 94,664 136,664 455,216 -- --
Professional fees 231,839 411,944 1,170,630 94,123 189,201
Royalty expense - related party 18,626 39,176 76,676 18,750 37,500
General and administrative expenses 216,368 422,611 1,035,315 295,345 492,264
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,173,881 1,903,006 4,259,873 616,715 1,079,049
------------ ------------ ------------ ------------ ------------
Loss from operations (1,106,710) (1,783,324) (3,801,789) (493,910) (902,228)
------------ ------------ ------------ ------------ ------------
Other (income) expense
Interest expense 144 163 22,988 190,330 355,969
Interest and other income (2,984) (4,352) (28,681) (5,657) (6,352)
------------ ------------ ------------ ------------ ------------
Total other (income) expense, net (2,840) (4,189) (5,693) 184,673 349,617
------------ ------------ ------------ ------------ ------------
Net loss from continuing operations (1,103,870) (1,779,135) (3,796,096) (678,583) (1,251,845)
Reorganization item:
Professional fees -- -- -- 278,403 489,690
Consulting - related party -- -- -- 45,473 119,526
------------ ------------ ------------ ------------ ------------
Net loss Before extraordinary items (1,103,870) (1,779,135) (3,796,096) (1,002,459) (1,861,061)
------------ ------------ ------------ ------------ ------------
Extraordinary gain on discharge of
prepetition liabilities -- -- -- 9,306,192 9,306,192
------------ ------------ ------------ ------------ ------------
Net income (loss) (1,103,870) (1,779,135) (3,796,096) 8,303,733 7,445,131
Preferred dividend on Series A and B
preferred stock 55,375 110,754 221,513 -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) to common
stockholders $ (1,159,245) $ (1,889,889) $ (4,017,609) $ 8,303,733 $ 7,445,131
============ ============ ============ ============ ============
Basic and diluted income (loss)
per common share $ (.10) $ (.17) $ 0.65 $ 0.58
============ ============ ============ ============
Weighted average shares outstanding 11,198,869 11,026,280 12,800,598 12,746,482
============ ============ ============ ============
The accompanying notes are an integral part of
these condensed financial statements.
2
Cytomedix, Inc.
(A Development Stage Entity)
Condensed Statements of Cash Flows - Unaudited
Successor Successor Predecessor
Company Company Company
----------- ------------- -----------
Six Months July 1, 2002 Six Months
Ended (Inception) Ended
June 30, Through June 30,
2003 June 30, 2003 2002
----------- ------------- -----------
Cash Flows from operating activities $(1,094,950) $(3,039,816) $ (639,316)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment (1,250) (306,121) (28,724)
----------- ----------- -----------
Net cash used in investing activities (1,250) (306,121) (28,724)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowings -- -- 587,500
Commissions on new money raised paid in cash -- (57,213) --
Proceeds from sale of common stock, net of offering costs 1,205,000 4,425,502 --
Repayment of note payable (33,375) (85,484) --
----------- ----------- -----------
Net cash provided by financing activities 1,171,625 4,282,805 587,500
----------- ----------- -----------
Net increase (decrease) in cash 75,425 936,868 (80,540)
Cash, beginning of period 965,298 103,855 184,395
----------- ----------- -----------
Cash, end of period $ 1,040,723 $ 1,040,723 $ 103,855
=========== =========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
3
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been prepared
by Cytomedix. Inc. (the "Company" and "Cytomedix"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. The
financial statements reflect all adjustments that are, in the opinion of
management, necessary to fairly present such information. All such adjustments
are of a normal recurring nature. Although the Company believes that the
disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including a description of
significant accounting policies normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America, have been condensed or omitted pursuant to such rules
and regulations.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's 2002 Annual Report on
Form 10-KSB filed with the Securities and Exchange Commission. The results of
operations for interim periods are not necessarily indicative of the results for
any subsequent quarter or the entire fiscal year ending December 31, 2003.
Cytomedix is a development stage enterprise, and accordingly, certain additional
financial information is required to be included in the condensed financial
statements from the adoption of fresh-start accounting to the date of this
balance sheet.
Basic and diluted net loss per share was calculated based upon the net loss
available to common shareholders divided by the weighted average number of
shares of common stock outstanding during the period. Shares associated with
stock options, stock warrants, and convertible preferred stock are not included
because the inclusion would be anti-dilutive (i.e., reduce the net loss per
share). The total numbers of such shares excluded from diluted net loss per
common share are 13,149,965 and 6,065,835 at June 30, 2003 and 2002,
respectively.
The Company follows the provisions of SFAS No. 123 as amended by SFAS 148. As
permitted under SFAS No. 123, the Company has continued to utilize APB 25 in
accounting for its stock-based compensation to employees. Had compensation
expense for the quarters ended June 30, 2003 and 2002 been determined under the
fair value provisions of SFAS No. 123, as amended by SFAS 148, the Company's net
loss and net loss per share would have differed as follows:
Successor Predecessor
Company Company
-------------------------------- ---------------------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, 2003 June 30, 2003 June 30, 2002 June 30, 2002
------------- ------------- ------------- -------------
Net income (loss) to common stockholders,
as reported $(1,159,245) $(1,889,889) $ 8,303,733 $ 7,445,131
Add: Stock-based employee compensation
expense included in reported net loss
determined under APB No. 25,
net of related tax effects -- -- -- --
Deduct: Total stock-based employee
compensation expense determined under
fair-value-based method for all awards,
net of related tax effects -- 42,499 -- --
----------- ----------- ------------- -------------
Pro forma net income (loss) $(1,159,245) $(1,932,388) $ 8,303,733 $ 7,445,131
----------- ----------- ------------- -------------
Earnings per share:
Basic and diluted - as reported $ (0.10) $ (0.17) $ 0.65 $ 0.58
Basic and diluted - pro forma $ (0.10) $ (0.18) $ 0.65 $ 0.58
4
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 1 - BASIS OF PRESENTATION (Continued)
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be issued in future years. The
estimated fair value of each option granted was calculated using the
Black-Scholes option pricing model. The following summarizes the weighted
average of the assumptions used in the model.
Successor Predecessor
Company Company
------------- -------------
Six Months Six Months
Ended Ended
June 30, 2003 June 30, 2002
------------- -------------
Risk free rate 3.96% N/A
Expected years until exercise 10 N/A
Expected stock volatility 100.00% N/A
Dividend yield N/A N/A
============= =============
Pursuant to the guidance provided by Statement of Position ("SOP") 90-7 the
Company adopted fresh-start accounting (see Note 5) upon emergence from
bankruptcy. As a result of fresh-start reporting, the Company reflected the
disposition of its pre-petition debt and changes in its equity structure
effected under the Company's First Amended Plan of Reorganization (the "Plan")
in its balance sheet as of June 30, 2002 (the effective date of the consummation
of the plan for accounting purposes). Accordingly, all financial statements
prior to July 1, 2002 (except for the June 30, 2002 balance sheet) are referred
to as the "Predecessor Company" as they reflect the periods prior to the
implementation of the fresh-start reporting and are not comparable to the
financial statements for periods after the implementation of fresh-start
reporting. The balance sheets as of June 30, 2003 and December 31, 2002 and the
financial statements for periods subsequent to June 30, 2002, are referred to as
the "Successor Company." Under fresh-start reporting, the Company's assets and
liabilities were adjusted to their fair values, and a reorganization value for
the entity was determined by the Company based upon the estimated fair value of
the enterprise before considering values allocated to debt to be settled in the
reorganization.
NOTE 2 - DESCRIPTION OF BUSINESS
NATURE OF OPERATIONS
Cytomedix, Inc. is a biotechnology company whose business model is premised upon
developing, producing, and licensing autologous cellular therapies (i.e.,
therapies using the patient's own body products) for the treatment of chronic
non-healing wounds using propriety platelet gel and related product therapies.
To create the proprietary platelet gel product, the patient's own platelets and
other essential blood components for the healing process are separated through
centrifugation and formed into a gel (the "AutoloGel(TM)") that is topically
applied to a wound under the direction of a physician. The Company's
headquarters are in Little Rock, Arkansas.
NOTE 3 - GOING CONCERN
The Company incurred a net loss of $1,889,889 during the six-month period ended
June 30, 2003. Included in the calculation of net loss were non-cash preferred
stock dividends totaling $110,754.
The Company anticipates that the cash on-hand at June 30, 2003 together with the
proceeds from private placements subsequent to June 30, 2003 and expected
revenues will be sufficient to finance its currently anticipated needs for
operating and capital expenditures to the first quarter of 2004.
5
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 3 - GOING CONCERN (Continued)
Consequently, the aforementioned items raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. Continuing as a going concern is dependent
upon successfully obtaining additional working capital as described above. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets and amounts
and classifications of liabilities that might result from the outcome of this
uncertainty.
