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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): January 2, 2001
CYTOMEDIX, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-28443 23-3011702
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of Commission (I.R.S. Employer
Incorporation) File Number) Identification No.)
Three Parkway North, Deerfield, Illinois 60015
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(847) 405-7800
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------------
(Former Name or Former Address,
if Changed Since Last Report)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) (1) FINANCIAL STATEMENTS. Audited financial statements of the Procuren
business of Curative Health Services and CHS Services for the fiscal years
ended December 31, 1999 and 1998 with Independent Accountant's Report, and
unaudited financial statements as of September 30, 2000 and for the
nine-month periods ended September 30, 1999 and 1998.
(b) (2) PRO FORMA FINANCIAL INFORMATION. Pro forma financial information
relative to the acquisition of the Procuren business for the fiscal year
ended December 31, 1999 and for the interim period ended September 30, 2000.
Financial Statements
Curative Health Services, Inc.
Procuren(R) Operations
Years ended December 31, 2000 and 1999
Curative Health Services, Inc.
Procuren(R) Operations
Financial Statements
Years ended December 31, 2000 and 1999
CONTENTS
Report of Independent Auditors........................................ 1
Statements of Directly Identifiable Assets and Liabilities............ 2
Statements of Revenues and Expenses................................... 3
Statements of Cash Flows.............................................. 4
Notes to Financial Statements......................................... 5
Report of Independent Auditors
To the Board of Directors of
Curative Health Services, Inc.
We have audited the accompanying statements of directly identifiable assets and
liabilities of the Procuren(R) Operations of Curative Health Services, Inc.
("Procuren(R) Operations" as described in Note 1) as of December 31, 2000 and
1999 and the related statements of revenues and expenses, and cash flows for the
years then ended. These financial statements are the responsibility of
management of Curative Health Services, Inc. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the directly identifiable assets and liabilities of
Procuren(R) Operations as of December 31, 2000 and 1999, and its revenues and
expenses and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Melville, New York
February 15, 2001
1
Curative Health Services, Inc.
Procuren(R) Operations
Statements of Directly Identifiable Assets and Liabilities
DECEMBER 31
2000 1999
---------- ----------
DIRECTLY IDENTIFIABLE ASSETS
Accounts receivable (less allowance of $117,138 and $210,538 at
December 31, 2000 and 1999, respectively) $ 681,840 $1,911,029
Inventories 258,403 296,349
---------- ----------
Total directly identifiable current assets 940,243 2,207,378
Property and equipment, net 2,784,149 3,009,150
Security deposits 59,898 55,674
Patents and trademarks, net 605,630 644,473
---------- ----------
Total directly identifiable assets 4,389,920 5,916,675
DIRECTLY IDENTIFIABLE LIABILITIES
Accounts payable 198,926 126,332
Accrued expenses 382,302 363,263
---------- ----------
Total directly identifiable liabilities 581,228 489,595
---------- ----------
Total directly identifiable assets in excess of
directly identifiable liabilities $3,808,692 $5,427,080
========== ==========
SEE ACCOMPANYING NOTES.
2
Curative Health Services, Inc.
Procuren(R) Operations
Statements of Revenues and Expenses
YEAR ENDED DECEMBER 31
2000 1999
----------- -----------
Revenues:
Procuren(R) sales $ 6,404,456 $12,049,969
Facility fees 615,984 837,813
----------- -----------
Total revenues 7,020,440 12,887,782
Cost of revenues:
Supplies 722,027 1,213,887
Facility costs 4,480,160 5,508,441
----------- -----------
Total cost of revenues 5,202,187 6,722,328
Other expenses:
Selling, general and administrative 1,474,117 1,675,273
Technical services 2,136,063 2,832,847
Bad debts 156,503 453,586
----------- -----------
Total other expenses 3,766,683 4,961,706
----------- -----------
Total cost of revenues and other expenses 8,968,870 11,684,034
----------- -----------
Excess (deficiency) of revenues over expenses $(1,948,430) $ 1,203,748
=========== ===========
SEE ACCOMPANYING NOTES.
3
Curative Health Services, Inc.
