U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File Number 0-28443
CYTOMEDIX, INC.
formerly AUTOLOGOUS WOUND THERAPY, INC.
(Name of small business issuer in its charter)
DELAWARE 23-2958959
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1523 BOWMAN ROAD, SUITE A
LITTLE ROCK, ARKANSAS 72211
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(Address of principal executive (Zip Code)
offices)
Securities to be registered under Section 12(g) of the Act:
Name of each exchange
Title of each Class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of Registrant s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were
$8,600.
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 20, 2000 (valued
at $20.00 per share) :
$120,030,820
As of March 31, 2000 Registrant had outstanding 9,633,875
shares of Common Stock, 1,625,000 shares of Series A Preferred
Stock and 5,115,000 shares of Series B Preferred Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
AWTX
INDEX - FORM 10-KSB
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PART I
Page
Item 1. Description of Business . . . . . . . . . . . . . . 4
Item 2. Description of Property . . . . . . . . . . . . . . 22
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . 22
PART II
Item 5. Market for the Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . 23
Item 6. Management's Discussion and Analysis and Plan of
Operations . . . . . . . . . . . . . . . . . . . . 26
Item 7. Financial Statements . . . . . . . . . . . . . . . 31
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . 31
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act . . . . . . . . . . . . . . . . . . . 31
Item 10. Executive Compensation . . . . . . . . . . . . . . 33
Item 11. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . 36
Item 12. Certain Relationships and Related Transactions . . 39
PART IV
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . 41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 43
Index to Financial Statements and Schedules . . . . . . . . . 44
FORWARD LOOKING STATEMENTS AND INFORMATION MAY PROVE INACCURATE
When used in this Form 10-KSB and in other filings by the
Company with the SEC, in the Company's press releases or in
other public or stockholder communications or oral statements
made with the approval of an authorized executive officer of
the Company, the words or phrases "would be," "will allow,"
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"intends to," "believes," "plans," "will likely result," "are
expected to," "will continue," "is anticipated," "estimate,"
"project," or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any
forward looking statements, which speak only as of the date
made, are based on certain assumptions and expectations which
may or may not be valid or actually occur, and which involve
risks of product demand, market acceptance, economic
conditions, competitive products and pricing, difficulties in
product development, commercialization, and technology, and
other risks. In addition, sales and other revenues may not
commence and/or continue as anticipated due to delays or
otherwise. As a result, the Company's actual results for
future periods could differ materially from those anticipated
or projected.
The Company does not intend to update the forward looking
statements contained in this report, except as may occur as
part of its ongoing periodic reports filed with the Securities
and Exchange Commission. Whenever in this discussion the term
"Company" is used, it should be understood to refer to
Cytomedix, Inc. ("AWT"), except where the context clearly
indicates otherwise.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Organization and General Development
CytoMedix, Inc. (the "Company") is a Delaware corporation
formed on April 29, 1998. The Company changed its name from
Autologous Wound Therapy, Inc. effective March 30, 2000. Prior
to November 4, 1999, the Company was known as Informatix
Holdings, Inc. The Company is the surviving corporation in a
merger between Informatix Holdings, Inc. and Autologous Wound
Therapy, Inc., an Arkansas corporation formed December 11, 1998
("Old AWT"), pursuant to a Plan and Agreement of Merger and
Reorganization dated October 22, 1999 (the "Merger"). The
Merger was consummated on November 4, 1999 with Old AWT being
merged with and into the Company. In the merger, each share of
issued and outstanding Old AWT common stock was converted into
fifty (50) shares of Company common stock and fifty (50) shares
of the Company's Series B convertible preferred stock after
giving effect to a 1:2 reverse stock split on the Company's
common stock effective November 8, 1999. Simultaneous with the
consummation of the merger, the name of the surviving
corporation was changed to Autologous Wound Therapy, Inc.
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The Company was originally a public shell company,
defined as an inactive, publically-quoted company with nominal
assets and liabilities.
Old AWT was formed on December 11, 1998, to develop,
market and sell a proprietary system for the treatment for
chronic wounds. By virtue of the Merger, the Company continues
the business conducted by Old AWT to develop, market and sell a
proprietary system for the treatment for chronic wounds using
the AuTolo-Cure TM System (the Business ). To date, the
Company has realized minimal revenues from the sale and
licensing of the AuTolo-Cure TM System.
THE AUTOLO-CURE TM SYSTEM
Webster s defines autologous as derived from the same
individual. Prior to forming Old AWT, Charles Worden
("Worden"), the inventor of AuTolo-Gel TM, was engaged in
research and development of autologous products for the
treatment of wounds. The AuTolo-Cure TM system is based upon
the use of a process developed by Worden for the application of
an autologous platelet-rich concentrated gel to chronic wounds.
The process removes platelets from the individual, applies a
process developed by Worden to create AuTolo-Gel TM and then
applies the gel to the wound. By using the patient s own
platelets to create the gel, the system is an autologous
process. The Company intends to market and sell its
proprietary system for the treatment of chronic wounds
presently identified by the servicemark, AuTolo-Cure TM (the
AuTolo-Cure TM system ) . The process is identified by the
servicemarks, AUTOLOGOUS PLATELET GEL TM and AuTolo-Gel TM.
The AuTolo-Cure TM system will be used by physicians and other
health facilities and providers to treat various types of
chronic wounds. It is the Company's belief that because of
the nature of the AuTolo-Cure TM system and the use of the
patient s own blood to produce AuTolo-Gel in the clinical
setting at the time the treatment is applied, that the
marketing of the AuTolo-Cure TM system is not subject to prior
regulatory approval by the Food & Drug Administration.
However, as noted in the Regulation discussion below, if the
FDA or any state takes a different position on required
approvals, the marketing efforts of the Company could be
delayed or restricted during the approval process.
A chronic wound is defined as a wound of three or more
months duration. The three foremost types of chronic wounds
are diabetic ulcers, venous stasis wounds and pressure sores
(such as bedsores). People suffering from these afflictions are
commonly affected by debilitating diseases (i.e. diabetes) that
affect the circulatory system, resulting in a decreased ability
to heal through the body's natural mechanism. The result is a
chronic, nonhealing wound that, should its progression not be
controlled, could lead to amputation and, ultimately, death.
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The AuTolo-Cure TM system is a designed to be a turnkey package
that will enable a qualified health care provider to use the
AuTolo-Gel TM product in the treatment of chronic wounds. In
the sense of turnkey, the Company will provide the user with
the machine necessary to remove the patients blood platelets,
the disposable products used in that process, the wound
dressings to be applied after the treatment and the necessary
training, licensing and support of the user and its personnel.
The AuTolo-Cure TM system will consist of the lease of a
machine, an agreement to purchase a monthly minimum number of
packs (disposable blood recovery components required for each
application of AuTolo-Gel TM), training, authorization and
licensing in the preparation of AuTolo-Gel TM, state-of-the-art
wound care software (optional) and ongoing technical support by
the Company's wound care professionals.
THE AUTOLO-CURE TM PROCESS
This process is designed to assist in healing previously
nonhealing, chronic wounds. Examples of these types of wounds
include: diabetic foot ulcers, venous or arterial wounds,
pressure ulcers, trauma, venomous bites, or surgical
dehiscence. Physicians trained in comprehensive wound
management assess the wound and the patient s overall condition
to determine if the patient is eligible. The patient must meet
certain criteria to ensure their appropriateness for the
process. If the physician determines that the patient could
benefit from being treated with AuTolo-Gel, a procedure is
performed where blood is drawn from the patient resulting in
collection of platelets and a small amount of plasma with red
blood cells being captured using the sequestration machine.
The remaining plasma is then returned to the patient. This is
a sterile, individualized process for each patient and takes
about 20 minutes to complete.
The wound bed is prepared for the treatment by thoroughly
cleaning the area to remove all necrotic (dead), infected
tissue. The wound is then ready for the application of
AuTolo Gel. The platelets and plasma collected from the
patient is mixed with the Company's proprietary activator
products, at which time the liquid evolves into a gel. This
AuTolo - Gel is then applied onto the prepared wound area by
the physician and molded to fill the entire wound cavity and
seal the wound. A dressing is placed over the treated area and
is left in place for five days or according to the physician
order. This entire autologous process is conducted at the
point of care under physician direction.
The patient leaves the facility with AuTolo Gel applied to the
wound area and the dressing in place. The patient is then
scheduled for a follow-up visit according to the physician's
order. On the return visit, the physician removes the dressing
and observes the wound. The wound is re-dressed for the next
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seven days, or according to physician order and the patient
would be rescheduled for follow-up at the end of this period.
After the second follow-up visit (approximately 12 days after
the original treatment), the physician reassesses the wound to
determine if another application of AuTolo Gel would be
beneficial. If necessary, the procedure of drawing blood,
preparing and applying the gel and the follow-up visit cycle
would be repeated until the wound heals.
Whenever in this discussion the term "Company" is used, it
should be understood to refer to Cytomedix, Inc. ("AWT"),
except where the context clearly indicates otherwise.
SUMMARY OF TESTING
Since July, 1999, Keith Bennett and Bennett Medical, LLC, an
entity controlled by Bennett, have conducted tests on over 150
chronic non-healing wounds using the AuTolo-Cure Process. Of
the wounds treated, approximately 50% were diabetic ulcers, 22%
venous stasis wounds, 9% arterial disease wounds, 7.3% pressure
ulcers (bed sores) and the remaining a combination of surgical
and trauma wounds. Of the 150 cases, thirty-three (33) have
been completed with the wound closing. The following
summarizes the outcomes of the completed cases:
AuTolo-Gel
Type Number of Wound Volume Wound Duration Healing Time Treatments
Wounds (Average mm3) (Average - (Average - (Average
weeks) weeks) Number)
Diabetic
ulcers 21 436.56 mm3 38.38 wks 6.57 wks 1.33
Venous
stasis 11 1960.66 mm3 705.55 wks 6.72 wks 2.27
The healing time for diabetic ulcers ranged from four days to
sixteen weeks with the average healing time of 6.57 weeks. For
venous wounds the healing time ranged from three weeks to
eleven weeks, with the average of 6.72 weeks. Of particular
note is the average known wound duration for the venous stasis
wounds in terms of years and the relative short average healing
time of approximately seven weeks. Because of the limited
number of completed venous stasis case, the average known wound
duration is skewed by two wounds that have been in existence
for more twenty years. Excluding those wounds, the average
duration is reduced to approximately 2 years.