Management plans to address the negative cash flow and projected cash shortage
by increasing sales and raising capital through a private offering of the
Company's common stock. To increase sales, management is in the process of
implementing a network of independent sales representatives with wound care
experience who will focus on niche markets in chronic wound care.
The Company's ability to continue as a going concern is dependent upon the
Company's success in increasing revenues and raising capital through equity
financing. There can be no assurance that the Company will successfully raise
the required future financing on terms desirable to the Company or that sales of
AutoloGel(TM) will increase substantially.
NOTE 4 - REORGANIZATION ITEMS
In accordance with SOP 90-7, the Company has recorded all transactions incurred
as a result of the bankruptcy filings as reorganization items. A summary of the
principal categories of reorganization items follows:
Predecessor
Company
-------------
Six Months
Ended
June 30, 2002
-------------
Professional fees $ 489,690
Consulting - related party 119,526
---------
$ 609,216
=========
NOTE 5 - FRESH-START ACCOUNTING
In accordance with the provisions of AICPA SOP 90-7, the Company adopted
fresh-start reporting upon confirmation of the Plan. For financial reporting
purposes, the effective date of the adoption of fresh-start reporting was
considered to be June 30, 2002, although the Company's confirmation date was
July 11, 2002. The results of operations from July 1 to July 11, 2002 were not
significant. The financial statements for the Company for the periods subsequent
to June 30, 2002 are referred to as the financial statements of the "Successor
Company" and are not comparable to those for the periods prior to June 30, 2002,
which are referred to as the financial statements of the "Predecessor Company."
As of the effective date of the Plan, all of the Company's securities were
cancelled and of no further force or effect. Securities outstanding prior to the
effective date of the Plan are identified as Existing or Predecessor Company
securities. Securities issued upon or after the Effective Date are identified as
New or Successor Company securities.
6
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 5 - FRESH-START ACCOUNTING (Continued)
The Company adopted fresh-start reporting because, as a result of implementation
of the Plan, holders of the Company's Existing common stock immediately before
confirmation of the Plan retained less than 50% of the New common stock and the
Company's reorganization value at confirmation was less than its post-petition
liabilities and allowed claims as shown below:
Post-petition liabilities $ 1,524,973
Liabilities deferred pursuant to Chapter 11 proceedings 9,705,520
-----------
Total post-petition liabilities and allowed claims 11,230,493
Less: reorganization value 5,000,000
-----------
Excess of liabilities over reorganization value $ 6,230,493
===========
Under fresh-start reporting, the Company's assets and liabilities were adjusted
to fair values and the effects of the Plan were recorded. A reorganization value
for the total assets was determined by the Company based upon the estimated fair
value of the enterprise before considering values allocated to debt settled in
the reorganization. The portion of the reorganization value which was not
attributed to specific tangible or identified intangible assets for the
Successor Company was referred to as reorganization value in excess of amounts
allocable to identifiable assets in the financial statements and will be treated
similar to goodwill. The adjustment of assets and liabilities to fair values was
included in net reorganization expense in the financial statements at June 30,
2002.
Consequently, the Successor Company had no accumulated deficit as of July 1,
2002. The reorganization value in excess of amounts allocable to identifiable
assets recognized in fresh-start reporting will not be amortized, but will be
reviewed annually for impairment in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Tangible Assets."
Future impairment of the excess reorganization value may result if actual
results of operations or changes in economic or industry conditions differ
significantly from assumptions used to derive the reorganization value.
The reorganization value of the Company on the effective date of the Plan was
established at $5,000,000 based upon a calculation of discounted cash flows
under the Company's financial projections and trading multiples of comparable
companies. The valuation was based upon a number of estimates and assumptions,
which are inherently subject to significant uncertainties and contingencies
beyond the Company's control. Accordingly, there can be no assurance that the
values reflected in the valuation will be realized, and actual results could
vary materially. Moreover, the value of our New common stock, as traded in the
over-the-counter market and quoted on the OTC Bulletin Board may differ
materially from the reorganization valuation.
The following reconciliation of the Predecessor Company's balance sheet as of
June 30, 2002 to that of the Successor Company as of June 30, 2002 was prepared
to present the adjustments that give effect to the reorganization and
fresh-start reporting.
The adjustments entitled "Reorganization Plan" and "Conversion of Liabilities
Not Subject to Compromise" reflect the consummation of the Plan, including the
elimination of existing liabilities subject to compromise, liabilities not
subject to compromise, Existing Series A Preferred Stock, Existing Common Stock
and Existing Series B Preferred Stock. Also recorded was the New common and
preferred stock which was issuable under the Plan.
The adjustments entitled "Fresh-Start Adjustments" reflect the adoption of
fresh-start reporting, including the adjustments to record property and
equipment and identifiable intangible assets at their fair values and to reflect
the aforementioned $5,000,000 reorganization value, which includes the
establishment of approximately $2,000,000 of reorganization value in excess of
amounts allocable to net identifiable assets. The assets and liabilities have
been recorded at their fair values based on a preliminary allocation. Management
estimated the fair values of the Company's assets and liabilities by utilizing
both independent appraisals and commonly used discounted cash flow valuation
methods. A reconciliation of fresh-start accounting recorded as of June 30,
2002, is as follows:
7
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 5 - FRESH-START ACCOUNTING (Continued)
Predecessor Conversion of Successor
Company Reorgani- Liabilities Not Company
------------ zation Fresh-Start Subject to -------------
June 30,2002 Plan Adjustments Compromise June 30, 2002
------------ ------------ ------------ ------------ -------------
Current assets:
Cash and cash equivalents $ 103,855 $ -- $ -- $ -- $ 103,855
Receivables and prepaid expenses and
other current assets 375,631 -- -- -- (a) 375,631
Note receivable - related party 5,500 (5,500) -- -- --
Inventory 8,796 -- -- -- 8,796
------------ ------------ ------------ ------------ ------------
Total current assets 493,782 (5,500) -- -- 488,282
Property and equipment, net 27,095 -- -- -- 27,095
Intangibles 603,488 -- 1,796,512 -- (b) 2,400,000
Prepaid expenses and deposits 63,000 -- -- -- 63,000
Reorganization value in excess of
amounts allocable to identifiable assets -- -- 2,021,623 -- (c) 2,021,623
------------ ------------ ------------ ------------ ------------
$ 1,187,365 $ (5,500) $ 3,818,135 $ -- $ 5,000,000
============ ============ ============ ============ ============
Current liabilities
Short-term borrowings and current
portion of long-term debt 800,000 -- -- -- 800,000
Accounts payable and accrued expenses 1,471,357 220,880 -- 142,979 (d) 1,835,216
Deferred revenue 85,198 -- -- -- 85,198
------------ ------------ ------------ ------------ ------------
Total current liabilities 2,356,555 220,880 -- 142,979 2,720,414
Long-term liabilities -- --
Liabilities not subject to compromise 173,920 -- -- (173,920) (e) --
Liabilities subject to compromise 7,906,600 (7,906,600) -- -- (f) --
Deferred revenue 559,956 -- -- -- 559,956
------------ ------------ ------------ ------------ ------------
Total long-term liabilities 8,640,476 (7,906,600) -- (173,920) 559,956
------------ ------------ ------------ ------------ ------------
Total liabilities 10,997,031 (7,685,720) -- (30,941) 3,280,370
------------ ------------ ------------ ------------ ------------
Mandatorily Series A Preferred stock 1,625,000 (1,625,000) -- -- --
Stockholders' equity (deficit):
Successor company Series A Preferred -- 137 -- -- (g) 137
stock
Successor company Series B Preferred -- 140 -- -- (g) 140
stock
Predecessor company Series B
Preferred stock 512 (512) -- -- --
Successor company common stock -- 543 -- 3 (g) 546
Predecessor company common stock 1,281 (1,281) -- -- (g) --
Additional paid-in capital 51,258,907 -- (49,571,038) 30,938 (g) 1,718,807
Accumulated deficit (62,695,366) 9,306,193 53,389,173 -- (g) --
------------ ------------ ------------ ------------ ------------
Total stockholders equity (deficit) (9,809,666) 7,680,220 3,818,135 30,941 (g) 1,719,630
------------ ------------ ------------ ------------ ------------
$ 1,187,365 $ (5,500) $ 3,818,135 $ -- $ 5,000,000
============ ============ ============ ============ ============
8
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 5 - FRESH-START ACCOUNTING (Continued)
Explanation of Adjustments
(a) Reflects the reclassification of note receivable - related party which was
used to offset a portion of the liabilities subject to compromise
(b) Reflects the adjustment of the intangible to fair value which was
determined by an independent valuation
(c) Reflects the establishment of reorganization value in excess of amounts
allocable to identifiable assets determined by an independent valuation
(d) Reflects the liability set up by the Company to pay the liabilities
subject to compromise and the liabilities not subject to compromise at the
determined amounts
(e) Reflects the reclassification of the liabilities not subject to compromise
to the new liability and a portion of the liabilities not subject to
compromise to be paid in stock
(f) Reflects the reclassification of the liabilities subject to compromise to
either the new liability for the portion to be paid in cash or to the New
common stock and New preferred stock for the portion to be paid by the
issuance of stock
(g) Reflects the cancellation of the Predecessor Company's Existing common
stock, Existing options and warrants, Existing Preferred stock,
accumulated deficit as of June 30, 2002, and the issuance of New common
stock and New Series A Convertible Preferred stock and New Series B
Convertible Preferred stock which was issuable.