Procuren(R) Operations
Statements of Cash Flows
YEAR ENDED DECEMBER 31
2000 1999
----------- -----------
OPERATING ACTIVITIES
Excess (deficiency) of revenues over expenses $(1,948,430) $ 1,203,748
Adjustments to reconcile excess (deficiency) of revenues over expenses to
net cash provided by operating activities:
Depreciation and amortization 757,533 934,989
Provision for doubtful accounts 156,503 453,586
Change in operating assets and liabilities:
Decrease in accounts receivable 1,072,686 827,170
Decrease in inventories 37,946 84,648
Increase (decrease) in accounts payable and accrued expenses
91,633 (105,697)
----------- -----------
Net cash provided by operating activities 167,871 3,398,444
INVESTING ACTIVITIES
Purchases of property and equipment (493,690) (1,153,126)
Increase in security deposits (4,224) (4,529)
----------- -----------
Net cash used in investing activities (497,914) (1,157,655)
FINANCING ACTIVITIES
Cash flow from (to) Parent, Curative Health Services, Inc. 330,043 (2,240,789)
----------- -----------
Net cash provided by (used in) financing activities 330,043 (2,240,789)
----------- -----------
Cash and cash equivalents at beginning and end of year $ -- $ --
=========== ===========
SEE ACCOMPANYING NOTES.
4
Curative Health Services, Inc.
Procuren(R) Operations
Notes to Financial Statements
December 31, 2000
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
The accompanying financial statements include directly identifiable assets and
liabilities, revenues and expenses and cash flows of the Procuren(R) Operations
of Curative Health Services, Inc. ("Procuren(R) Operations"). Procuren(R) is a
product line of Curative Health Services, Inc. (the "Company"). The Company is a
disease management company in the chronic wound care business. The Company
manages a nationwide network of Wound Care Centers that offer patients a
multi-disciplinary comprehensive wound treatment program. Procuren(R) is a
treatment that is provided at the wound care centers.
Procuren(R) Operations was not a separate legal entity and, as such, was an
integral part of the Company's operations. As a result, separate financial
statements were not maintained for the operations sold to Cytomedix, Inc.
("Cytomedix"). The accompanying financial statements have been prepared from the
books and records of the Company and do not purport to reflect the assets and
liabilities and results of operations and cash flows that would have resulted if
Procuren(R) Operations had operated as a separate entity. Rather, these
financial statements were prepared for the purpose of complying with rules and
regulations of the Securities and Exchange Commission, in conjunction with
Cytomedix's Registration Statement on Form SB-2, which indicate that certain
financial statements are required for Procuren(R) Operations.
2. DESCRIPTION OF SALE
On October 12, 2000, the Company announced the sale of certain assets related to
its Procuren(R) Operations to Cytomedix. The sale was finalized on January 2,
2001. The sale price for the Procuren(R) Operations was approximately $3.8
million, of which $2.1 million was paid in cash and the Company was issued a
note for $1.7 million by Cytomedix which is payable in full in April 2001. In
addition, as part of the consideration for taking the $1.7 million note from
Cytomedix, the Company was issued 600,845 warrants to purchase shares of common
stock of Cytomedix for $.50 per share. Under the agreement, Cytomedix will
acquire the Company's assets associated with Procuren(R) Operations and will be
the exclusive manufacturer of the Procuren(R) solution. The Company will
continue to be the exclusive distributor of the product in the United States and
will receive royalties based on the sales of the products that are developed
from the associated patents on sales outside the United States.
5
Curative Health Services, Inc.
Procuren(R) Operations
Notes to Financial Statements (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
CONCENTRATION OF CREDIT RISK: Substantially all of the Company's revenues have
been generated from Wound Care Centers which the Company has established as
cooperative ventures with acute care hospitals in the United States to provide a
multi-disciplinary treatment protocol for chronic wounds. The Company sells
Procuren(R) to acute care hospitals and other health care providers. Credit is
extended based on an evaluation of the hospital's financial condition and
collateral is generally not required.
ACCOUNTS RECEIVABLE: Accounts receivable represents the Procuren(R) portion of
the outstanding receivable from hospitals, net of the allowance for bad debts.
