May 11, 2005
U.S. Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Mail Stop 03-09
Washington, D.C. 20549
Attn: Jim Rosenberg
Re: Cytomedix, Inc. (the "Company")
Form 10-KSB for the fiscal year ended December 31, 2004
(File No. 000-28443)
Ladies and Gentlemen:
Filed today is our response to the Commission's letter to the Company dated May
6, 2005 regarding the Form 10-KSB for the fiscal year ended December 31, 2004.
Set forth below is the text of each of the comments contained in the SEC letter
and the Company's responses thereto. The headings and numbered paragraphs below
correspond to the headings and paragraph numbers in the SEC letter. Page
references in the Company's response to the SEC comments correspond to the page
numbers in the Form 10-KSB - Annual Report.
Form 10-KSB for the year ended December 31, 2004
Statements of Operations, page F-4
1. We acknowledge your disclosure on page 10 wherein you assert existing
activities are not considered research and development. In your response,
please expand on your assertion by analyzing the guidelines provided by
paragraphs 8 and 9 of FAS 2 as it relates to your activities.
Response
We have reviewed the guidance contained in paragraphs 8 and 9 of FAS 2.
We wish to point out that the primary focus of the Company is the
treatment of chronic, non-healing wounds through our existing proprietary
AutoloGel(TM) System which is used to produce the platelet rich plasma
gel. We currently market and sell this product as a continuing commercial
activity throughout the United States.
We have not been able to obtain mass market penetration of the
AutoloGel(TM) System as further explained in our corporate history,
strategy and clinical trials sections in the Form 10-KSB pages 2-4.
U.S. Securities and Exchange Commission
May 11, 2005
Page 2
We have identified several significant areas that we believe must be
addressed before mass market penetration of the AutoloGel(TM) System can
be achieved.
o The first area involves reimbursement from third-party payers. We
believe a necessary predicate to securing this broad reimbursement
is through obtaining a national reimbursement code. The process to
obtain a reimbursement code from the Centers for Medicare and
Medicaid Services ("CMS"), while independent of the FDA approval
process, is subject to similar procedural and independent clinical
testing as required by the FDA in order to establish product safety
and efficacy.
o The second area involves securing Food and Drug Administration
("FDA") clearance or approval of the AutoloGel(TM) System for
specific clinical indications such as for the treatment of
non-healing diabetic foot ulcers, in order to increase the clinical
acceptance and marketing of this technology. Additionally, many
clinicians are reluctant to prescribe products that have not been
approved by the FDA, notwithstanding the scope of the "physicians
practice of medicine". Further, without FDA approval, the Company's
ability to make claims for the AutoloGel(TM) System regarding its
use to treat or heal wounds is limited.
The clinical trials are solely to facilitate obtaining a national
reimbursement code and securing Food and Drug Administration ("FDA")
clearance or approval, neither of which is required for us to market and
sell our products but, both of which are needed to obtain mass market
penetration.
The clinical trials are not designed to discover new knowledge, nor modify
existing products or processes - they are designed to further enhance the
marketability of our existing commercial product. Consequently, after
re-visiting FAS 2 paragraphs 8, 9 and 10 (excluded items from research
and development) we re-affirm these are not research and development
activities.
Notes to Financial Statements
Note 2 - Summary of Significant Accounting Policies, Basis of Presentation, Page
F-19
Note 9 - Intangible Assets, page F-25
2. We acknowledge your accounting policy disclosure on page F-19 wherein you
indicate excess reorganization value will be treated "similar to
goodwill." We also acknowledge you are a development stage enterprise, as
explained on page 16 of your MD&A.
We note that paragraph 9 of FAS 142 does not allow for goodwill
recognition from a transaction unless it results from a business
combination. Furthermore, footnote 4 of FAS 141 refers to EITF 98-3 to
define when net assets constitute a business. In so doing, paragraph 6(f)
of EITF 98-3 clarifies "if the transferred set is in the development stage
and has not commenced planned principal operations, the set is presumed
not to be a business." In light of your reference to SOP 90-7, we believe
the aforementioned pronouncements provide the highest level of accounting
guidance for your facts and circumstances.
U.S. Securities and Exchange Commission
May 11, 2005
Page 3
Please provide us your analysis supporting the recognition of excess
reorganization value considering your status as a development stage
enterprise; in your response please identify specific portions of
accounting literature supporting your position.
Response
We wish to point out the following items:
Paragraph 18 of SOP 90-7 Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code define its scope as: "18 This statement of
position applies to financial reporting both by entities that have filed
petitions with the Bankruptcy Court and expect to reorganize as going
concerns under Chapter 11 and by entities that have emerged from Chapter
11 (emerging entities) under confirmed plans."