NOTE 6 - CAPITAL STOCK ACTIVITY
During the six months ended June 30, 2003, the Company issued 1,262,431 shares
of common stock.
The Company received $177,500 of additional monies in the original private
placement commenced in connection with the Plan and issued 177,500 shares of
common stock, 44,375 Class A warrants and 26,625 Class B warrants before closing
the private placement in April 2003.
On June 4, 2003, the Company initiated a new private offering at $1.25 per share
to provide the Company with working capital to implement a new business plan and
to fund the Company's prospective clinical trials. As of June 30, 2003, the
Company received subscription agreements under the new private placement
totaling $1,050,000 and issued 840,000 shares of common stock.
On May 29, 2003, the Company issued 25,500 shares of common stock for
commissions on monies raised in the private placement terminated in April 2003.
On June 24, 2003, the Company issued 15,000 shares of common stock for
commission on monies raised in the new private placement.
9
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 6 - CAPITAL STOCK ACTIVITY (Continued)
On March 5, 2003, the Company issued an aggregate of 105,076 shares of common
stock to its attorneys at Robert F. Coleman & Associates in consideration for
legal services rendered during the period September 1, 2002 through December 31,
2002. The value of these services amounted to $105,076. The Company had an
agreement to pay its attorneys at Robert F. Coleman & Associates two-thirds of
their legal fees in shares of common stock with all expenses being paid in cash.
On March 5, 2003, the Company issued stock to pay its legal bills in the
following manner: 39,261 shares for legal fees provided in September 2002,
20,623 shares for legal fees provided in October 2002, 25,457 shares for legal
fees provided in November 2002, and 19,735 shares for legal fees provided in
December 2002. On June 19, 2003, the Company issued an additional 68,318 shares
of common stock to Robert F. Coleman & Associates in consideration for legal
services rendered during the period of January 1, 2003 through March 31, 2003 as
follows: 20,714 shares for legal fees provided in January 2003, 22,152 shares
for legal fees provided in February 2003, and 25,452 shares for legal fees
provided in March 2003. The value of these services amounted to $91,169.
On June 19, 2003, the Company issued 31,037 shares of common stock to the
Company's attorney Cummins & Cronin, LLC for legal services rendered October 1,
2002 through March 31, 2003 as follows: 6,997 shares for legal fees provided in
October 2002, 2,807 shares for legal fees provided in November 2002, 5,963
shares for legal fees provided in December 2002, 1,267 shares for legal fees
provided in January 2003, 3,020 shares for legal fees provided in February 2003,
and 10,983 shares for legal fees provided in March 2003. The value of these
services amounted to $15,540. The Company has agreed to pay Cummins & Cronin,
LLC two-thirds of their legal fees in shares of common stock with all expenses
being paid in cash. Subsequent to the first quarter of 2003, the Company no
longer utilized these services.
NOTE 7- LONG -TERM INCENTIVE PLAN
On February 4, 2003, the Board of Directors resolved to grant stock options to
three employees under the Company's Long-Term Incentive Plan. The Company
granted an aggregate of 80,000 stock options with an exercise price of $1.50 per
share, with immediate vesting and an exercise period of 10 years from the date
of issue.
NOTE 8 - DEFERRED COMPENSATION
On April 1, 2003, the Company entered into a consulting agreement with
Nadine C. Smith (the "Consultant") to provide consulting services for a period
of twelve months. The Consultant will receive $125,000 per annum paid monthly as
compensation for providing consulting services to the Company. The Consultant
was also issued a warrant to purchase 1,000,000 shares of the Company's common
stock at an exercise price of $1.00. The first 500,000 shares vested upon
signing and are exercisable immediately and the remaining 500,000 shares vested
and are exercisable after the first anniversary date of the issuance unless the
consulting agreement is terminated by the Company for cause. This warrant
expires on April 1, 2010. The Company has recorded deferred compensation of
$902,600 in relation to this agreement and expensed $225,630 of the deferred
compensation through June 30, 2003 as a non-cash charge to the Company. In
connection with the warrant, the Company has agreed to provide certain
registration rights.
During the second quarter 2003, the Company entered into various sales
representative agreements in which the representatives received an option
representing the right to purchase an aggregate of 3,500 Shares of Common Stock
at an excercise price of $1.50. These options vest immediately. The agreements
provide for future options being granted contingent on quarterly sales. Deferred
compensation of $2,776 was recorded of which $357 was expensed through June 30,
2003 as a non-cash charge to the Company.
10
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 8 - DEFERRED COMPENSATION (Continued)
As of June 30, 2003, the non-vested shares of common stock in the warrant
granted BDR, Inc. were revalued per the Black-Scholes analysis and an additional
$134,000 of deferred compensation was recorded, of which $55,666 was expensed
for the quarter as a non-cash charge to the Company for consulting expense.
NOTE 9 - RELATED PARTY TRANSACTIONS
BDR Inc. is affiliated with BDR Investment LLC through common ownership. The
principal in both entities, Jimmy D. Swink, Jr., provided consulting services to
the Company amounting to $136,664 and $119,526 for the six months ended June 30,
2003 and 2002, respectively. The consulting expense consisted of monthly
payments of $9,000 and amortization of deferred compensation expense arising out
of options issued to BDR Consulting Inc.
The Carmen Group, Inc. was engaged during the second quarter 2003 as a business
consultant to strategically position and represent the Company before the
federal government. A director of the Company is also a senior consultant with
the Carmen Group, Inc. As of June 30, 2003, the Company paid the Carmen Group,
Inc. $5,160 for services performed.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Post-Bankruptcy Commitments and Contingencies
Under the Plan the Predecessor Company's Existing Series A Preferred stock and
the dividends accrued on the Series A Preferred stock are exchanged into one
share of New common stock for every five shares of Existing Series A Preferred
shares held as of the effective date of the plan. This exchange is contingent on
the successor Company's attaining aggregate gross revenues for four consecutive
quarters of at least $10,000,000.
We outsource the manufacturing of AutoloGel(TM) process kits to Tri-State
Hospital Supply Corporation. Under a purchase agreement dated August 1, 2002,
Cytomedix agreed to purchase kits in pre-established usage levels. Should the
Company terminate the 36-month agreement, it is required to purchase unique
components and finished goods inventory up to a maximum amount of approximately
$50,000.
NOTE 11 - RECLASSIFICATION
For comparability purposes, certain figures for the 2002 and cumulative periods
have been reclassified where appropriate to conform with the financial statement
presentation used in 2003. These reclassifications had no effect on the reported
net loss.
NOTE 12 - SUBSEQUENT EVENTS
On July 30, 2003, Cytomedix entered into an agreement with Fitch, Evan, Tabin,
and Flannery, Attorneys("Fitch"), of Chicago. Fitch will provide litigation and
licensing legal representation of a straight contingency basis with respect to
certain litigation and licensing matters relating to the Company's intellectual
property utilized in connection with the AutoloGel Process(TM).
11
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Condensed Financial Statements
NOTE 12 - SUBSEQUENT EVENTS (Continued)
From July 1 through August 15, 2003, an additional $1,074,000 was raised under
the new private placement with 859,200 shares of common stock issued or
immediately issuable.
On August 1, 2003, the Company entered into an additional sales agreement. The
representative was granted options representing the right to purchase 500 shares
of common stock. These options vest immediately exercisable at the fair market
value at the date of the agreement. The agreement also provides for future
options being granted contingent on quarterly sales goals.
12
Item 2. Management's Discussion and Analysis.
The terms "Cytomedix" and the "Company," as used in this quarterly report,
refer to Cytomedix, Inc. The following discussion and analysis should be read in
conjunction with the financial statements, including notes thereto, filed under
Item 1 of this report. The Company's financial condition and results of
operation are not intended to be indicative of future performance.
In addition to the historical information included in this report, you are
cautioned that this Form 10-QSB contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. When the words
"believes," "feels," "plans," "anticipates," "will likely result," "will
continue," "projects," "expects," and similar expressions are used in this Form
10-QSB, they are intended to identify "forward-looking statements," and such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Furthermore, the
Company's plans, strategies, objectives, expectations and intentions are subject
to change at any time at the discretion of management and the Board.
These forward-looking statements speak only as of the date this report is
filed. The Company does not intend to update the forward-looking statements
contained in this report, so as to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events, except as may
be reported in the Company's ongoing periodic reports filed with the Securities
and Exchange Commission.