INVENTORIES: Inventories are recorded at the lower of cost or market on a
first-in, first-out basis. Inventories consist principally of the consumable
supplies required for the manufacture of Procuren(R).
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation and amortization of
property and equipment is provided using the straight-line method over the
estimated useful lives (generally 4 to 7 years). Leasehold improvements are
amortized over the life of the lease or the useful life of the related asset,
whichever is shorter. Total direct expenses include depreciation and
amortization expense related to the assets sold of approximately $741,000 and
$883,000 for the years ended December 31, 2000 and 1999, respectively.
SECURITY DEPOSITS: Consists principally of amounts held by landlords under
leases for the Company's Procuren(R) Operations' processing facilities and New
York warehouse.
6
Curative Health Services, Inc.
Procuren(R) Operations
Notes to Financial Statements (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PATENTS AND TRADEMARKS: Patents and trademarks consist of costs of filing
patents and trademarks. Costs and expenses related to patents and trademarks are
being amortized over the estimated life of the patent (17 years) or trademark
(20 years) using the straight-line method. Total other expenses include
amortization expense related to patents and trademarks of approximately $39,000
and $52,000 for the years ended December 31, 2000 and 1999, respectively.
LIABILITIES: Total liabilities include trade payables related to the Procuren(R)
blood processing facilities and accrued expenses such as wages, benefits, rents
and other miscellaneous expenses.
STOCK-BASED COMPENSATION PLANS: The Company grants stock options for a fixed
number of shares of its common stock to employees with the exercise price equal
to the fair value of the shares at the date of grant. Footnote disclosure
related to the Company's stock-based compensation plans has not been included in
the accompanying financial statements and footnotes because Procuren(R)
Operations is not a separate legal entity for which stock options were issued
and outstanding for the years presented.
INCOME TAXES: The Company provides for income taxes using the liability method
in accordance with FASB No. 109, "Accounting for Income Taxes." Corporate
allocations for income tax liability and expense relating to Procuren(R)
Operations have not been included in the accompanying financial statements for
the years presented. Procuren(R) Operations is not a separate member of a
consolidated group and, therefore, any applicable income tax is recognized by
the parent of the consolidated group, Curative Health Services, Inc.
4. STATEMENT OF REVENUES AND EXPENSES
REVENUES: Revenues are recorded when products are dispensed. Total revenues
include actual charges to hospitals for Procuren(R) and estimates of Procuren(R)
revenue in instances where Procuren(R) charges are not separately stated
(approximately $261,000 and $372,000 for the years ended December 31, 2000 and
1999, respectively), and fees related to operation of the Procuren(R) blood
processing facilities.
COST OF REVENUES: Cost of revenues represents the cost of producing Procuren(R).
These costs include raw materials, labor, and overhead such as rent,
depreciation, utilities, and other costs of operating the blood processing
facilities.
7
Curative Health Services, Inc.
Procuren(R) Operations
Notes to Financial Statements (continued)
4. STATEMENT OF REVENUES AND DIRECT EXPENSES (CONTINUED)
OTHER EXPENSES: Total other expenses include selling, general and
administrative, bad debt and technical services costs such as quality assurance,
facility management, and purchasing costs. Included in technical service costs
are corporate allocations including secretarial support, rent, utilities, and
insurance which approximated $298,000 and $578,000 for the years ended December
31, 2000 and 1999, respectively. Included in selling, general and administrative
expenses are other corporate allocations for selling, general and administrative
support services such as payroll, human resources, accounting and accounts
payable, management information systems and similar services from Curative
Health Services, Inc. approximating $1,474,000 and $1,675,000 for the years
ended December 31, 2000 and 1999, respectively.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment and related accumulated depreciation and
amortization follows:
DECEMBER 31
2000 1999
---------- ----------
Property and equipment $3,614,434 $3,368,057
Leasehold improvements 3,381,717 3,134,405
---------- ----------
Less accumulated depreciation and amortization
4,212,002 3,493,312
---------- ----------
$2,784,149 $3,009,150
========== ==========
8
Curative Health Services, Inc.