The remaining cases are ongoing and the wounds are closing with
the healing time and number of treatments being consistent with
the completed cases. Of the 150 cases treated by Dr. Bennett,
the AuTolo-Cure process has been discontinued in four cases.
Two patients were dismissed for failing to comply with
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treatment procedures (one did not return after the first
treatment), one patient decided to have a skin graft after the
first treatment and one case was discontinued because the
treatment was ineffective due to the patient's lack of blood
flow to the wound area and condition of the wound at the time
treatment was sought.
As more fully detailed below, Bennett, BMI and the Company
entered into an independent contractor agreement covering the
services to be provided by Bennett and BMI to the Company. As
compensation for the testing, Bennett and BMI retained all
professional fees associated with the treatments and received
warrants to purchase up to 250,000 shares of the Company's
common stock at an exercise price of $.0002 per share and upon
exercise of the warrant, BMI will be entitled to participate in
the Non-Qualified Stock Option Plan on a one-for-one basis with
the number of shares exercised under the warrant for up to an
additional 250,000 shares of common stock at an exercise price
of $.02 per share. BMI holds an option to purchase 135,000
shares of the Company's common stock at an exercise price of
$1.00 per share as compensation for acting as a sales agent for
the licensing of the AuTolo-Cure process and sale of disposable
supplies and training services for the Company. The warrant
and options are fully vested and may be exercised by Bennett
and BMI at any time. A more detailed description of the
contractual agreement between Bennett, BMI and the Company,
including the terms of the warrants and options, maybe found
under ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
THE CHRONIC WOUND CARE MARKET
The chronic wound care market is estimated to be in excess
of $ 6.2 billion annually. (1) It is estimated that there were
as many as 67,000 chronic wound-related amputations in 1998 in
the United States alone. (2) Management believes that with
the aging population, these diseases and wounds are on the
rise and are expected to continue impacting the health care
market at an increased rate of nearly 10% a year. (3)
Management also believes that traditional methods of
treatment (inert dressings, whirlpools, etc.) have had
limited effectiveness in treating chronic wounds. Recently,
<PAGE>
advances in biotechnologies have made the possibility of
proactive therapies and produced an alternative to traditional
methods of treatment. Health care manufacturers have invested
large sums of money and attention in the proactive market.
The health care system, as it turns more toward managed care
from fee-for-service, is demanding more cost effective
means of treatment and personnel interaction. The
outpatient industry, and health care as a whole, is being
affected by changing reimbursement environments. The
traditional methods of chronic wound treatment call for
frequent dressing changes and personnel interaction to
control infection and advancement. Management believes that
the proactive approach, in part, has the potential of
not only accelerating healing rates, but also providing relief
to the traditional labor-intensive treatments.
____________________
(1) Wedbush, Morgan Securities, Biotechnology in Wound Care,
4th Edition, Jan. 1999.
The Company did not request or obtain permission from
Wedbush or any other source footnoted or quoted in
connection with this Registration Statement but notes that
all cited sources are from publicly available documents,
reports or publications. Copies of the cited sources will
be made available to any person requesting them from the
Company.
(2) Success in Home Care, Jan/Feb 1999, page 44.
(3) Success in Home Care, Jan/Feb 1999, page 44.
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The Company believes that the chronic wound market is best
suited for introduction to AuTolo-GelTM. The three most common
types of chronic wounds are diabetic foot ulcers, venous stasis
ulcers, and decubitus ulcers (bedsores). Following are some
facts and estimates regarding these most common types of
chronic wounds:
Diabetic Foot Ulcers
Diabetes mellitus is a group of diseases
characterized by high levels of blood glucose as a
result of defects in insulin secretion or insulin
action. The US estimates are that 15.7 million
people, or 5.9% of the population, have diabetes. (4)
There are four types of diabetes:
Type 1
Previously called insulin dependent diabetes
mellitus (IDDM) or juvenile-onset diabetes.
Type 1 diabetes may account for 5% to 10% of all
diagnosed cases. Generally, risk factors of
Type 1 diabetes are less than Type 2.
Type 2
Previously called non insulin-dependent diabetes
mellitus (NIDDM) or adult-onset diabetes. It is
believed that Type 2 diabetes accounts for up to
95% of all diagnosed cases in the U.S. (5)
African-Americans, Native American Indians and
Pacific Islanders are at particularly high risk
for Type 2 diabetes. Risk factors include older
age, obesity, family history and race/ethnicity.
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This type has a greater risk for developing
chronic ulcers.
Type 3
Gestational diabetes.
Type 4
All other specific types.
Complications of diabetes include heart disease,
stroke, blindness, high blood pressure, kidney
disease, nervous system disease, amputations (from
ulcers, etc.) and others. Treatments such as
education and prevention knowledge are more prevalent
today as the disease is on the increase. There is
currently no cure for diabetes.
It has been estimated that Type 1 diabetic patients
spend over $1 billion on insulin, consume $300
million in bandages and dressings, and account for
$1.2 billion in nursing services on an annual
basis. (6) Worldwide estimates of the foot ulcer
market are as follows (7):
Patients
US Europe ROW* TOTAL
__________________________________________________________
750,000 980,000 1.1 million 2.8 million
($ Spent annually) $450 million $590 million $400 million $1.4 billion
* Rest of World
The large manufacturing companies, such as Johnson &
Johnson, Smith & Nephew, Chiron and 3M dominate the
market for products for the treatment of foot ulcers.
With diabetes on the rise and an increasing and aging
population, the number of annual foot ulcers is
expected to increase. As stated earlier, the
changing environment and the need for better
treatments is expected to continue to fuel a change
from traditional (inert) to a proactive philosophy.
AuTolo-Gel. TM, the Company believes, can be used in
the treatment of foot ulcers, improving cost
containment and treatment efficacy.
____________________
4 Arkansas Diabetes Control Program, Annual Report, 1997
5 Arkansas Diabetes Control Program, Annual Report, 1997
6 Eli Lilly & Co., Annual Report, 1997
7 Wedbush, Morgan Securities, Biotechnology in Wound Care,
4th Edition, Jan. 1999.
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Venous stasis ulcers (VSUs)
Several elements and diseases may contribute to VSUs.
Typically they occur just above the ankles on
sedentary elderly people. Blood flow becomes
sluggish, leading to skin cell deaths. As the skin
cells die from oxygen starvation brought on by poor
circulation, an open wound is left with a poor chance
of healing. Management believes that the market
should, under current treatment regimens, continue to
grow for the same population issues as the diabetic
ulcer market. Some worldwide annual estimates for
the VSU market are8:
Patients
US Europe ROW* TOTAL
_________________________________________________________
800,000 900,000 1.9 million 3.6 million
($ Spent annually) $730 million $820 million $1.4 billion $2.9 billion
* Rest of World
The VSU market is expected to be an early target for
the Company. Management believes that AuTolo-Gel TM
may be applicable to a greater percentage of venous
stasis patients than diabetics, as there appear to be
less symptoms of disease that may exclude them from
treatment.
The Company is attempting to develop a joint study
program utilizing AuTolo-Gel TM on VSUs with a
nationally recognized teaching institution. Although
the cooperative program is yet to be finalized,
management is hopeful that the study could begin
within a few months.
Decubitus ulcers
Decubitus ulcers (bedsores) form when the skin is under
pressure via immobility for 10-12 hours. Normally healthy
people tend to move throughout the night, keeping the blood
flow balanced. Paraplegics and immobile elderly people lack
the ability to shift body weight on their own, and thus
account for the vast percentage of decubitus ulcers.
Again due to the aging population, the decubitus
ulcer market is expected to grow at an increased
rate relative to the other main chronic wound
types. The 55 and over segment of the US
population is anticipated to grow at an
estimated 2.5 times the rate of the general
____________________
8 Wedbush, Morgan Securities, Biotechnology in Wound Care,
4th Edition, Jan. 1999.
11
population in the next six years. Nursing home
bed capacity (US) is 1.7 million, with an
average occupancy of 90%. Some estimates
indicate that up to 60% of the nursing home
population (not to mention hospital and home
patients) have open bedsores at any one time.
Management believes that the problem is immense,
as generally the rest of the world s elderly
care is, on the average, less than that in the
U.S. Some of the worldwide market estimates
are9:
Patients
Patients
US Europe
US Europe
___________________________________________________
ROW TOTAL
ROW TOTAL
__________________________________________________
690,000 900,000
4.5 million $6.1 million
($ Spent annually) $220 million $285 million
$1.4 billion $1.9 billion
* Rest of World
Management believes that many nursing home patients are
too advanced in age and/or malnutrition to make good candidates
for treatment with AuTolo-Gel. TM . The market is almost
entirely dominated by traditional dressings. Prevention
regimens are still the best deterrent. Because of the
proactive status of AuTolo-Gel TM, the treatment involving
venous entry (which may not be possible on some nursing home
patients) and nutrition playing a major role in healing, the
Company believes this market to be the least likely of the
three for initial entry. However, management believes that
there is a certain percentage of these people that can benefit
from AuTolo-Gel TM . The Company intends to integrate long term
care facilities into the early stage marketing plan.
These three markets represent the bulk of the chronic
wound market as a whole. The combined estimates from these
sources are: 12.5 million annual patients accounting for $6.2
billion in annual health care dollars. At this time, management
believes that there is no other product available on the market
that employs the amount of growth factors and is autologous.