The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with management's
discussion and analysis of financial condition and results of operations
included in the Company's Form 10-KSB for the year ended December 31, 2002.
OVERVIEW OF BUSINESS
Cytomedix, Inc. is a biotechnology company incorporated in Delaware with
its principal offices in Arkansas. Its business model is premised upon
developing, producing, licensing, and distributing autologous cellular therapies
(i.e., therapies using the patient's own body products), including Cytomedix's
proprietary platelet rich plasma gel (hereinafter, "AutoloGel(TM)") for the
treatment of chronic, non-healing wounds. To create AutoloGel(TM), the patient's
own platelets and other essential blood components for the healing process are
separated through centrifugation and formed into a gel that is topically applied
to a wound (under the direction of a physician) ("The AutoloGel Process(TM)").
In the past, the Company marketed The AutoloGel Process(TM) through
in-house personnel. The Company, however, has changed its marketing strategy by
retaining a carefully chosen network of independent sales representatives with
knowledge and relationships within the wound care sector to market
AutoloGel(TM). These independent representatives are not paid a salary, but
instead are paid a commission percentage on each AutoloGel(TM) Process kit they
sell. This is a new marketing strategy, and the Company cannot guarantee its
effectiveness.
The Company is planning and implementing strategies to meet each of the
requirements that are necessary for submitting and obtaining a national Medicare
reimbursement code for AutoloGel(TM). The process is multi-faceted, time
intensive, and expensive. In order to obtain a national reimbursement code, the
Company will need to initiate a multi-site, randomized and prospective clinical
trial ("Trial" and "Trials") to potentially prove the safety and efficacy of
AutoloGel(TM). In order to obtain the funds necessary to perform the Trials, the
Company commenced a private offering of its Common Stock in June 2003. The
ultimate goals of the Trials are (1) to gain from the United States Food and
Drug Administration ("FDA") approval for AutoloGel(TM), and (2) to provide
sufficient data as is necessary to obtain Medicare reimbursement for the
therapy. Medicare approval is the standard by which both the health care
industry and private insurance payors accept a new therapy, drug, or device for
use and reimbursement.
The Company's target is to complete the Trials and publish and submit the
results to appropriate regulatory bodies during the fourth quarter of 2004. Many
factors affecting completion, publication, and submission of the Trials are out
of the Company's control; therefore, no assurance can be given that all of
13
the requirements will be satisfied during this time period. While the Trials are
designed to achieve FDA approval and a national reimbursement code, there can be
no assurance that the Trial results will be sufficient to obtain these goals.
During the second quarter of 2003, the Company received 510(k) clearance
from the FDA for The AutoloGel Process(TM) Centrifuge. The AutoloGel Process(TM)
Centrifuge is the device used to separate platelets and other essential blood
components from the patient's blood in order to produce AutoloGel(TM). The
effect of the 510(k) premarket clearance is that the device may now be marketed
in the United States.
RESULTS OF OPERATION
The Company is a development stage company as defined in Statement of
Financial Accounting Standards No. 7 and had only limited operations through
June 30, 2003. The Company's main activities during this start-up phase have
consisted of recruiting and hiring a new management team and corresponding
personnel, as well as the development of the licensing strategy for, and market
expansion of, AutoloGel(TM) and related disposable treatment kits and
proprietary system. In connection with the market expansion of AutoloGel(TM),
the Company has worked to develop and implement plans to conduct the Trials and
to satisfy other requirements necessary to obtain FDA approval and a national
reimbursement code. The Company generated minimal revenues from inception
through June 30, 2003.
Cytomedix filed for bankruptcy on August 7, 2001, and did not emerge from
bankruptcy until July 11, 2002. This event had a direct impact on all of our
revenues and expenses described below.
The Company as it existed prior to June 30, 2002 is referred to as the
Predecessor Company. The financial statements and Management's Discussion and
Analysis of the Predecessor Company reflect the Predecessor Company's financial
information prior to the implementation of fresh-start reporting. This financial
information is not comparable to the Successor Company (the Company post-June
30, 2002) and its financial condition after the implementation of fresh-start
reporting. Therefore, the results of operations for the Successor Company for
the three months and six months ended June 30, 2003 and for the Predecessor
Company for the three months and six months ended June 30, 2002 are described
separately below.
Three Months and Six Months ended June 30, 2003 (Successor Company)
Prior to 2003, the Company had focused its sales efforts in the long-term
care market. Although the Company experienced early success in this market, the
costs associated with providing AutoloGel(TM) to this reimbursement-sensitive
market were higher than expected. Therefore, during the first quarter of 2003,
the Company began the process of changing its business plan. During the second
quarter of 2003, the Company began to implement its new strategy by retaining
independent, experienced sales representatives to sell into various markets in
addition to the long-term care market. Cytomedix currently has agreements with
four independent sales representative organizations and/or individuals. As
independent sales representatives, these persons are not employees of the
Company, and their compensation is paid as commissions based on sales of The
AutoloGel Process(TM) disposable treatment kits.
Sales for the three months ended June 30, 2003 totaled $80,540, an
increase of $36,565 from the prior quarter. During this period, the Company
realized royalty income of $180,357, of which $159,995 was received from DePuy
Acromed, Inc., a division of Johnson & Johnson, Inc. The Company's total revenue
for the three months ended June 30, 2003, consisted solely of its income from
sales and this royalty income. The corresponding cost of revenue was $193,726
resulting in gross profit of $67,171.
Sales for the six months ended June 30, 2003 totaled $124,515. During this
period, the Company realized royalty income of $381,165, of which $339,516 was
received from DePuy Acromed, Inc. The Company's total revenue for the six months
ended June 30, 2003, consisted solely of its income from sales and this royalty
income. The corresponding cost of revenue was $385,998 resulting in a gross
profit of $119,682.
14
Salaries and wages for the three months ended June 30, 2003, totaled
$230,066, a slight increase from prior quarters. Salaries and wages for the six
months ended June 30, 2003, totaled $457,458. In addition to the Company's Chief
Executive Officer, Vice-President of Professional Services, and Controller, the
Company currently employs only one sales employee, four clinicians and two
administrative employees.
Consulting expenses for the three and six months ended June 30, 2003,
totaled $382,318 and $435,153, respectively. This increase results from the
Company's retention of Ms. Nadine Smith as a consultant pursuant to an agreement
executed on April 1, 2003. Under the agreement, Ms. Smith will provide
financing, marketing, and strategic consulting services for the Company. Ms.
Smith is paid $10,416 per month for a period of twelve months, and has been
granted a warrant to purchase 1,000,000 shares of Common Stock. This warrant was
recorded as deferred compensation, of which $225,650 was expensed as a non-cash
charge to the Company for consulting services during the three months ended June
30, 2003. The remaining $178,255 of consulting expenses for the six months ended
June 30, 2003, related to consulting services primarily in the area of clinical
research, but also included consulting services related to investor services and
sales development.
Related party consulting expense for the three and six months ended June
30, 2003, totaled $94,664 and $136,664, respectively. BDR, Inc. was paid $9,000
per month for its activities as consultant to the Board of Directors. BDR,
Inc.'s president is a significant shareholder and provides full-time consulting
services to Cytomedix. BDR, Inc. was also granted a warrant which was recorded
to deferred compensation as of September 30, 2002. $57,249 and $69,832 of this
deferred compensation was expensed as a non-cash charge to the Company for
consulting services for the three and six months ended June 30, 2003,
respectively.
Professional fees of $231,839 and $411,944 were incurred during the three
months and six months ended June 30, 2003. These fees were incurred primarily
for legal services, including corporate and securities compliance, the private
placement, patent maintenance and patent litigation. For the six months ended
June 30, 2003, $78,558 of the total professional fees related to accounting
fees.
For the three months and six months ended June 30, 2003, the Company
incurred $216,368 and $422,611, respectively, in general and administrative
expenses. This includes $13,164 for the rental of the Company's principal
executive offices for the six months ended June 30, 2003. The Company subleases
its offices from Mr. Charles E. Worden, Sr., a related party, for $2,194 per
month. This rental payment reduces the amount of royalty payments actually paid
to Mr. Worden. Also included in the general and administrative expense is
depreciation and amortization of $48,716 and $101,797, respectively, for the
three months and six months ended June 30, 2003. The Company incurred a related
party royalty expense of $18,626 payable to Mr. Charles E. Worden, Sr. during
the three months ended June 30, 2003. For the six months ended June 30, 2003,
this related party royalty expense equaled $39,176.
For the three months and six months ended June 30, 2003, the Company
recorded $2,840 and $4,189, respectively, of other income related to net
interest income and other royalty income received from Citrated Platelet
Process.