Procuren(R) Operations
Notes to Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES
LEASES: The Company has entered into several noncancellable operating leases for
the rental of certain office space relating to Procuren(R) Operations processing
facilities and equipment leases at such locations expiring in various years
through 2004. The following is a schedule of future minimum lease payments by
year and in the aggregate under noncancellable operating leases and initial or
remaining terms of one year or more at December 31, 2000:
OPERATING LEASES
----------------
2001 $ 554,000
2002 378,000
2003 190,000
2004 13,000
----------
Total $1,135,000
==========
Rent expense for all operating leases associated with Procuren(R) Operations
approximated $704,000 and $696,000 for the years ended December 31, 2000 and
1999, respectively.
7. EMPLOYEE BENEFITS
The Company maintains a qualified Employee Savings Plan (the "Plan") for
eligible employees under Section 401(k) of the Internal Revenue Code. The Plan
provides for voluntary employer contributions at the discretion of the Company.
The Company currently has authorized employer contributions of 50% of employees'
contributions up to 2% of the employees' compensation.
The Company also maintains a non-qualified Deferred Compensation Plan for
certain executives and directors.
Corporate allocations for employee benefits approximating $32,000 and $48,000
have been included in selling, general and administrative expenses for the years
ended December 31, 2000 and 1999, respectively.
9
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Set forth below is unaudited condensed combined financial information showing
the pro forma effects of the acquisition on January 2, 2001 by Cytomedix,
Inc. of certain assets from Curative Health Services, Inc. related to the
development and production of Curative's chronic wound care treatment agent,
Procuren, herein referred to as Procuren-Registered Trademark- Operations. We
have derived the pro forma condensed combined financial information from
Cytomedix's audited financial statements and Procuren-Registered Trademark-
Operation's unaudited financial statements, each as of and for the year ended
December 31, 2000. No events occurred between December 31, 2000 and January
2, 2001 that materially affected the financial position of either Cytomedix,
Inc. or Procuren Operations.
The pro forma condensed combined statement of operations is presented as if
the purchase of the assets, the issuance of the promissory notes, and the
grant of the warrants to purchase Cytomedix common stock had occurred as of
the beginning of the period presented.
The pro forma condensed combined financial information is not necessarily
indicative of the results of operations Cytomedix would have obtained had the
acquisition of Procuren-Registered Trademark- Operations and the promissory
note issuance been completed as of the beginning of the period presented.
Accordingly, actual results will differ from the pro forma results, and the
differences may be material. The information presented is derived from,
should be read in conjunction with, and is qualified in its entirety by
reference to, the separate historical financial statements and the notes
thereto appearing elsewhere in this Form SB-2 or incorporated elsewhere in
this Form SB-2 by reference. The unaudited pro forma condensed combined
financial information has been included for comparative purposes only.
P-1
CYTOMEDIX, INC.
(a development stage entity)
Unaudited Pro Forma Condensed Combined Balance Sheet
December 31, 2000
Cytomedix, Procuren Pro Forma
ASSETS Inc. Operations Adjustments Pro Forma
----------- ----------- ----------- ----------
Unaudited Unaudited Unaudited
Current assets:
Cash and cash equivalents $ 2,116,232 $ $ $ 2,116,232
Receivables 228,044 228,044
Prepaid expenses and other current assets 137,833 318,301 456,134
----------- ----------- -----------
Total current assets 2,482,109 318,301 2,800,410
Property and equipment, net 514,713 2,784,149 3,298,862
Debt discount -- -- 2,370,000 (d) 2,370,000
Deferred financing costs -- -- 1,185,000 (f) 1,185,000
Identified and unidentified intangible assets -- 680,121 2,622,000 (c) 3,302,121
Other 878,452 -- (722,000)(c) 156,452
----------- ----------- -----------
Total other assets 878,452 680,121 7,013,573
----------- ----------- -----------
$ 3,875,274 $ 3,782,571 $13,112,845
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term obligations $ 18,470 $ $1,682,571 (c) $ 3,801,041
2,100,000 (d)
Payable - stockholder and related parties 87,083 87,083
Accounts payable and accrued expenses 964,644 964,644
Deferred revenue 15,000 15,000
---------- ----------- -----------
Total current liabilities 1,085,197 -- 4,867,768
Long-term liabilities 155,510 155,510
----------- ----------- -----------
Total liabilities 1,240,707 -- 5,023,278
Preferred Stock series A 5% cumulative 1,625,000 -- 1,625,000
Stockholders' equity 1,009,567 1,900,000 (c) 6,464,567
2,370,000 (d)
3,782,571 (e)
(3,782,571)(e)
1,185,000 (f)
Net assets - Procuren 3,782,571 (3,782,571)(c) --
----------- ----------- -----------
$ 3,875,274 $ 3,782,571 $ 13,112,845
=========== =========== ===========
The accompanying notes are an integral part of this unaudited pro forma
condensed combined balance sheet.