The Company believes that, if its case studies and marketing
efforts prove successful, AuTolo-Gel TM will become widely
accepted as a cost-effective and successful alternative to
other treatments for chronic wounds. The foregoing figures
represent the potential market of the Company and management
has formulated a marketing plan to expand the presence of the
AuTolo -Cure System and capture market share in the domestic
market while also exploring worldwide opportunities.
____________________
(8) Wedbush, Morgan Securities, Biotechnology in Wound Care,
4th Edition, Jan. 1999.
(9) Wedbush, Morgan Securities, Biotechnology in Wound Care,
4th Edition, Jan. 1999.
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MARKETING PLAN
The Company, as a developing entity, is just beginning to
enter the initial marketing stages. The Company will initially
self-market. From the home office in Little Rock, management
believes that the Company can have a potential sales presence
covering Arkansas, Eastern Oklahoma, Southern Missouri,
Southern Kansas, Northern Texas, Louisiana, Northern
Mississippi, and Eastern Tennessee, without additional
personnel. Because it is the Company's belief that because of
the nature of the AuTolo-Cure TM system and the use of the
patient s own blood to produce AuTolo-Gel in the clinical
setting at the time the treatment is applied and thereby not
subject to prior regulatory approval by the Food & Drug
Administration, the marketing efforts are currently in
progress. However, as noted in the Regulation discussion
below, if the FDA or any state takes a different position on
required approvals, the marketing efforts of the Company could
be delayed or restricted during the approval process.
The Company intends to market the AuTolo-Cure TM system
by means of providing end-users (health care providers and
facilities) with AuTolo -Cure License packages. The License
package consists of sequestration machine used to isolate
platelets, an agreement to purchase a set monthly minimum
number of packs (disposable blood recovery components required
for each application of AuTolo-Gel. TM , training,
authorization and licensing in the preparation of AuTolo-Gel
TM, state-of-the-art wound care digitization software
(optional) and ongoing technical support by the Company's wound
care professionals.
Management anticipates the AuTolo -Cure Licenses will have
a term of three years, with renewal capability. The AuTolo -
Cure License will provide a facility with the ability to
prepare and administer AuTolo-Gel TM to its patients within its
own location in a turnkey manner. The license will be a non-
exclusive arrangement; however, in some areas, an exclusive
market license package may be offered. Management believes that
this method of product implementation will be cost-effective
and attractive, as existing physicians and personnel will be
utilized, eliminating outsourced, high-expense management
contracts. The Company has executed licenses in Texas, Arkansas
and is negotiating other licenses for the AuTolo-Cure TM
system.
The Company intends to grant development rights to certain
agents authorizing the agents to market the AuTolo-Cure TM
system on behalf of the Company. The development rights
refer to the agent s right to expand and develop the sales and
licensing of the AuTolo-Cure TM system and treatment packs
within a specific territory or geographic area, and not any
rights in the development or testing of the AuTolo-Cure TM
system or AuTolo-Gel. Additionally, the use of developer
rights as opposed to distributors, marketers other similar
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terms distinguishes the fact that the Company does not sell a
product, but rather a license of the use of proprietary
intellectual property rights and certain activators and
disposables used in the blood sequestration process. Agents
will present potential candidates for licensing to the Company
for consideration and the Company will determine whether or not
to grant such license in its sole and absolute discretion. The
Company intends to pay a commission of approximately twenty-
eight percent (28%) of the initial license fees received to the
developer that is responsible for presenting the licensee to
the Company. A potential licensee may purchase multiple
licenses based upon the number of sequestration machines
needed at the licensee s facility. Each license only includes
the authority to use one sequestration machine.
The Company's marketing strategy is to reach all levels of
wound care providers. The traditional targets of hospitals and
large specialty facilities are part of the Company's targeted
markets; however, management believes that these entities are
subject to significant amounts of corporate and regulatory
requirements, such that it generally take some time for such
organization to make and implement a decision. The Company has
identified additional potential end-users that are not
traditionally targeted and believes that a strategy of
approaching them with a state of the art, turnkey system as a
catalyst into the larger targets is an efficient means of
obtaining market share for its process.
The chronic wound care market has been broken down into
three segments, which are being developed simultaneously by the
Company:
1. Global Marketing Partners
This segment includes the large manufacturing
companies, pharmaceuticals and major health care
concerns.
2. Hospitals and Wound Care Providers
This segment includes acute care facilities, wound
care centers, nursing homes, wound care provider
chains and companies.
3. Private Operators
Including home health service companies, family
practitioners, podiatrists, private practice groups
and potential start-up initiatives.
Because of the potential offered by each segment and the
operational strategy of the Company, an initial entry plan has
been developed for each.
Global Marketing Partners
The Company is currently exploring the possibility of
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securing one or more marketing partners in this segment.
Because of the obvious reasons of existing sales forces and
customer bases, as well as resources for product protection, the
Company believes that a strategic partnering would be the
quickest route to worldwide market. The wound care industry
appears to be shifting focus from traditional methods of wound
care to new, proactive approaches. Currently, the Company has
contacted two such entities and serious discussions are ongoing
with one. A partnership or strategic alliance would likely
involve a licensing of the AuTolo-Cure System and AuTolo-Gel in
exchange for an initial licensing fee and continuing royalties
on future sales and revenues. The Company intends to continue
these efforts.
Hospitals and Wound Care Providers
The American Hospital Association reports that there are
approximately 6,100 hospitals in the United States which
collectively operate 1,035,390 staffed beds with admissions in
excess of 33,500,000 in 1998. The total expenses of these AHA
registered hospitals in 1998 was in excess of
$340,000,000,000.00.
The Company has devised, what it believes, the best route
into these end-users relative to the nature of the business.
The plan contains two parts, phase A and phase B.
Phase A
Several hospitals with wound care centers are now being
approached with a user-friendly, 90-day, no further
obligation review period of AuTolo-Gel. TM Under the
plan, a targeted facility will be given the chance to
review the efficacy of AuTolo-Gel TM for 90 days with
minimum pack usage obligations. The Company will provide
the machine and technicians for production of AuTolo-Gel
TM at the facility. The physician or attending personnel
will apply the gel to the selected wound care patients.
After the 90-day period, the Phase A participants will be
afforded the opportunity to become fully certified and
licensed as AuTolo -Cure facilities.
Because of the high-profile status of the phase A targets,
and their affiliations with hundreds of additional
facilities, management believes that the trickle-down
effect from these hospitals will be significant, thus
allowing further licensing of the AuTolo -Cure system.
Phase B
Phase B includes the licensing and further contracting
with hospitals and wound treatment centers following Phase
A and further AuTolo -Cure license marketing efforts. As
the corporate goals of additional documentation and wide
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recognition of the product are met, it is anticipated that
the rigors of a 90-day review period will not be necessary
and Phases A and B will be merged and hospitals and wound
treatment centers will immediately acquire licensing for
the AuTolo -Cure system.
The Company continues to evaluate the need for a Phase A
program given the clinical results and acceptance of the
AuTolo -Cure System. It is likely that the Phase A program
would be discontinued prior to December 31, 2000.
Private Operators
In the Company's initial test marketing efforts in
Arkansas, it is apparent that there is a major market available
in the private sector. Private practitioners, such as family
doctors, podiatrists and home health care providers have shown
very high interest in AuTolo-Gel TM and the AuTolo-Cure
system. These physicians and service providers are seeing the
vast number of the patients with wounds prior to their being
referred to acute care facilities. With access to the latest
technology, the potential of retaining patients, increasing
patient base and new treatment opportunities, management
believes that the potential income stream from an AuTolo -Cure
license can be extremely attractive to the private
practitioners.
In the case of the individual practitioners and
podiatrists, the largest drawback is the number of patients
seen that could benefit from AuTolo-Gel TM . Although these
professionals are seeing the largest percentage of wounds prior
to the hospitals, the number of patients is spread out among
many providers. For example, a single podiatrist may see 40 to
60 patients annually who are potential cases for AuTolo-Gel TM.
When multiplied by ten area podiatrists, there would be a
combined total of 400 to 600 potential cases within a
geographic area. The potential individual cases of 40 to 60
are not enough to sustain an AuTolo-Cure TM license, but the
combined cases would be more than sufficient.
In order to address this dispersion of potential AuTolo-
Gel TM patients among multiple providers, the Company is
considering the possibility of licensing private operators such
as home health providers. A private operator in any given area
could make the process available to multiple private facilities
by means of mobile AuTolo -Cure units. The machine and
necessary packs, as well as ancillary equipment, are portable
(they fit in the back seat of a compact car) and through proper
scheduling, a single unit could serve several facilities.
In addition to the private physician offices, management
believes that nursing homes are a viable target market for
private operators. Notwithstanding the possible limitations to
treatment in the decubitus market (as described above),
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<PAGE>
management feels that the possibility of drawing patients from
this environment is significant. Nursing homes generally have
staff doctors providing the health care needs of the patients.
These doctors may prescribe AuTolo-Gel TM treatment. Possible
civil liability, regulatory fines and censures regarding
bedsores may overshadow reimbursement issues for a nursing
home. AuTolo-Gel TM may be a way to address these exposures
for nursing homes.
Home health companies are also part of the private
operator market for AuTolo-Gel TM. Management believes that
home health companies treating patients with chronic wounds
spend significant amounts on nursing through daily regimens of
dressing changes. The put it on and leave it alone protocols
of AuTolo-Gel TM may provide a major positive impact on
operating expenses while increasing the efficacy of treatment.
Management believes that some additional incentives are:
Quick route to market
New treatment and revenue capability (physicians) in
a reducing reimbursement environment
Cost effective (apply AuTolo-Gel TM and do not
revisit for 5-7 days)
Effective back-door to hospitals (the hospitals will
begin to feel the revenue loss from decreased
referrals)
Incentive for franchisees to protect the technology
from infringement.