The Company recorded a non-cash preferred stock dividend in connection
with its cumulative 8% Series A and B Convertible Preferred Stock in the amount
of $55,375 and $110,754, respectively, for the three months and six months ended
June 30, 2003. The dividends have accrued since the Company emerged from
bankruptcy. These accrued dividends are currently issuable to the holders of
outstanding shares of Series A and B Convertible Preferred Stock. Under the Plan
and the Company's Amended and Restated Certificate of Designation, holders of
the Company's Preferred Stock are entitled to be paid their dividends at the
dividend rate in additional shares of Series A or B Preferred Stock (whichever
is held by the shareholder) for the first year. Each year thereafter on the date
the dividends are to be paid, the Board may pay the dividend either in
additional shares of Preferred Stock or in cash.
For the six months ended June 30, 2003, but prior to the Company's April
2003 termination of the private offering initiated in connection with the
Company's bankruptcy, the Company received $177,500 in proceeds from seven
subscriptions. During the second quarter, the Company refocused its resources on
initiating the prospective, clinical Trials necessary to obtain a national
reimbursement code. In connection
15
therewith, the Company terminated the private offering initiated in connection
with the Company's bankruptcy, and commenced a new private offering to fund the
Trials. The Company received $1,050,000 in proceeds from the private offering
during the quarter ended June 30, 2003. In connection therewith, the Company
paid $18,750 and accrued an additional $3,750 in cash commissions during the
second quarter. The Company also issued 15,000 shares of Common Stock and had an
obligation to issue an additional 7,800 shares of Common Stock for commissions
payable in connection with the private offering.
Three Months and Six Months Ended June 30, 2002
While operating as debtor in possession under Chapter 11 of the Bankruptcy
Code during the three months and six months ended June 30, 2002, the Company
could not engage in operations outside the ordinary course of business without
prior court approval. As a result, Cytomedix had minimal operations during the
three months and six months ended June 30, 2002. The Company's sales totaled
$90,250 for the three months ended June 30, 2002, and $117,500 for the six
months ended June 30, 2002. During the three months and six months ended June
30, 2002, the Company realized $166,530 and $309,770, respectively, of royalty
income from DePuy Acromed, Inc. For the three months and six months ended June
30, 2002, related cost of revenues was $133,975 and $250,449, respectively,
which resulted in gross profits of $122,805 and $176,821. The Company incurred a
net operating loss of $1,002,459 but reported net income of $8,303,733, due to
an extraordinary gain on the discharge of pre-petition liabilities of $9,306,192
during the three months ended June 30, 2002. During the six months ended June
30, 2002, the Company incurred a net operating loss of $1,861,061, but posted
total net income of $7,445,131 primarily due to an extraordinary gain on the
discharge of pre-petition debt of $9,306,192.
Salaries and wages totaled $150,319 and $285,906 during the three months
and six months ended June 30, 2002, as a result of the Company's decision to
employ only a minimal number of employees to operate the Company while in
bankruptcy. Similarly, the Company's consulting expense for the three months and
six months ended June 30, 2002, was $58,178 and $74,178, as the Company retained
as few consultants as necessary to reorganize and operate the Company during
bankruptcy.
Professional fees totaled $94,123 for the three months ended June 30,
2002, and $189,201 for the six months ended June 30, 2002. These fees related to
various legal services provided to the Company for securities compliance and
other corporate matters. Reorganization expenses of $323,876 and $609,216 for
the three months and six months ended June 30, 2002, respectively, were incurred
for professional fees and consulting expenses related to the bankruptcy. BDR,
Inc. served as the Company's reorganization manager during the bankruptcy.
The Company incurred $295,345 and $492,264 of general and administrative
expenses during the three months and six months ended June 30, 2002,
respectively. The Company incurred a related royalty expense of $18,750 during
the three months ended June 30, 2002. For the six months ended June 30, 2002,
this royalty expense totaled $37,500.
For the three months and six months ended June 30, 2002, the Company
recorded $184,673 and $349,617 of other expenses related mainly to non-cash
interest charges.
LIQUIDITY AND CAPITAL RESOURCES AS OF JUNE 30, 2003
On July 11, 2002, the Company emerged from Chapter 11 bankruptcy. Because
of this recent bankruptcy, the Company will not be obtaining extensive debt
financing. All working capital required to implement the Company's business plan
will be provided by funds obtained through the Company's private offering and
revenues generated by the Company. The Company will need to obtain additional
funds to support its future operational expenses. Based on current plans, the
Company believes that it has cash on hand sufficient to meet its operating
expenses and capital requirements to approximately the first quarter of 2004.
16
Net cash used in operating activities during the six months ended June 30,
2003, was $1,094,950. The primary use of cash during the period was to fund the
net loss. Net cash used in investing activities during the six months ended June
30, 2003, was $1,250 and consisted of purchases of equipment. Net cash provided
by financing activities during the six months ended June 30, 2003, was
$1,171,625 and consisted primarily of the monies raised in the private
placements, net of offering costs.
Working capital increased $54,243 during the six months ended June 30,
2003, to $630,155 from $575,912 as of December 31, 2002. This increase was
primarily due in cash from the monies raised in the private offerings.
The Company's unrestricted cash balance at June 30, 2003, was $1,020,418.
This amount includes $1,050,000 of proceeds from the Company's private offering
commenced in June 2003. Subsequent to the end of the second quarter and prior to
the filing of this report, the Company has received an additional $799,000 in
proceeds from this offering.
The Company estimates that without raising additional funds through
private offering (or otherwise) and/or without increasing revenues, it will be
unable to meet its cash requirements during the first quarter of 2004. If the
Company does not have sufficient working capital and is unable to generate
revenues or raise additional funds, the following may occur: delaying the
implementation of our new business plan or significantly reducing the scope of
the business plan; delaying some of our development and clinical testing;
delaying our plans to initiate government regulatory and reimbursement approval
processes for our wound treatment technologies; postponing the hiring of new
personnel; or, in the extreme situation, ceasing operations.
RISK FACTORS
Cytomedix cautions the readers not to place undue reliance on any
forward-looking statements, which are based on certain assumptions and
expectations which may or may not be valid or actually occur. The risk factors
which follow may cause actual results to differ materially from those expressed
or implied by any forward-looking statement. The risks described below are not
to be deemed an exhaustive list of all potential risks and should be read in
conjunction with the other detailed information in this report.
The Company has limited working capital.
Because the Company has been in bankruptcy, the Company will not be
obtaining extensive debt financing. All working capital required to implement
the Company's business plan will be provided by funds obtained through private
offering and revenues generated by the Company.
The Company will need to obtain additional funds to support its future
operational expenses. Based on current plans, Cytomedix believes that it has
sufficient funds to meet its operating expenses and capital requirements to
approximately the first quarter of 2004. It will need to generate increased
revenues or will need to raise additional funds through private offering or
otherwise. No assurance can be given that the Company will be able to increase
revenues or that it will successfully sell equity interests in the Company, or
even if such transactions are possible, that they will be on terms reasonable to
Cytomedix or that they will enable Cytomedix to satisfy its cash requirements.
As a result of the Company's losses and the matters described in the
preceding paragraphs, the Independent Auditors' Report on the audited financial
statements for the fiscal year ended December 31, 2002, included a paragraph
indicating substantial doubt about the Company's ability to continue as a going
concern.
The Company has a history of losses.
The Company has a history of losses and expects to incur substantial
losses and negative operating cash flows for the foreseeable future. The Company
may never achieve or maintain profitability. The Company is not currently
profitable and expects to continue to incur net losses in the foreseeable
future. The Company also expects to experience negative cash flow for the
foreseeable future.
17
The Company will need to generate significant revenues to achieve and maintain
profitability. The Company cannot guarantee that it will be able to generate
these revenues, and it may never achieve profitability in the future.
The Company has a short operating history and limited operating
experience.
The Company must be evaluated in light of the uncertainties and
complexities affecting an early stage biotechnology company. The Company is a
development stage company which has been fully operational under current
management only since it emerged from bankruptcy in July 2002. The Company's
initial strategy to pursue the long term care market through group agreements
because of apparent need and low cost to market proved to be inadequate for the
Company's needs. Beginning in the second quarter of 2003, the Company initiated
a new, more aggressive business plan to provide sales and service support
locally to markets with significant populations of chronic wound patients. This
new business plan will be implemented through a network of independent sales
representatives to market and sell disposable kits for The AutoloGel
Process(TM). Thus, the Company has a very limited operating history and limited
experience in conducting operations pursuant to the new business plan. The
Company's inability to successfully implement its new business plan and strategy
would adversely affect its business, operating results, and financial condition.
Further, continued operating losses, together with the risks associated
with the Company's ability to gain new customers in the sale of disposable kits
for The AutoloGel Process(TM) may have a material adverse effect on the
Company's liquidity. The Company may also be forced to respond to unforeseen
difficulties, such as decreasing demand for its products and services,
regulatory requirements and unanticipated market pressures.
The Company's intellectual property assets are critical to its success.