Paragraph 16 of SOP 90-7 indicates that prior to SOP 90-7 ".16 ...
Further, the financial reporting literature provides no specific guidance
for financial reporting by entities emerging from Chapter 11
reorganization under confirmed plans."
Paragraph 66 of SOP 90-7 indicates that: ".66 This entire statement of
position shall become effective for financial statements of enterprises
that have filed petitions under the Bankruptcy Code after December 31,
1990. Additionally, for enterprises that file petitions prior to January
1, 1991, and that have plans of reorganization confirmed after June 30,
1991, paragraphs .35 through .42 of this SOP shall be applied to their
financial statements. Earlier application by entities in reorganization is
encouraged."
As indicated in Paragraph 38 of SOP 90-7 this SOP was updated in March
2003 to reflect the conforming changes necessary due to the issuance of
FASB Statement Nos. 141 and 142. Paragraph 38 also provides the guidance
for the recognition of excess reorganization value:
.38 Entities that adopt fresh-start reporting in conformity with paragraph
.36 should apply the following principles:
o The reorganization value of the entity should be allocated to the
entity's assets in conformity with the procedures specified by FASB
Statement No. 141, Business Combinations. If any portion of the
reorganization value cannot be attributed to specific tangible or
identified intangible assets of the emerging entity, such amounts
should be reported as goodwill in accordance with paragraph 6 of
FASB Statement No. 142, Goodwill and Other Intangible Assets.
o Each liability existing at the plan confirmation date, other than
deferred taxes, should be stated at present values of amounts to be
paid determined at appropriate current interest rates.
o Deferred taxes should be reported in conformity with generally
accepted accounting principles. Benefits realized from
preconfirmation net operating loss carryforwards should first reduce
reorganization value in excess of amounts allocable to identifiable
assets and other intangibles until exhausted and thereafter be
reported as a direct addition to paid-in capital.
U.S. Securities and Exchange Commission
May 11, 2005
Page 4
o Changes in accounting principles that will be required in the
financial statements of the emerging entity within the twelve months
following the adoption of fresh-start reporting should be adopted at
the time fresh-start reporting is adopted.
[Revised, March 2003, to reflect conforming changes necessary due to the
issuance of FASB Statement Nos. 141 and 142.]
FASB 141 Summary indicates: "This Statement addresses financial accounting
and reporting for business combinations and supersedes APB Opinion No. 16,
Business Combinations, and FASB Statement No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises." There was no
business combination and therefore this FASB is not applicable.
FASB 142 paragraph 9 indicates: "... The cost of a group of assets
acquired in a transaction other than a business combination shall be
allocated to the individual assets acquired based on their relative fair
values and shall not give rise to goodwill." There were no assets acquired
in a transaction and therefore this paragraph is not applicable.
FASB 142 paragraph 6 indicates: "6. This Statement applies to goodwill and
other intangible assets recognized on the acquisition of some or all of
the noncontrolling interests in a subsidiary--whether acquired by the
parent, the subsidiary itself, or another affiliate. 5 This Statement,
including its transition provisions, applies to amounts recognized as
goodwill in applying the equity method of accounting and to the excess
reorganization value recognized by entities that adopt fresh-start
reporting in accordance with AICPA Statement of Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code. That
excess reorganization value shall be reported as goodwill and accounted
for in the same manner as goodwill." FASB 142 specifically acknowledges
SOP 90-7 and includes it within its scope as noted in paragraph 6.
EITF 98-3 paragraph 4 indicates that the scope of the EITF is as follows:
"4. The issues are whether the exchange of assets or groups of assets
involving the receipt of a consolidated business can be considered an
exchange of similar productive assets accounted for at historical cost
pursuant to paragraph 21 of Opinion 29 and how a "business" should be
defined. There was no exchange of assets and therefore this EITF is not
applicable.
To conclude, our position is the SOP 90-7 is the appropriate authoritative
guidance applicable to our emergence from bankruptcy as validated in
paragraph 6 of FASB 142. As required by SOP 90-7 paragraph 38 we allocated
excess reorganization value to goodwill. FASB 141, 142 and EITF 98-3 did
not apply to our emergence from bankruptcy as there was no business
combination, exchange of assets nor acquisition of assets.
U.S. Securities and Exchange Commission
May 11, 2005
Page 5
The Company acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action with
respect to the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
We appreciate your prompt response to our filing. If you have any questions, or
if we may be of any assistance, please contact the undersigned or Steven Polkoff
at (847) 726-8100, of L J Soldinger Associates LLC, our independent registered
accounting firm.
Very truly yours,
/s/ William Allender
William Allender
Encl.