The possibility of contracting with one or more distributors is
being explored to quickly cover the largest portions of segments
2 and 3. The Company is beginning to contact potential
operators in segment 3 and plans to advertise through trade
shows and publications. It is important to understand that,
due to the fledgling status of the Company and the product and
the enormity of the market, the Company intends to maintain
flexibility in the final determination of marketing strategies
and pricing.
The Company is approaching each of the three market
segments simultaneously. Segment 1 is underway with discussions
being initiated. Segment 2 is underway with the Company and
consultants actively approaching high profile, chain-affiliated
hospitals and wound care centers with the user-friendly phase
A entry plan. Segment 3 is developing, with the first
developer programs going into effect in Arkansas and Texas. The
possibility of entering the long-term care facilities is also
being explored.
The Company believes that through a planned schedule of
public education and awareness of the product campaigns, patient
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<PAGE>
word of mouth will be the catalyst to introduce AuTolo-Gel. TM
into each market segment. Management further believes that with
market awareness, people suffering from chronic wounds will
request AuTolo-Gel TM as an alternative to long, costly
traditional care methods and certainly as one to amputation.
INTELLECTUAL PROPERTY RIGHTS
Worden developed and was the owner of certain intellectual
property rights, including the exclusive rights to use, market
and exploit the process of treatment of chronic wounds.
Pursuant to an Assignment from Worden effective as of April 27,
1999, the Company has the exclusive right to utilize the process
to make and apply AuTolo-Gel TM and full and exclusive right,
title and interest, both national and international, to certain
patent applications identified as the Patent Cooperation Treaty
Application entitled Enriched Platelet Wound Healant, filed
February 13, 1999, Serial No. PCT/US99/02981; United States
Provisional Patent Application entitled Autologous Platelet Gel
Preservation, filed June 22, 1998, Serial No. 60/090, 167; and
United States Provisional Patent Application entitled Autologous
Platelet Gel Antibiotic, filed August 26, 1998, Serial No.
60/097, 897 (collectively, the "Applications"), together with
all Letters Patents issued in the United States and elsewhere on
any other Applications (the "Patents"). The Applications and
the Patents being collectively referred to as the "Technology".
As consideration for such Assignment, the Company has agreed to
pay Worden pursuant to a Royalty Agreement described in Item 7
below.
In addition to the Technology, the Company has the
exclusive rights to the use of certain trademarks and
servicemarks including Autologous Platelet Gel, AuTolo-Gel TM,
and AuTolo-Cure TM. The Company considers its trademarks to be
material to its business. The Company's rights to such
trademarks will last indefinitely so long as the Company
continues to use and police the marks and to renew filings with
the applicable agencies. The Company is not aware of any adverse
claim concerning any of its owned or licensed marks.
The Patents have not been issued and there can be no
assurance that they will be issued. As of the date of this
filing, the Company is not aware of any existing patents or
patent applications involving a multi-growth factor enriched
platelet process similar to ours. The failure of the Company
to obtain the Patents or the existence of a substantially
similar process could have an adverse effect on the Company's
ability to compete in the wound care market given its size and
resources compared to that of its competitors described below.
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COMPETITION
The following information regarding competing products has
been compiled by the Company from public sources believed to be
reliable. It is not intended to infer independent knowledge of
the products, other than AuTolo-Gel TM. The following is not
intended to be a complete independent survey of any and all
potential competing products, rather a synopsis of the products
that the Company believes are the closest competitors to AuTolo-
Gel TM . Independent research of the markets and products is
encouraged.
Currently, to the Company's knowledge, there are no other
multi-growth factor products (products stimulating multiple cell
regeneration versus a single conversion) widely available on
the market that are comparable to AuTolo-Gel TM . The autologous
nature of AuTolo-Gel TM and being within the practice of
medicine (physician applied) represents a deviation from the
norm of packaged topical products and opens a door that has not
previously been available. To management's knowledge, there are
two products available today that employ growth factor(s).
Regranex(R) is a single growth factor product bioengineered from
baker's yeast. Johnson & Johnson and Ortho-McNeil are jointly
marketing Regranex. Having received FDA approval in late
1997, Regranex went to market in 1998. Inquiry by the
Company into the effectiveness of Regranex on chronic wounds has
provided little support for efficacy. However, being the only
widely available growth factor product on the market, Regranex
sales figures surpassed 50 million in its first year.
Estimates put prescriptions for Regranex in 1998 at over 133,000
tubes at an average cost of $375.00 per tube. (10) Management
believes that the commercial success of Regranex is due to the
marketing strength of Johnson & Johnson, and to the fact that
Regranex has been the only widely available growth factor product
for chronic wound treatment.
Procuren(R) is an autologous growth factor topical, owned and
produced by Curative Health Services, Inc (CURE, Nasdaq).
Curative has been focused on total wound care as a whole through
hospital management contracts for outpatient services and using
Procuren as an adjunct therapy. A patient undergoes screening
for blood transmitted diseases and blood donation criteria. If
inclusion criteria is met, blood is collected for processing.
The whole blood is shipped to one of Curative s processing
facilities where Procuren is produced. The product is then
shipped, frozen, to the patient for self-application. A normal
full treatment cycle would include 75 to 92 (avg.) 10cc doses in
individual tubes. Presently, Procuren is only available through
Curative-managed facilities. Procuren was introduced into the
market in 1989.
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There are currently under development by several companies,
new proactive approaches to wound care treatment, such as
bioengineered living tissue for grafting. Because of the size
and increasing nature of the market, the Company believes that
there will be more and more attention given to proactive
solutions. However, at this time and based upon the limited
amount of testing done, management believe that there is nothing
that is more effective than AuTolo-Gel TM for the treatment of
chronic wounds.
The Company has initially priced AuTolo-Gel TM to end-users
at $385.00 per treatment package, a cost below that of its
perceived competitors. In addition, management believes that
the advanced technology of AuTolo-Gel TM will considerably
shorten full treatment times from those of its competitors, and,
thus, reduce the number of treatments and full treatment cost
significantly below that of its competitors.
As outlined in the discussion of the Intellectual Property
Rights above, the inability of the Company to obtain the patent
protection necessary for the AuTolo-Cure TM system could have an
adverse effect on the Company and its business. With Johnson &
Johnson, Ortho-McNeil and Curative as the Company's main
competitors in the chronic wound market, all billion dollar
companies, the sheer enormity of their resources compared to
those of the Company could preclude the Company from
effectively competing in the business without the Patents.
REGULATION
AuTolo-Gel TM is made from each patient s blood under the
direction of the treating physician at the time of treatment.
Because the gel is autologous, that is, it is made from the
patient s own blood, there is no off-site preparation of the
gel, and because it is not shipped across state lines, the
Company does not believe that AuTolo-Gel TM is required to have
any form of premarket approval by governmental agencies such as
the Food and Drug Administration ("FDA") at the present time.
Once the treatment is applied and the would dressing applied,
there is no further use of the AuTolo-Gel TM produced in the
process outlined above and there is no subsequent use of any
materials, platelets or plasma and there is no storing,
shipping, labeling or subsequent off-site application of the gel
produced at the time of treatment. Management believes that the
formulation of AuTolo-Gel TM and the application to the wound
come within the exemption from registration and blood products
listing for licensed physician s use of blood products solely in
the course of their professional practice of medicine.11
____________________
10 Wedbush, Morgan Securities, Biotechnology in Wound Care,
4th Edition, Jan. 1999.
11 21 CFR Ch 1. Part 607, Section 607.65(b).
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The Food and Drug Administration ("FDA") regulates the
development, manufacture, and marketing of drugs and certain
biological products. The Federal Food, Drug and Cosmetic Act
(the FDC Act ) defines a drug as "articles intended for use
in the diagnosis, cure, mitigation, treatment, or prevention of
disease in man or other animals." Thus, AuTolo-Gel TM would
most likely be considered a drug. The Public Health Service Act
(the PHS Act ) regulates biological products , which are
defined as a "virus, therapeutic serum, toxin, antitoxin,
vaccine, blood, blood component or derivative, allergenic
product, or analogous product, or arsphenamine or derivative of
arsphenamine (or any other trivalent organic arsenic compound),
applicable to the prevention, treatment, or cure of a disease or
condition of human beings." As a blood product, AuTolo-Gel TM
would also be considered a biological product. While biological
products are subject to regulation under both the FDC Act and
the PHS Act, they are required to be licensed under the PHS Act
instead of being treated as a new drug under the FDC Act.
Furthermore, the PHS Act only requires a license for any
biological product that is transported across state lines (from
one state to another).
Generally speaking, the FDA requires testing of a new
'drug' in accordance with regulatory requirements in the
laboratory and, as appropriate, in clinical settings to
establish product performance before marketing. After marketing
has commenced, FDA clearance must be obtained before making
certain types of product changes. While AuTolo-Gel TM is most
likely a biological drug subject to the FDA's regulation,
management believes that since it is prepared on site and not
shipped across state lines that the FDA will not require any
form of premarket approval or licensing of AuTolo-Gel TM. This
is because AuTolo-GelTM, as a biological drug, is subject to
licensure under the PHS Act, which only requires licensure if
the product is transported across state lines. AuTolo-Gel TM
will be made under the supervision of a physician at the
location of the patient and applied topically to the patient at
the same location.
<PAGE>
Although AuTolo-Gel TM may not be subject to premarket
approval or licensing, AuTolo-Gel TM may still be subject to FDA
regulation. The FDA could take enforcement action against the
Company or an AuTolo-Gel TM user alleging that the product is
unsafe or that claims made for the product are false or
misleading. The FDA might also seek to have a physician or
hospital that is using AuTolo-Gel TM register with the FDA as a
drug or blood manufacturing facility. There is no assurance
that the FDA will agree with management of the Company that
AuTolo-Gel TM is not subject to premarket approval or licensing
or that the FDA will not subsequently change its position and
seek to regulate AuTolo-Gel TM more extensively.