Cytomedix regards its patents, trademarks, trade secrets, and other
intellectual property (collectively, the "Intellectual Property Assets") as
critical to its success. Cytomedix relies on a combination of patents,
trademarks, and trade secret and copyright laws, as well as confidentiality
procedures, contractual provisions, and other similar measures, to establish and
protect its Intellectual Property Assets. Cytomedix has endeavored to inhibit
disclosure of its trade secrets through a number of means, including restricting
access to Cytomedix's proprietary information and requiring substantially all of
its employees, consultants, and other persons with access to Cytomedix's
proprietary information to execute confidentiality agreements with Cytomedix.
Despite these efforts, Cytomedix may not be able to prevent misappropriation of
its technology or deter others from developing similar technology in the future.
Furthermore, policing the unauthorized use of its Intellectual Property Assets
is difficult and expensive. Litigation has been necessary in the past and may be
necessary in the future in order to enforce Cytomedix's Intellectual Property
Assets. Litigation could result in substantial costs and diversion of resources.
The AutoloGel Process(TM) is subject to governmental regulation.
The Company's success is also impacted by factors outside of the Company's
control. The Company's current therapies may be subject to extensive regulation
by numerous governmental authorities in the United States, both federal and
state, and in foreign countries by national and provincial regulatory agencies.
Specifically, the Company's therapies may be subject to regulation by the FDA
and state regulatory agencies. The FDA regulates drugs, medical devices and
biologics that move in interstate commerce and requires that such products
receive pre-marketing approval based on evidence of safety and efficacy. The
regulations of government health ministries in foreign countries are analogous
to those of the FDA in both application and scope. In addition, any change in
current regulatory interpretations by, or positions of, state regulatory
officials where The AutoloGel Process(TM) is practiced, could materially and
adversely affect the Company's ability to sell products in those states.
18
Further, as the Company expands and offers additional products in the
United States and in foreign countries, the Company may require approval from
the FDA and comparable foreign regulatory authorities prior to introduction of
any such products into the market. The Company has no assurance that it will be
able to obtain all necessary approvals from the FDA or comparable regulatory
authorities in foreign countries for these products. Failure to obtain the
required approvals would have a material adverse impact on the Company's
business and financial condition.
The Company's success could be adversely affected if our customers cannot
obtain reimbursement.
AutoloGel(TM) is provided to healthcare providers. Some of these
providers, in turn, seek reimbursement from third party payors such as Medicare,
Medicaid, and other private insurers. Many foreign countries also have
comprehensive government managed healthcare programs that provide reimbursement
for healthcare products. Under such healthcare programs, reimbursement is often
a determining factor in predicting a product's success, with some physicians and
patients strongly favoring only those products for which they will be
reimbursed. To date, The AutoloGel Process(TM) has been approved for Medicaid
reimbursement in certain circumstances only by the Illinois Department of Public
Aid, and the Company is continuing its efforts to secure approval for Medicaid
reimbursement in other states. The Company has no assurance that agencies in
other states or foreign countries will approve The AutoloGel Process(TM) for
Medicaid reimbursement, or that the Illinois Department of Public Aid or any
other state agency or foreign countries that approve reimbursement will continue
to do so.
In order to achieve a national reimbursement product code for
AutoloGel(TM), the Company will have to undertake a prospective, randomized,
controlled, multi-site clinical trial so as to provide the necessary data as
required by the Center for Medicare and Medicaid Services ("CMS"), formerly
known as the Healthcare Financing Agency ("HCFA"). In addition, a 1992 HCFA
ruling prohibiting the reimbursement of growth factor products for chronic
wounds will have to be dismissed in order to secure a national reimbursement
product code. In May 2003, CMS announced a review of "Autologous Blood-Derived
Products for Chronic Non-Healing Wounds" and Cytomedix provided materials to CMS
for its use in connection with the review. To date, CMS has not announced the
results of its review. The Company's ability to obtain reimbursement approval
from governmental agencies and private insurers may be a significant factor in
determining its abilities to increase its revenues. The Company cannot guarantee
that third-party payors will elect to reimburse treatments using the Company's
products or processes or, if such reimbursement is approved, that the level of
reimbursement granted will be sufficient to cover the cost of the product or
process to the physician or to the patient.
Healthcare providers' inability to obtain third-party reimbursement for
the treatment could have an adverse effect on the Company's success.
The success of AutoloGel(TM) is dependent on acceptance by the medical
community.
The commercial success of the Company's products and processes will depend
upon the medical community and patients accepting the therapies as safe and
effective. If the medical community and patients do not ultimately accept the
therapies as safe and effective, the Company's ability to sell the products and
processes will be materially and adversely affected.
Cytomedix may be unable to attract and retain key personnel.
The future success of the Company depends on the ability to attract,
retain and motivate highly-skilled management, and the Company's ability to
locate and engage independent sales representatives with expertise and contacts
in the wound market. The Company has retained a team of highly-qualified
officers and consultants, but the Company cannot assure that it will be able to
successfully integrate these officers and consultants into its operations,
retain all of them or be successful in recruiting additional personnel as
needed. The Company's inability to do so will materially and adversely affect
the business prospects, operating results and financial condition.
19
The Company's ability to maintain and provide additional services to its
existing customers depends upon its ability to hire and retain business
development and scientific and technical personnel with the skills necessary to
keep pace with continuing changes in cellular therapy technologies. Competition
for such personnel is intense; the Company competes with pharmaceutical,
biotechnology and healthcare companies. The Company's inability to hire
additional qualified personnel may lead to higher recruiting, relocation and
compensation costs for such personnel. These increased costs may reduce the
Company's profit margins or make hiring new personnel impractical.
Legislative and administrative action may have an adverse effect on the
Company.
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. The Company cannot
predict what other legislation relating to its business or to the health care
industry may be enacted, including legislation relating to third-party
reimbursement, or what effect such legislation may have on the Company's
business, prospects, operating results and financial condition. The Company
expects federal and state legislators to continue to review and assess
alternative health care delivery and payment systems, and possibly adopt
legislation affecting fundamental changes in the health care delivery system.
Such laws may contain provisions, which may change the operating environment for
the Company's targeted customers, including hospitals and managed care
organizations.
Health care industry participants may react to such legislation by
curtailing or deferring expenditures and initiatives, including those relating
to our products. Future legislation could result in modifications to the
existing public and private health care insurance systems that would have a
material adverse effect on the reimbursement policies discussed above.
The Company could be affected by malpractice claims.
Providing medical care entails an inherent risk of professional
malpractice and other claims. The Company does not control or direct the
practice of medicine by physicians or health care providers who use the products
and does not assume responsibility for compliance with regulatory and other
requirements directly applicable to physicians. The Company cannot guarantee
that claims, suits or complaints relating to the use of The AutoloGel
Process(TM) administered by physicians will not be asserted against the Company
in the future.
The production, marketing and sale and use of The AutoloGel Process(TM)
carry the risk that product liability claims will be asserted against the
Company. These risks cannot be eliminated, and the Company could be held liable
for any damages that might result from adverse reactions or infectious disease
transmission. Such liability could materially and adversely affect the Company's
business, prospects, operating results and financial condition.
The Company currently maintains professional and product liability
insurance coverage, but the Company cannot provide assurance that the coverage
limits of this insurance would be adequate to protect us against all potential
claims. The Company cannot guarantee that it will be able to obtain or maintain
professional and product liability insurance in the future on acceptable terms
or with adequate coverage against potential liabilities.
AutoloGel(TM) has existing competition in the marketplace.
In the market for biotechnology products, the Company faces competition
from pharmaceutical companies, biopharmaceutical companies and other
competitors. Other companies have developed or are developing products which may
be in direct competition with The AutoloGel Process(TM). Biotechnology
development projects are characterized by intense competition. Thus, the Company
cannot assure any investor that it will be the first to the market with any
newly developed products or that it will successfully be able to market these
products. If the Company is not able to participate and compete in the cellular
therapy market, the Company's financial condition will be materially and
adversely affected. The Company cannot guarantee that it will be able to compete
effectively against such companies in the future.
20
Many of these companies have substantially greater capital resources, larger
marketing staffs and more experience in commercializing products. Recently
developed technologies, or technologies that may be developed in the future, may
be the basis for developments which will compete with the Company's products.
The Company's Common Stock is traded in the over-the-counter market, and
it may never be listed on a National Exchange.
The Company's Common Stock is currently traded in the over-the-counter
market and quoted on the Over-The-Counter Bulletin Board ("OTCBB") under the
symbol "CYME." Although Cytomedix is currently a publicly held company, there
can be no assurance that the Company's Common Stock will ever be listed on a
national securities exchange. This means that it may be hard or impossible to
find a willing buyer for the Company's Common Stock in the future.
Purchases of Cytomedix shares are subject to the SEC's penny stock rules.