P-2
CYTOMEDIX, INC.
(a development stage entity)
Unaudited Pro Forma Condensed Combined Statement of Operations
Year ended December 31, 2000
Cytomedix, Procuren Pro Forma
Inc. Operations Adjustments Pro Forma
------------- ------------- -------------- ------------
unaudited unaudited unaudited
Revenues $ 318,819 $ 7,020,440 $ $ 7,339,259
Cost of sales 61,952 5,292,518 5,354,470
------------- ------------- ------------
Gross margin 256,867 1,727,922 1,984,789
Selling, general, and administrative expenses 33,724,748 3,648,950 887,042 (a) 38,260,740
------------- ------------- ------------
Loss from operations (33,467,881) (1,921,028) (36,275,951)
1,185,000 (b)
Other (income) expense, net (212,669) -- 378,057 (b) 1,350,588
------------- ------------- ------------
Net loss (33,255,212) (1,921,028) (37,626,539)
Dividend on Series A preferred stock 81,250 -- 81,250
------------- ------------- ------------
Net loss applicable to common
stockholders $ (33,336,462) $ (1,921,028) $(37,707,789)
============= ============= ============
Basic and diluted loss per common share $ (3.26) $ (3.68)
============= ============
Weighted average shares outstanding 10,240,532 10,240,532
============= ============
The accompanying notes are an integral part of this unaudited pro forma
condensed combined statement of operations.
P-3
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) To reflect a full year of depreciation expense on property
and equipment, and amortization expense on identifiable intangibles
acquired as if the acquisition had occurred at the beginning of the
period presented, as follows:
Depreciation 5 Years $ 556,830
Amortization 10 Years 330,212
---------
Total $ 887,042
==========
(b) To reord annual interest expense resulting from the issuance of 10%
convertible secured promissory notes for the acquisition of
Procuren-Registered Trademark- Operations as if the debt had been
incurred as of the beginning of the period presented. Interest
expense has been annualized assuming refinancing of short-term debt
on substantially identical terms. To record amortization of deferred
financing costs.
(c) To record the acquisition of Procuren-Registered Trademark-
Operations as if the purchase had occurred on December 31, 2000.
The estimated purchase price allocations are as follows:
Purchase price paid as:
Proceeds from debt issued $2,100,000
10% note issued to Curative 1,682,571
600,846 warrants issued to Curative 1,900,000
Transaction costs 722,000
----------
6,404,571
Allocated to:
Current assets 318,301
Property and equipment 2,784,149
Identified and unidentified intangible assets 3,302,121
(d) To record issuance of $2,100,000 of 10% convertible secured
promissory notes and 750,000 common stock warrants to finance the
Procuren acquisition. The fair value of the warrants using the
Black Scholes model is estimated to be $2,370,000. For purposes of
pro forma presentation the fair value attributable to the warrants
and resulting discount on debt is shown separately on the unaudited
pro forma condensed combined balance sheet.
P-4
(e) To record the beneficial conversion feature of the convertible
notes that are convertible upon their issuance. The beneficial
conversion amount of $3,782,571 is limited by the amount of
proceeds of the note.
(f) To record deferred financing costs associated with warrants issued
to a third party consultant for a placement fee to secure the debt
financing.
(g) There were no intercompany balances during the period presented. All
intercompany transactions have been eliminated.
P-5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CYTOMEDIX, INC.
-----------------------------------
(Registrant)
Dated: March 16, 2001 By: /s/ James A. Cour
-------------------------------
James A. Cour
President and Chief Executive Officer