In the event the FDA takes the position that AuTolo-Gel TM
is subject to licensing and regulation under either the FDC Act
or the PHS Act, such a position could have an adverse effect on
the Company and its business. Although management believes that
it can comply with expected FDA regulation, increased FDA
regulation, including premarket approval or licensing, the costs
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<PAGE>
of compliance, delays in getting AuTolo-Gel TM introduced into
the market or delays in licensing activities for the AuTolo-Cure
TM system could have an adverse effect on the Company.
REIMBURSEMENT
Separate reimbursement by Medicare, Medicaid and third
party payors (insurance carriers, etc) for some or all of the
patient costs of AuTolo-Gel TM has not been obtained as of the
date of this filing. As with any new medical product, device,
process or procedure, efficacy and advantages of use must be
shown to secure reimbursement from Medicare, Medicaid and third
party insurance payors. The Company has formulated a strategic
reimbursement plan in compliance with current reimbursement and
payment guidelines and treatment codes. Additionally, the
Company is developing data on the cost of treatment and savings
using AuTolo-Gel TM in an effort to approach Medicare, Medicaid
and third party insurance payors and develop separate
reimbursement for the process. At this time, it is believed
that third party payers will be the first to reimburse the
product. Although the Company is developing the data necessary
to seek separate reimbursement for the AuTolo-Gel TM treatment
under Medicare and Medicaid guidelines, no assurance can be
given as to when, and if, reimbursement for Medicare or Medicaid
patients will ultimately be obtained.
Management believes that the need for AuTolo-Gel TM exists
and the advantages of patient use are being shown in the
Company's initial tests. The Company believes that the cost-
effectiveness of AuTolo-Gel TM compared to traditional,
reimbursable products and procedures currently reimbursed will
be a catalyst for payers to approve AuTolo-Gel TM for
reimbursement approval. However, failure to obtain approval for
reimbursement would adversely affect the Company and its
operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns no materially important physical properties.
It leases offices in the United States at 1523 Bowman Road,
Suite A, Little Rock, Arkansas 72211.
ITEM 3. LEGAL PROCEEDINGS
There are, to the best knowledge of the Company, no legal
proceedings pending against the Company or any of the
Intellectual Property Rights in which it claims an interest,
that will adversely affect the financial condition of the
Company or the ability to carry on the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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<PAGE>
In November, 1999, the stockholders of the Company were
given written notice of proposed actions requiring shareholder
approval under the Delaware General Corporation Law and asked to
approve by written consent to action without a meeting (i) the
amendment of the Company's certificate of incorporation to
create the Company's current capitalization, (ii) authorize a
reverse 1 for 2 stock split with respect to the Company's issued
and outstanding common stock and (iii) approve the merger of Old
AWT with and into the Company. As part of the approval of the
Merger, the stockholders were asked to approve the changing of
the name of the Company to Autologous Wound Therapy, Inc. and
the election of the current members of the board of directors.
Consents were executed and returned to the Company by
stockholders holding more than the requisite number of shares
required to approve the actions under the Delaware General
Corporation Law approving the foregoing actions prior to
November 4, 1999.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On April 7, 2000, the symbol for the Company's common
stock was changed to "CYDX" from "AWTX". The Company's common
stock previously traded on the OTC Bulletin Board under the
symbol AWTX. Pursuant to NASD Rule 6530 (the "Eligibility
Rule"), the Company's common stock was delisted from the OTC
Bulletin Board on December 15, 1999. The Eligibility Rule
requires companies listed on the OTC Bulletin Board to make
current filings pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended. The Company
intends to apply for its common stock to be re-listed on the OTC
Bulletin Board or other nationally recognized stock exchange
once the Company's Registration Statement filed on Form 10-SB
dated December 10, 1999, as amended, has been reviewed and
received final comments from the Securities and Exchange
Commission and the Eligibility Rule has been satisfied.
The range of high and low bids for The Company's common
stock for each quarter for the last two fiscal years is as
follows:
Quarter Ending High Low
______________ ____ ___
03-31-98 0.0170 0.0010 (1)
06-30-98 0.0625 0.2500
09-30-98 3.2500 3.2500 (2)
12-31-98 3.7500 1.1250
03-31-99 4.9688 1.1250
06-30-99 6.0000 3.1250
09-30-99 4.0000 1.5000
12-31-99 8.3750 1.6250
(1) Quoted as MENW
(2) Quoted as IFXH
23
<PAGE>
On March 20, 2000, the last reported sales price for the
Company's common stock was $20.75 per share. Based on the
information available to the Company, the average daily volume
of the Company's common stock has been approximately 103,868
shares since December 15, 1999 through March 20, 2000.
There were approximately 292 holders of the Company's common
voting stock as of March 31, 2000.
DIVIDENDS
The Company has no operating income to date and has never
paid any cash dividends on its common stock. The Board
presently intends to retain all earnings for use in the
Company's business. Any future determination as to payment of
dividends will depend upon the financial condition and results
of operations of the Company and such other factors as are
deemed relevant by the Board.
SALES OF UNREGISTERED SECURITIES.
In November, 1999, pursuant to the Merger, the Company
issued 6,000,000 shares of common stock and 6,000,000 shares of
Series B Convertible Preferred Stock to Old AWT s stockholders
in exchange for the cancellation of the Old AWT common stock
surrendered in the transaction. Additionally, the Company
assumed certain obligations of Old AWT under the Stock Option
Plan with respect to the issuance of 750,000 shares of common
stock and 750,000 shares of Series B Convertible Preferred Stock
and warrants representing an additional 250,000 shares of common
stock and 250,000 shares of Series B Convertible Preferred Stock
and an option to purchase 135,000 shares of common stock. The
total number of shares of common stock and Series B Preferred
Stock committed to be issued in connection with the Merger shall
not exceed 7,500,000 shares of common stock and 7,500,000 shares
of Series B Preferred Stock. The Company also issued 400,000
shares of common stock to SPH Equities, Inc. as payment of
investment banking fees associated with the Merger. The
investment banking shares were valued at $3.92 per share which
was determined by using the trading price on the OTC Bulletin
Board less a five percent discount for Rule 144 restrictions.
The total value of $1,568,000 was expensed on completion of the
Merger.
In November, 1999, the Company issued 1,625,000 shares of
its Series A 5% Cumulative Preferred Stock to certain
stockholders in consideration for the cancellation of
shareholder loans, accrued interest and investment banking fees
made to The Company in the aggregate amount of approximately One
Million Six Hundred Twenty-Five Thousand and 00/100 Dollars
($1,625,000.00). The shares were issued to the shareholders in
reliance on the exemption from registration under the 1933
Securities Act provided by Section 4(2).
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<PAGE>
In November, 1999, the Company sold 166,667 shares of common
stock to four (4) shareholders for Five Hundred Thousand and
00/100 Dollars ($500,000.00) ($3.00 per share) to provide
working capital for The Company. Sales were made in reliance on
the exemption from registration as provided in Section 4(2) of
the 1933 Securities Act, as amended.
In October, 1999, Dennis Hendren, an officer and director
of the Company, exchanged notes for loans he made to the Company
in May, 1999, totaling $25,000 with Charles Worden, the founder
of Old AWT, in exchange for 3,000 shares of Old AWT common
stock (now representing 150,000 shares of Company common stock
and 150,000 shares of Series B Preferred stock) transferred from
Charles Worden which was pledged as security for the repayment
of the loan.
In October, 1999, Old AWT issued 50,000 shares of Old AWT
common stock valued at $5,000,000 ($100.00 per share) (now
representing 2,500,000 shares of Company common stock and
2,500,000 shares of Series B Preferred Stock) to BDR Investment
Partnership in exchange of its contribution of certain
contractual rights to the Company. The contractual rights
consisted of partnership s right to receive ten percent (10%) of
the gross revenues of the Company and any other monies raised on
behalf of the Company, regardless of whether in the form of
equity or debt, through the efforts of the partnership. By
virtue of the contribution, the Company shall retain the ten
percent (10%) of revenues otherwise payable under the canceled
agreement. The shares were issued in reliance on the exemption
from registration as provided in Section 4(2) of the 1933
Securities Act, as amended.
In October, 1999, Old AWT completed a private placement of
Old AWT common stock. In the offering 5,000 shares of Old AWT
common stock at $100.00 per share (now representing 250,000
shares of Company common stock and 250,000 shares of Series B
Preferred Stock after taking into account the recapitalization
and subsequent reverse stock split) were sold to twelve
accredited investors for Five Hundred Thousand Dollars
($500,000.00) to provide working capital for Old AWT. Sales
were made in reliance on the exemption from registration as
provided in Section 4(2) of the 1933 Securities Act, as amended
and Regulation D.
On August 5, 1999, the Company. issued 7,500 shares of its
common stock valued at $49,875 ($6.65 per share) to Linzy
Limited in payment for consulting services in reliance on the
exemption from registration as provided in Section 4(2) of the
Securities Act
On April 27, 1999, the Company issued 25,000 shares of its
common stock valued at $236,013 ($9.44 per share) to Bel-Cal
Holdings Ltd. in partial consideration for consulting services
in reliance on the exemption from registration as provided in
Section 4(2) of the Securities Act.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF
OPERATIONS
Prior to the Merger, the company had no products or services and
was not conducting any viable enterprise. By virtue of the
Merger, the Company acquired the business conducted by Old AWT
to develop, market and sell the proprietary AuTolo-Cure system.
Since the formation of Old AWT, the Company has been engaged in
extensive research and testing of AuTolo-Gel and the development
of the AuTolo-Cure system. The Company's current activities
include:
1. Research and clinical testing of AuTolo-Gel.
2. Development of clinical results and case studies.
3. Development of licensing agreements.
4. Patent and trademark applications.
5. Negotiation of licensing agreements.
6. Raising working capital.
7. Negotiation of strategic alliance with Global Marketing
Partners.