The Company is uncertain as to whether the market price of the Common
Stock will be above $5.00 per share. Securities which trade below $5.00 per
share are subject to the requirements of certain rules promulgated under the
Securities Exchange Act of 1934. These rules require additional disclosure by
broker-dealers in connection with any trades involving the stock defined as a
"Penny Stock." Generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share is a Penny Stock. As a result of the Company's
Common Stock being characterized as a Penny Stock, the market liquidity for the
Common Stock may be adversely affected by the regulations. This could restrict
an investor's ability to sell the Common Stock in a secondary market.
The rules governing Penny Stock require the delivery, prior to any Penny
Stock transaction, of a disclosure schedule explaining the Penny Stock market
and the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell Penny Stocks to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth in excess of $1,000,000 or annual income exceeding $200,000,
$300,000 together with a spouse). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The broker-dealer also must disclose the commissions payable to the
broker-dealer, current bid and offer quotations for the Penny Stock and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Such information
must be provided to the customer orally or in writing prior to effecting the
transaction and in writing before or with the customer confirmation. Monthly
statements must be sent disclosing recent price information for the Penny Stock
held in the account and information on the limited market in Penny Stock.
The additional burdens imposed on broker-dealers may discourage them from
effecting transactions in the Company's Common Stock, which could severely limit
the liquidity of the Common Stock and the ability of shareholders to sell
Cytomedix Common Stock in the secondary market.
PROSPECTS FOR THE FUTURE
Cytomedix's success is directly dependent on the success of AutoloGel(TM),
and the Company believes that AutoloGel(TM) has a good chance for success in the
marketplace for several reasons. In the long-term care, long-term acute care,
and home health markets where healthcare products and services are delivered in
a capitated environment, the weekly use of AutoloGel(TM) saves both the cost of
daily and multiple dressing changes as well as the labor needed to perform these
tasks. Combining this significant cost savings in this economically-driven
environment with a faster wound-healing rate as reported by clinicians, the
Company expects that both the facility or agency providing the care as well as
the wound patient will see added value through the use of AutoloGel(TM). The
Company believes that this model of providing easy-to-access advanced therapy
with reported increased healing in a shorter period of time will be very
attractive to all types of capitated health care providers. The Company is
actively pursuing these customers at both the group level and, to a lesser
degree, the individual facility.
21
The Company believes that obtaining favorable results from the Trials and
a succeeding national reimbursement code will directly affect the long-term
success of the Company. Whether a product or process is reimbursed by Medicare
is a deciding factor for many patients and providers. The Illinois Department of
Public Aid has decided to provide reimbursement for The AutoloGel Process((TM))
kits used to treat Medicaid patients in home health agencies, outpatient
facilities, and physician's offices. The Company believes that this decision by
the Illinois Department of Public Aid could serve as a precedent that other
states agencies could choose to follow. If other state agencies begin to
reimburse AutoloGel(TM) and/or the Company is successful in obtaining a national
reimbursement code, the Company believes that sales of the The AutoloGel
Process(TM) will increase.
The Company's success in marketing The AutoloGel Process(TM) is directly
dependent on the Company's ability to protect its patents. The Company has
commenced lawsuits against alleged infringers of its patents and parties it
believes are inducing end-users to infringe its patents. In most of these cases,
the Company has sought damages and injunctive relief in order to stop the
infringement of the Company's intellectual property. The Company's ability to
protect its patented technology and to enter into licensing and royalty
agreements with persons desiring to use the Company's intellectual property will
be vital to the Company's success. On July, 30, 2003, Cytomedix entered into an
agreement with Fitch, Even, Tabin and Flannery, a law firm specializing in
intellectual property practice. Pursuant to that agreement, Fitch, Even, Tabin
and Flannery will represent Cytomedix on a contingency basis with respect to
certain litigation and licensing matters relating to the Company's intellectual
property utilized in connection with The AutoloGel Process(TM).
In summary, the Company believes that The AutoloGel Process(TM) provides
an economic benefit to healthcare providers and reimbursement sources, based on
the cost of current treatments and competitive wound care products. Combined
with what the Company believes to be a strong patent position, Cytomedix feels
it is positioned to successfully market AutoloGel(TM) to the capitated care
market. Thereafter, upon the successful completion of a strategy to have The
AutoloGel Process(TM) approved by the FDA and reimbursed by third party payors
such as Medicare, Medicaid and other private insurers, the Company intends to
aggressively market The AutoloGel Process(TM) to all segments of the large and
rapidly growing wound care market with the objective of securing a significant
market share position.
Item 3. Controls and Procedures.
The Company's two Executive Officers and Controller have reviewed and
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
on their evaluation, they have concluded that the Company's disclosure controls
and procedures are, to the best of their knowledge, 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. Given the Company's size and limited number of employees, these persons
have determined that weekly meetings of all executive officers and significant
employees and consultants assist in ensuring that material information is
communicated throughout the Company. These persons have concluded that there
were no significant changes in the Company's internal controls or in other
factors that could significantly affect its internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART II
Item 1. Legal Proceedings.
The Company has the following litigation pending in the District Court for
the Northern District of Illinois, Eastern Division: (i) Cytomedix, Inc. v.
Perfusion Partners & Associates, Inc., Case No. 02 C 4776, filed July 3, 2002;
(ii) Cytomedix, Inc. v. James Gandy, et al., Case No. 02 C 4779, filed July 3,
2002; (iii) Cytomedix, Inc. v. Little Rock Foot Clinic, P.A., et al., Case No.
02 C 4782, filed July 3, 2002; and (iv) Cytomedix, Inc. v. Autologous Blood
Technology, L.L.C., et al., Case No. 02 C 4863, filed July 10,
22
2002. In each of these lawsuits, the Company has asserted that the Defendants
have infringed upon the Company's patents and engaged in unfair competition. In
all of these actions the Company seeks unspecified damages and injunctive
relief. A fifth case in the same court, Cytomedix, Inc. v. LB Hyperbarics, Inc.,
et al., Case No. 02 C 4774, filed July 3, 2002, was dismissed on procedural
grounds in May 2003.
In September 2002, the Company restyled its objection and counterclaims to
the claims of Keith Bennett and affiliates into an adversary proceeding
captioned Cytomedix, Inc. v. Keith Bennett, et al., Adv. No. 02 A 01292. In this
action, the Company objects to Bennett's $1.1 million claim asserted as a Class
3 general unsecured claim under Option 3A (under which Bennett would receive a
12% cash recovery on his Allowed Claim, if any) in the Company's bankruptcy
case. In addition, the Company asserts affirmative claims of patent
infringement, breach of contract, and unfair competition. Management intends to
vigorously pursue the litigation. The Company has successfully defended against
Bennett's motions to dismiss or, alternatively, to compel arbitration or
transfer venue of the case to a federal court in Arkansas. The reference of this
case was subsequently withdrawn to the United States District Court for the
Northern District of Illinois, and the case was assigned to Judge Bucklo. A
motion to dismiss or transfer the case on the same grounds asserted before the
Bankruptcy Court is presently pending before Judge Bucklo and no activity will
occur in this case until Judge Bucklo rules on this motion.
On October 23, 2002, Harvest Technologies Corp. initiated an action
against the Company in the United States District Court for the District of
Massachusetts, Case No. 02-12077. Plaintiff seeks a declaratory judgment that
its activities do not constitute the infringement of any patent rights claimed
by the Company, and it seeks damages for alleged false advertising, unfair
competition, intentional interference with contractual rights or a prospective
business relationship and unfair and deceptive trade acts or practices as
defined by Massachusetts law. The claim for damages is unliquidated. The Company
vigorously disputes the allegations and, on March 27, 2003, filed its answer and
counterclaims against Harvest Technologies Corp. for patent infringement,
tortious interference with prospective business relationships, unfair
competition, and deceptive trade practices. The Company seeks damages and
permanent injunctive relief against Harvest Technologies Corp.
On May 23, 2003, the Company initiated an action against Landmark
Healthcare, LLC, ("Landmark") in the United States District Court for the
Eastern District of Arkansas, Civil Action No. 4:03CV00387GTE. In this case, the
Company alleges patent infringement, breach of both a referral agreement and
supply agreement, and misappropriation of trade secrets. The Company has sought
damages, declaratory judgment, and injunctive relief. On July 16, 2003, Landmark
filed its answer and counterclaim denying the Company's claims. Landmark's
counterclaim asserts that the Company breached its supply contract with
Landmark, interfered with prospective business advantage, and breached its
obligation of good faith and fair dealing in performance. Landmark seeks damages
against the Company.
On June 6, 2003, the Company commenced a lawsuit against Safeblood
Technologies, Inc., Jim Limbird, and Charles Worden, Jr. (collectively,
"Safeblood Defendants") in the United States District Court for the Eastern
District of Arkansas, Civil Action No. 4-03-CV-00422JMM. In this complaint, the
Company has sought damages and injunctive relief for its patent infringement
claim. The Safeblood Defendants filed their answer and counterclaim on June 27,
2003. In their answer, the Safeblood Defendants deny any infringement. Their
counterclaim alleges that the Company has violated the Lanham Act, has
tortiously interfered with contractual relations and prospective economic
advantage, and has engaged in unfair competition. The Safeblood Defendants seek
damages and a declaratory judgment.