8. Development of marketing plan and distribution methods.
9. Recruiting key management and sales representatives.
10. Development of reimbursement strategies, discussions
with third party payors.
11. Testing of sequestration equipment, development of AuTolo-
Cure treatment packs and packaging, negotiation of
equipment leasing arrangement.
For a complete understanding of the foregoing activities,
the Management Discussion and Analysis should be read in
conjunction with Item 1. Description of the Business and Item 7.
Financial Statements accompanying this Form 10-KSB.
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of
December 31, 1999 and 1998 and cumulative from December 11, 1998
(date of inception) through December 31, 1999, are derived from,
and are qualified by reference to, the financial statements of
the Company included elsewhere in this Form 10-KSB. The
information below should be read in conjunction with
Management s Discussion and Analysis.
December 11, 1998 Year December 11, 1998
(Date of Inception) Ended (Date of Inception)
through December 31, through
December 31, 1998 1999 December 31, 1999
----------------- ---------- -----------------
Revenues - 8,600 8,600
Net Loss for common
shareholders (19,362) (6,203,151) (6,222,513)
Basic and Diluted
Loss Per Common
Share (0.01) (0.93)
Cash Dividends on
Common Stock - - -
Preferred Dividend - 13,134 13,134
Working Capital (19,262) (221,976)
Total Assets 4,540 277,953
Stockholder's Deficit (19,262) (1,846,744)
Deficit Accumulated in
the Development Stage (19,362) (6,222,513)
RESULTS OF OPERATIONS
The Company is a development stage company and had only
limited operations through December 31, 1999. Our primary
activities during this start-up phase were hiring a management
team and corresponding staff and development of the licensing
strategy for the AuTolo-Cure System. We generated only minimal
revenues from inception through December 31, 1999, completing
our first sale of 2 licenses just prior to September 30, 1999,
and recognized $8,600 of revenues generated from the sale
during the year ended December 31, 1999.
During the period from inception through December 31, 1999
we incurred compensation expense of approximately $1,015,513.
Compensation expense consisted primarily of $742,500 of expense
attributed to options we granted to three members of management
with exercise prices for the underlying common stock below fair
market value. The remaining $273,000 was for compensation
expenses paid to our employees. We expect compensation expense
to grow as we add additional employees to help our
administrative, marketing and support efforts as we continue to
grow the business.
During the period from inception through December 31, 1999
we incurred consulting expenses of approximately $1,963,363. We
granted the options and warrants described in the Summary of
Testing discussion above and in Item 12 below to Bennett and BMI
to conduct clinical trials. We also issued options to BMI and
others in lieu of cash compensation for helping us sell
licenses. Those options and warrants were granted with exercise
prices below the fair market value of the underlying common
27
<PAGE>
stock, which resulted in our recording consulting expense for
the difference, which amounted to approximately $1,687,000
through December 31, 1999. Also included is $166,667 for
amortization of deferred consulting fees payable to BDR
Investment Partnership. The remainder of the consulting
expenses we incurred were related to our start-up activities.
The clinical trials noted above were completed by December 31,
1999 and we do not expect to incur additional expenses for
clinical trials after December 31, 1999 unless we are required
to by regulatory agencies.
During the period from inception through December 31, 1999
we incurred professional fees of approximately $267,747. These
fees related to start-up activities, costs associated with our
patent and trademark applications, certain royalty and
consulting agreements we were negotiating during this period.
the Merger and various securities matters related to the
private placements and the filing of the Form 10-SB and other
general matters.
We also incurred one time expenses associated with the
Merger with Old AWT during the fourth quarter of 1999 in the
amount of $2,678,700. These expenses consisted of fair market
value of the 400,000 shares of common stock issued to SPH
Equities, Inc. at the closing of the Merger with Old AWT and for
options we granted to individuals in connection with the Merger
whose exercise price were below the fair market value of the
underlying common stock on the closing date.
For the fiscal year 2000, the Company expects to incur
additional costs for the continued development of the AuTolo-
Cure system, legal and professional fees for licensing,
reimbursement and patent and trademark services and to expand
the promotion and marketing of AuTolo-Gel and the AuTolo-Cure
System. Management believes that the working capital provided
by the February, 2000 and March, 2000 private placements
described in the Liquidity and Capital Resources section below
and the collection of fees from the initial licensing fees and
sales of the AuTolo-Cure treatment packs will be sufficient to
meet the operating needs of the Company for the next twelve
months. For a more complete description of the Company's plan
of operation for the next twelve months, see the MARKETING
PLAN discussion under Item 1 above.
The Company does not anticipate any significant purchases
or sales of plant or significant equipment. The Company
currently leases the sequestration machines provided to
licensees of the AuTolo-Cure system. In the event the Company
is no longer able to obtain leasing agreements and is required
to purchase the machines, the Company could see an increased
need for working capital to fund the acquisition of such
machines. However, since the acquisition of the machines is
tied to the granting and execution of licenses, Management
believes that the initial licensing fees collected in connection
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with the execution of the license creating the need to purchase
the machine will provide an adequate source of financing for the
acquisition of the machines, if leasing is not an alternative.
The Company currently has twelve employees and anticipates
adding eight to ten employees, including one additional
office/administrative assistant. The remaining personnel to be
added would be site implementation personnel hired to install
and train a licensee's personnel in the use of the AuTolo-Cure
system at the licensee's location. The timing of the hiring of
such site implementation personnel will be based upon licensing
activities and on an as needed basis. The working capital to
fund the cost of the site implementation teams will be provided
from the initial licensing fees paid by the licensee and is a
variable cost to the Company.
Because of the potential response to the AuTolo-Cure system
and the timing of the awarding of the Patents, these events
could significantly increase demands on the Company's resources
and personnel. While most of the expenses in connection with
the AuTolo-Cure system and sale of the treatment packs are
variable costs based on demand, the Company could require
significant additional working capital if the response is as
anticipated and specifically if the Patents are issued and third
party reimbursement is obtained for the AuTolo-Gel treatment.
LIQUIDITY AND CAPITAL RESOURCES
As of the date of this Form 10-KSB, the Company has not
generated positive cash flow from its operations. This is due
primarily to the start-up nature of its operations, investment
in development and clinical testing of AuTolo-Gel and the
building of a corporate infrastructure to support its future
operations. Funding to date has been in the form of private
placements of common stock and debt financing from the Company's
shareholders. In November, 1999, the Company converted certain
of its existing shareholder loans to shares of Series A 5%
Preferred Stock.
Through a private placement, the Company received a
commitment to provide $1,200,000 of working capital during the
period beginning January 1, 2000 and ending December 31, 2000.
The working capital is to be raised through subscriptions to the
Company's common stock at the rate of $300,000 per calendar
quarter or as otherwise agreed by the Company's Board of
Directors. The Company has engaged SPH Investments, Inc.
("SPH") as an investment advisor to arrange the private
placement of common stock to accredited investors only (as that
term is defined in Rule 501 of the Securities Act of 1933, as
amended), pursuant to an exemption provided by Rule 506 of the
Securities Act of 1933, resulting in gross proceeds to the
Company of up to $1,200,000 (the Private Placement ). The
Company will offer a minimum of 250,000 shares of the Company's
common stock for $3.00 per share, aggregating $750,000 in gross
29
<PAGE>
proceeds, during the First Quarter, 2000. An additional 150,000
shares of the Company's common stock will be offered for $3.00
per share in the First or Second Quarter, 2000, aggregating
$500,000 in gross proceeds. The Company agreed to pay SPH a
placement fee equal to 6% of the gross proceeds to the Company
from the Private Placement. The Company acknowledges that SPH
is not a registered broker-dealer with the Securities and
Exchange Commission (the "SEC") and is not a member of the
National Association of Securities Dealers, Inc. ("NASD"). In
arranging for the Private Placement, SPH will engage one or more
qualified broker-dealers that are registered with the SEC and
are members of the NASD to act as the placement agents for such
offering (collectively, the Placement Agents ). On February
4, 2000, the first 250,000 shares involved in the Private
Placement were sold to one investor with the Company realizing
$750,000 in gross proceeds. LCP Capital Corporation, a
licensed broker/dealer in New York, New York, was engaged by SPH
in connection with the private placement and was paid by SPH out
of the placement fee paid by the Company. The issuance of the
additional common stock in the Private Placement will be
nondilutive to those stockholders of the Company holding Series
B Convertible Preferred Stock. Shareholders other than Series B
Preferred Stockholders will be diluted as this equity is raised,
but such dilution is not believed to be substantial.
Subsequent to the February, 2000, issuance of the first
250,000 shares involved in the Private Placement, the Company
elected not to pursue subscriptions for the remaining 150,000
shares under the terms of the engagement with SPH. In lieu of
raising the remaining $450,000 at $3.00 per share, On February
29, 2000, the Company elected to pursue a private placement of
common stock at $10.00 per share. The offering was made solely
to accredited investors (as that term is defined in Rule 501 of
the Securities Act of 1933, as amended), pursuant to an
exemption provided by Rule 506 of the Securities Act of 1933.
The offering resulted in gross proceeds to the Company of
$7,715,000. In connection with the private placement, the
Company paid investment advisory fees equal to eight percent
(8%) of the proceeds, or $606,800. Additionally, warrants
representing the right to purchase 26,500 shares at $10.00 per
share are to be issued to The Kriegsman Group, the same
representing ten percent (10%) of the shares sold in the private
placement through the efforts of Kriegsman, under the terms of
its agreement with the Company. As a result of the two private
placements, the Company has reversed the deficit working capital
position as of December 31, 1999, and now has working capital in
excess of $7,500,000 as of March 31, 2000.
Management believes that the working capital provided by
the February, 2000 and March, 2000 private placements and the
collections generated from the initial licensing fees and sales
of the AuTolo-Cure treatment packs shall be sufficient to meet
the operating needs of the Company through the next twelve
months. However, the need to raise additional working capital
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could require the Company to delay, curtail or terminate some of
its development and clinical testing, sales and marketing
efforts and could otherwise have an adverse impact on its
operations. Any additional equity financing required in such
an event may involve significant dilution to the Company's
shareholders.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are set forth immediately
following the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Mr. Dennis G. Hendren
_____________________
President and CEO, Director
Mr. Hendren, age 52, joined the Company from Curative Health
Services, Inc., a publicly traded company, where he was employed
for eight years, having last served as Vice President of
Processing Operations. Some of his responsibilities included;
staffing, training, operations and budgetary duties.
Previously, Mr. Hendren served as technical director for two
major community blood banks. He has extensive experience in FDA
registration and licensure, as well as technical aspects of
wound care and resulting product formulation. Mr. Hendren
graduated with a BS in Biology from Emporia State Teachers
College. He is a registered Medical Technologist with a
Specialist in Blood Banking. Mr. Hendren brings a wealth of
experience in wound care management from a corporate perspective
to the Company and will be responsible for overseeing every
aspect of the Company.
Mr. William L. Brown
____________________
Chief Operating Officer, Secretary and Director
Mr. Brown, age 47, joined the Company from Curative Health
Services, where he served as program director for wound care
operations in Arkansas. His duties included; marketing,
physician management, wound care center operation, hospital
protocol and product application. Prior to this, Mr. Brown
served as Administrative Director of Respiratory Medicine, Sleep
Disorders and Hyperbaric Medicine at Washington Regional Medical
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Center, Fayetteville, Arkansas. Mr. Brown holds a BS in
Biological Science from Missouri Southern University and is
registered with the National Board for Respiratory Care.
Currently, Mr. Brown's Master of Health Science thesis is being
reviewed for approval at the University of Arkansas. As COO of
the Company, Mr. Brown will oversee all operational aspects of
the Company including: personnel policy, product implementation
and production, sales and marketing development, and internal
affairs.
Mr. W. Michael Chunn
____________________
Vice President/Marketing and Operations, Director
Mr. Chunn, age 52, comes to the Company from Conway Regional
Medical Center, where he most recently served as Assistant
Clinical Director. Duties included: Directing transfusion
services, scheduling for clinical activities and laboratories,
continuing education and safety administration. Prior to 1993,
Mr. Chunn served twenty years with the American Red Cross,
including thirteen years an Administrator. Mr. Chunn s tenure
included most aspects of the Red Cross operation such as
budgeting, forecasting, and blood services marketing management.
Mr. Chunn received a BS-Medical Technology from Middle Tennessee
State University and is a graduate of many continuing education
courses. Mr. Chunn's responsibilities include budget
preparation, marketing, strategic partnership planning, and
internal tech-support.
There is no stated term in the Company's bylaws for the term of
office and each officer shall serve in such capacity until his
successor is duly appointed by the Company's Board of Directors.
Mr. Charles G. Worden
_____________________
Inventor of the AuTolo-Cure TM System
Mr. Worden, age 64, is the inventor of AuTolo-Gel. TM and the
founder of Old AWT. A senior laboratory scientist with over 40
years in the medical field, Mr. Worden has worked as
President/C.E.O. of Arkansas Reference Laboratory, Inc. as well
as President/C.E.O. of Worden & Associates, Inc. a medical
computer software company. A microbiologist and clinical
chemist, Mr. Worden was the chief bacteriologist for the USDA
research station located in the Little Rock, Arkansas, working
in immunology and vaccine production. A Medical Technologist,
Mr. Worden has worked extensively in the Blood Banking field,
first as the Chief Technologist for the American Red Cross Blood
Bank, and has many years teaching Medical, Nursing and
Technology students through the University of Arkansas Medical
Science campus. Mr. Worden holds a Bachelor of Science,
Bacteriology from the University of Arkansas, Fayetteville. Mr.
Worden also has thirty hours of post-graduate study in
Microbiology, and is a Medical Technologist registered with the
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American Society of Clinical Pathologists. In 1983, Mr. Worden
filed personal bankruptcy. Mr. Worden does not intend to
maintain an active role in the day to day management and
operations of the Company; however, he will provide consultation
as needed.
Mr. Jim D. Swink, Jr.
_____________________
Controlling Person
Mr. Swink, age 36, served as a director of Old AWT. Mr.
Swink is the President and sole stockholder of BDR Consulting,
Inc., a company providing consulting services to emerging
companies, including the Company. On behalf of BDR Consulting,
Inc. Mr. Swink has negotiated agreements for the testing of the
AuTolo-Cure System, consulting agreement with Bennett Medical,
Inc. Sigma Health Care, recruited management for the Company,
negotiated leasing arrangements for the equipment needs of the
company and assisted in the raising of equity on behalf of Old
AWT and in the negotiation of the merger of Old AWT and the
Company. Mr. Swink intends to continue providing services to
the Company under the terms of the Consulting Agreement in
effect with BDR Consulting. BDR Consulting, Inc. owns a
controlling interest in Quasar Investments, L.L.C., which owns
29.0% of the common stock of the Company. Mr. Swink serves as
the manager of Quasar Investments, L.L.C. Since 1994, Mr. Swink
has been engaged in consulting. Mr. Swink filed personal
bankruptcy in 1996, which case has been settled and discharged.
ITEM 10. EXECUTIVE COMPENSATION
As a development stage company, the Company has previously paid
any of its management reduced salaries based on availability of
cash flow. The following is a summary of salaries paid to the
current executives:
SUMMARY COMPENSATION TABLE
Other All
Year Salary Bonus Annual Restricted Securites LTIP Other
Name and $ (1) $ Compen- Stock underlying Pay- Compen-
Position sation Awards stock outs sation
$ (2) options
/SARs (#)
- ------- ---- ----- ----- ------ -------- --------- ----- -----
Dennis G.
Hernden 1999 $30,252 $0 $0 247,500 250,000 $0 $0
President 1998 $0 $0 $0 -0- -0- $0 $0
& CEO 1997 $0 $0 $0 -0- -0- $0 $0
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William 1999 $34,300 $0 $0 346,500 350,000 $0 $0
L. Brown 1998 $0 $0 $0 -0- -0- $0 $0
Vice 1997 $0 $0 $0 -0- -0- $0 $0
President,
COO &
Secretary
W. 1999 $51,313 $0 $0 148,500 150,000 $0 $0
Michael 1998 $0 $0 $0 -0- -0- $0 $0
Chunn 1997 $0 $0 $0 -0- -0- $0 $0
Vice
President
Charles 1999 $30,939 $0 $0 -0- -0- $0 $0
Worden 1998 $0 $0 $0 -0- -0- $0 $0
1997 $0 $0 $0 -0- -0- $0 $0
Darla 1999 $14,930 $0 $0 -0- -0- $0 $0
Bradley 1998 $0 $0 $0 -0- -0- $0 $0
1997 $0 $0 $0 -0- -0- $0 $0
(1) All employees joined the Company in 1999 and salary
reflects year to date compensation through December
31, 1999.
(2) Other annual compensation is less than ten percent
(10%) of base salary.
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Stock Option Plan
Effective June 7, 1999, Old AWT adopted a Nonqualified
Stock Option Plan ("Stock Option Plan"), which was
approved by the Old AWT shareholders on the same date.
The Company assumed the Stock Option Plan in the Merger.
Pursuant to the terms of the Stock Option Plan shares of
the common stock of the Company have set aside for options
which may be issued to management and others, as
determined by the Board of Directors. The Company intends
to grant stock options to some or all of the management of
the Company pursuant to this Plan. The terms of options
granted and the exercise price of such options is subject
to the discretion of the Board of Directors. As of the
date of this filing, the following options have been
issued pursuant to the Stock Option Plan:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Name Number of Percent of Exercise FMV at Expiration
Securities total of base Date Date
underlying options / price of Grant
options / SARs granted
SARs granted to employees ($/sh) (1) ($/sh) (2)
(#) (1) in fiscal year
- ------ ---------- ---------- -------- ------- -------
Dennis G. 250,000 33.33% $0.02 $2.00 December
Hendren 31, 2008
President
& CEO
William L. 350,000 46.67% $0.02 $2.00 December
Brown 31, 2008
V. P., COO
& Secretary
W. Michael 150,000 33.33% $0.02 $2.00 December
Chunn 31, 2008
Vice
President
(1) Options were granted under Old AWT s Stock Option
Plan and the number of securities underlying options,
exercise price per share and grant date market price
have been adjusted to reflect the conversion ratio of
the underlying Old AWT common stock into common stock
of the Company as a result of the Merger.