Unfavorable resolutions of, settlements of, or costs related to these
lawsuits could have a material adverse effect on our business, results of
operations or financial condition.
23
Item 2. Changes in Securities.
OUTSTANDING COMMON STOCK AND DIVIDENDS.
There are approximately 12,541,639 shares of Common Stock outstanding as
of August 12, 2003. There are 320,000 additional shares of Common Stock
immediately issuable for investments made in the Company's private offering.
All shares immediately issuable under the Plan have been issued as of the
date of this report. Under the Plan, the Company may have an obligation to issue
353,356 shares of Common Stock if the Company has revenues exceeding $10,000,000
in four consecutive quarters. None of these shares are currently issuable and
the revenue goal must be satisfied before these shares can be issued. The
Company does not anticipate issuing these shares in the near future.
The Company did not pay dividends to holders of its Common Stock during
2002 or 2001. The Company does not anticipate paying cash dividends on its
Common Stock in the foreseeable future, but instead will retain any earnings to
fund its growth. In fact, Cytomedix is prohibited from declaring dividends on
its Common Stock as long as any shares of Series A Convertible Preferred or
Series B Convertible Preferred are outstanding. Once there are no shares of
Series A or Series B Convertible Preferred outstanding, any decision to pay cash
dividends will depend on the Company's ability to generate earnings, its need
for capital, its overall financial condition, and other factors the Board deems
relevant.
ISSUANCE OF NON-REGISTERED SECURITIES IN SECOND QUARTER OF 2003.
Prior to the April 2003 termination of the private offering commenced in
connection with the Company's bankruptcy, the Company accepted two additional
subscriptions for securities. These additional investments totaled $25,000, and
thus, during the second quarter of 2003, 25,000 additional shares of Common
Stock, 6,250 Class A Warrants, and 3,750 Class B Warrants were issued to
investors. These securities were issued Section 4(2) of the Securities Act of
1933 and Rule 506 of Regulation D promulgated thereunder, as were the other
securities sold in this offering.
As of March 31, 2003, $23,000 of commissions were payable to one of the
Company's selling agents, Frederick & Company, Inc. of Milwaukee, Wisconsin, for
services provided in the Company's private offering commenced in connection with
the Company's bankruptcy. An additional $2,500 of commissions became payable to
Frederick & Company upon the Company's receipt of the two additional investments
in April 2003. Frederick & Company elected to take the entire amount owed to it
in shares of Common Stock rather than a percentage in cash; therefore, 25,500
shares of Common Stock were issued to Frederick & Company pursuant to Section
4(2) of the Securities Act of 1933.
Pursuant to the Plan of Reorganization and Section 3(a)(7) of the
Securities Act of 1933, the Company exchanged new securities for "Allowed
Claims" and "Allowed Equity Interests" as defined in the Plan. During the second
quarter of 2003, the Company issued 20,571 shares of Common Stock and 20,571
shares of Series A Convertible Preferred Stock to a holder of one of the
Company's pre-petition 12% Notes, and 2,928 shares of Common Stock and 2,928
shares of Series B Convertible Preferred Stock to the last holder of one of the
Company's pre-petition 10% Notes.
In June 2003, the Company commenced a private offering of its Common Stock
to accredited investors only (as said term is defined by Rule 501(a) of
Regulation D). The private offering was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) of the Securities Act of 1933
and Rule 506 of Regulation D promulgated thereunder. During the second quarter
of 2003, Cytomedix sold 840,000 shares of Common Stock in this private offering
for an aggregate price of $1,050,000 in securities in this private offering.
These 840,000 shares of Common Stock were issuable at June 30, 2003, but were
not issued until July 24, 2003.
The Company agreed to pay commissions to certain selling agents for their
services in connection with the private offering. The Company has agreed to pay
commissions equal to 6% of the securities sold by such agent, with up to 50% of
the commission amount to be paid in cash and the remaining amount to be paid in
shares of Common Stock. All of the shares offered have not been sold by
commissioned-selling agents. Commissions earned during the quarter ended June
30, 2003 totaled $51,000. The Company paid $18,750 and accrued an additional
$3,750 in cash commissions during the second quarter. The Company
24
also issued 15,000 shares of Common Stock and had an obligation to issue an
additional 7,800 shares of Common Stock for commissions payable in connection
with the private offering.
Since emerging from bankruptcy, the Company has issued stock in lieu of
cash to certain legal professionals rendering their services after July 11,
2002. This stock is issued pursuant to Section 4(2) of the Securities Act of
1933. During the first quarter of 2003, the Company accrued legal fees of
$105,087 payable in cash and stock to the attorneys at Robert F. Coleman &
Associates of Chicago, Illinois; during the second quarter of 2003, 68,318
shares of Common Stock were issued for a portion of these legal services. During
the fourth quarter of 2002 and the first quarter of 2003, the Company accrued
legal fees of $46,618 payable in cash and stock to the attorneys at Cummins &
Cronin, LLC, of Chicago, Illinois; during the second quarter of 2003, the
Company issued 15,767 shares of Common Stock for a portion of those legal
services provided in the fourth quarter of 2002 and issued 15,270 shares of
Common Stock for a portion of those legal services provided in the first quarter
of 2003.
ISSUANCE OF NON-REGISTERED SECURITIES SUBSEQUENT TO THE SECOND QUARTER
After the second quarter ended on June 30, 2003, the Company issued 11,078
shares to BDR, Inc., for an administrative claim from the bankruptcy and 20,000
shares to Carelyn P. Fylling (BDR, Inc., the holder of a total administrative
claim of 31,078 shares had assigned its right to receive 20,000 shares to
Carelyn P. Fylling, Vice President of Professional Services, for services
provided to BDR, Inc., assisting with the Company's bankruptcy). The Company
also issued 3,429 shares of Common Stock and 6,855 shares of Series A
Convertible Preferred Stock to the last holder of one of the Company's
pre-petition 12% Notes.
The Company has also issued additional shares of Common Stock to investors
in the private offering commenced in June 2003. In addition to the 840,000
shares of Common Stock which were issuable at the end of the second quarter but
not issued until July 24, 2003, the Company has received an additional
$1,074,000 in proceeds and valid Subscription Agreements for the purchase of
859,200 shares of Common Stock. Of these 859,200 shares of Common Stock
immediately issuable for investments made after the end of the second quarter,
539,200 shares of Common Stock have been issued.
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
or second quarter of 2003. Because of the Company's bankruptcy, it was unable to
hold an annual meeting in 2002. The Company plans to have an annual meeting
prior to the end of 2003.
Item 6. Exhibits and Reports on Forms 8-K.
The exhibits listed in the accompanying Exhibit Index are filed as part of
this report.
No Forms 8-K were filed during the second quarter of 2003.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CYTOMEDIX, INC.:
/s/Kent T. Smith
Kent T. Smith, Chief Executive Officer
Date: August 14, 2003
25
/s/Carelyn P. Fylling
Carelyn P. Fylling, Vice President of Professional Services
Date: August 14, 2003
/s/Lance Jones
Lance Jones, Controller
Date: August 14, 2003
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.
26
EXHIBIT LIST
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).
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 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 November 7, 2002, on Form 10-QSB for
quarter ended June 30, 2001, File No. 000-28443).
4.2 Form of Class A 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).
4.3 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).
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 fiscal 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 Employment Agreement with Mr. Kent T. Smith (Previously filed on December
5, 2002, on Form 10-QSB for quarter ended September 30, 2001, File No.
000-28443).
10.7 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).
10.8 Registration Rights Agreement by and between Cytomedix, Inc. and the New
Investors and Cytomedix, Inc. and the DIP Lenders (Previously filed on
December 5, 2002, on Form 10-QSB for quarter ended September 30, 2001,
File No. 000-28443).
10.9 BDR/Cytomedix Consulting Arrangement (Previously filed on December 5,
2002, on Form 10-QSB for quarter ended September 30, 2001, File No.
000-28443).
10.10 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).
27
16.1 Letter from KPMG dated August 22, 2002 (Previously filed on August 26,
2002, on Form 8-K, File No. 000-28443).
20.1 Notice to Shareholders of Cytomedix, Inc. dated October 17, 2001
(Previously filed on November 12, 2002, on Form 10-QSB, File No.
000-28443).
31.1 Certification of Chief Executive Officer of Cytomedix, Inc., pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Vice President of Professional Services of Cytomedix,
Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 Certification of Controller of Cytomedix, Inc., pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer of Cytomedix, Inc., pursuant to 18
U.S.C.ss.1350.
32.2 Certificate of Controller of Cytomedix, Inc., pursuant to 18
U.S.C.ss.1350.
28