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<PAGE>
(2) The options granted above are fully vested on the
first anniversary of the option holder s employment
by the Company. In addition to the expiration date,
unexercised options which have vested terminate
immediately upon the termination of employment by
reason other than death, disability or normal or
early retirement. In the event of the death or
disability of the holder, any options remaining
unexercised 180 days following termination of
employment by reason of death or disability shall be
terminated.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(A) Names, addresses and name and title of person holding
authority to vote shares of the known beneficial
owners of more than five percent (5%) of the
Company's common voting shares, Series A Preferred
shares and Series B Preferred shares as of December
31, 1999 were :
Percent of
Title of Name and Address of Amount and Class Beneficial
Class Beneficial Owner Nature of Ownership (5)
______ _________________ ------- --------------
Common Quasar Investments, LLC 5,050,000 (1)(2) 49.6%
1523 Bowman Road, Suite A
Little Rock, Arkansas 72201
Jim D. Swink, Jr., Member
Representative
Common BDR Consulting, Inc. 5,050,000 (2)(3) 49.6%
1523 Bowman Road, Suite A
Little Rock, Arkansas 72201
Jim D. Swink, Jr., President
Common Charles E. Worden 525,000 5.2%
7201 Hwy. 300
Little Rock, AR 72223
Common Keith Bennett, MD 635,000 (4) 6.2%
301 Bel Aire
Hot Springs, Arkansas 71901
Series A Rozel International Holdings, 575,000 35.38%
Preferred Road Town
Tortolla British Virgin Islands
Howard P. Chaffe, Director
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<PAGE>
Series A FAC Enterprises 125,000 7.69%
Preferred 4960 S. Virginia #300
Reno, NV 89502
Howard Appel, President
Series A Millworth Investments 225,000 13.85%
Preferred 4960 S. Virginia #300
Reno, NV 89502
Howard Appel, President
Series A Bel-Cal Properties 250,000 15.38%
Preferred 9665 Wilshire Blvd Suite M-19
Beverly Hills, CA 90212
William Belzberg,, President
Series A SPH Equities 100,000 6.15%
Preferred 648 Post Road
Wakefield, RI 02879
Stephen P. Harrington,
President
Series B Quasar Investments, LLC 5,050,000 (1) (2) 82.4%
Preferred 1523 Bowman Road, Suite A
Little Rock, Arkansas 72201
Jim D. Swink, Jr., President
Series B BDR Consulting, Inc. 5,050,000 (2) (3) 82.4%
Preferred 1523 Bowman Road, Suite A
Little Rock, Arkansas 72201
Jim D. Swink, Jr., President
Series B Charles E. Worden 525,000 8.8%
Preferred 7201 Hwy. 300
Little Rock, AR 72223
Series B Keith Bennett, MD 500,000 (4) 6.9%
Preferred 301 Bel Aire
Hot Springs, Arkansas 71901
(1) Quasar Investments, LLC ("Quasar") owns directly
2,550,000 common voting shares and 2,550,000 voting
shares of Series B preferred stock of the Company.
Quasar is an Arkansas limited liability company
managed by BDR Consulting, Inc.
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(2) Quasar Investments, LLC is a party to a Voting
Agreement dated effective November 4, 1999, and has
voting control of 5,050,000 common voting shares of
the Company in the nomination and election of
directors and decisions regarding the merger,
consolidation, liquidation, reorganization of
substantially all of the Company's assets. BDR
Consulting, Inc., as the managing member of Quasar
would exercise the voting rights with respect to the
shares covered by the Voting Agreement as manager.
Jim D. Swink, Jr. would actually exercise the voting
rights in his capacity as President of BDR
Consulting, Inc.
The parties to the Voting Agreement in addition to
Quasar Investments, LLC and the individual persons
having voting control of the shares owned by such
entities are as follows: BDR Consulting, Inc. (Jim D.
Swink, Jr.), F&G Investment Partnership (Alec Farmer,
Partner), KAB Investments, Inc. (Earnest Bartlett,
President), GWR Trust (Greg Stephens, Trustee), SPH
Investments, Inc. (Stephen Harrington, President),
SPH Equities, Inc. (Stephen Harrington, President),
Cranbourne Investments, Inc. (Harold E. Chaffe,
President), Discretionary Investment Trust (Richard
Zona, Trustee) and Gatkin Investments (S. E. Edwards,
President).
(3) BDR Consulting, Inc. owns directly 119,986 common
voting shares and 119,986 voting shares of Series B
preferred stock of the Company and is the managing
member of Quasar would exercise the voting rights
with respect to the 5,050,000 shares covered by the
Voting Agreement
(4) Dr. Bennett and Bennett Medical, LLC have been granted
warrants to acquire 250,000 common voting shares and
250,000 voting shares of Series B Preferred stock. The
exercise of each warrant grants Bennett the additional
option to acquire one share of common voting stock and one
share of Series B Preferred stock for each share acquired
as a result of the exercise of the warrant, up to 250,000
common voting shares and 250,000 voting shares of Series B
Preferred stock. Additionally, Dr. Bennett has been
granted the option to acquire an additional 135,000
common voting shares of the Company.
(5) Determined on a fully diluted basis.
(B) The common voting shares of the Company beneficially owned
by each Director and Executive Officer of the Company as
of November 10, 1999, are set forth below:
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Amount and Nature
Title of Name of Beneficial Owner of Beneficial Percent of
Class Ownership Class (4)
----- --------------------- ----------- --------
Common Dennis G. Hendren 422,969 (1) 4.1%
Common William L. Brown 350,000 (2) 3.4%
Common W. Michael Chunn 150,000 (3) 1.5%
Series B
Preferred Dennis G. Hendren 422,969 (1) 5.4%
Series B
Preferred William L. Brown 350,000 (2) 4.7%
Series B
Preferred W. Michael Chunn 150,000 (3) 2.0%
(1) Mr. Hendren owns directly 172,969 common voting shares and
172,969 Series B Preferred shares of the Company. Mr.
Hendren has been granted nonqualified stock options to
acquire 250,000 common voting shares and 250,000 Series B
Preferred shares of the Company which are subject to
certain vesting and other restrictions on exercise.
(2) Mr. Brown has been granted nonqualified stock options to
acquire 350,000 common voting shares 350,000 Series B
Preferred shares of the Company which are subject to
certain vesting and other restrictions on exercise.
(3) Mr. Chunn has been granted nonqualified stock options to
acquire 150,000 common voting shares 150,000 Series B
Preferred shares of the Company which are subject to
certain vesting and other restrictions on exercise.
(4) Determined on a fully diluted basis.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a Royalty Agreement with Charles
E. Worden, dated April 27, 1999, as amended October 29, 1999,
pursuant to which the Company, in consideration for the
assignment by Worden to the Company of certain Intellectual
Property Rights, the Company has agreed to pay Worden a royalty
equal to five percent (5%) of the gross profit derived by the
Company from the sale or use of the Intellectual Property
Rights, not to exceed $1,000,000 in any four consecutive
quarters. The Company also has a consulting arrangement with
Mr. Worden under the Royalty Agreement which would provide for
a maximum payment $50,000 per year until such time as the
royalties exceed $150,000 during any four consecutive calendar
quarters. To date, no amounts have been paid to Worden under
the agreement.
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<PAGE>
BDR Consulting, Inc., which owns a controlling interest in
Quasar Investments, L.L.C., the majority shareholder of the
Company, has a consulting agreement with the Company dated
October 29, 1999 ("Consulting Agreement") pursuant to which BDR
Consulting, Inc. is to provide financing and business related
consulting to the Company, for which BDR Consulting, Inc. is
entitled to receive compensation based on the annualized gross
revenues of the Company. The initial monthly fee is $6,000 per
month on annual revenues of $0 to 7.5 Million; $10,000 per
month if annualized revenues are over $7.5 Million to $14
Million; $15,000 per month if annualized revenues are over $14
Million to $25 Million; and $20,000 per month if annualized
revenues are in excess of $25 Million. The consulting fees
shall be based on the rolling twelve month aggregate gross
revenues of the Company measured as of the close of the month
immediately prior to the month for which the payment is due is
being calculated. As of the date of this filing, BDR
Consulting, Inc. has been paid approximately $25,000 for
services by BDR Consulting, Inc. to the Company. Jim D.
Swink, Jr., is the sole shareholder and controlling person of
BDR Consulting, Inc.
In 1999, we entered into an agreement with Keith Bennett,
M.D. ("Bennett") and Bennett Medical, LLC ("BMI") whereby
Bennett and BMI agreed to test the AuTolo-Cure system on 75
cases on behalf of the Company. The Company was obligated to
provide operational and technical support in connection with
the technology. As compensation for the trials, Bennett and
BMI retained all professional fees associated with the trials
and received a warrant to purchase up to 250,000 shares of the
Company's common stock, upon completion of the trials. The
warrant may be exercised at any time after January 1, 2000 and
is exercisable through September 22, 2004. The exercise price
of the warrant is $.0002 per share of underlying common stock.
Upon exercise of the warrant, BMI will be entitled to
participate in the Non-Qualified Stock Option Plan on a one-
for-one basis with the number of shares exercised under the
warrant (up to 250,000 shares). The options will have an
exercise price of $.02 per share and a term of five years. BMI
will also act as a sales agent for the lease of equipment,
licensing fees, sale of disposable supplies and training
services for the Company. The agreement calls for BMI to
receive a commission of twenty five percent (25%) of the
gross profit from these sales and licenses to customers
designated in their sales territory and to receive a commission
of five percent of the gross profit for sales and licenses to
certain designated customers. On October 29, 1999, the Company
and BMI amended the commission agreement whereby BMI waived the
five percent commission on the gross profit of sales and
licenses to certain designated customers in exchange for an
option to purchase 135,000 shares of Informatix Holdings, Inc.
at an exercise price of $1.00 per share. As of December 31,
1999 BMI had completed the 75 trials under the agreement.
We recorded compensation expense for the difference between the
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<PAGE>
fair market value of the common stock and the exercise price
which amounted to approximately $872,500 through December 31,
1999.
In October, 1999, Dennis Hendren, an officer and director
of the Company, exchanged loans he made to the Company in May,
1999, totaling $25,000 in exchange for 3,000 shares of Old AWT
common stock (now representing 150,000 shares of Company common
stock and 150,000 shares of Series B Preferred stock) which was
pledged as security for the repayment of the loan from Charles
Worden, the founder of Old AWT.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the reporting period.
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INDEX TO FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
Cytomedix, Inc. (A Development Stage Entity)
Independent Auditor' s Report
Balance Sheets as of December 31, 1998 (audited) and December
31, 1999 (audited)
Statement of Operations for the period December 11, 1998 (date
of inception) through December 31, 1998, for the year ended
December 31, 1999 and the period December 11, 1998 (date of
inception) through December 31, 1999
Statements of Stockholders Deficit for the period December 11
(date of inception) through December 31, 1998 and the year
ended December 31, 1999
Statements of Cash Flow for the period December 11, 1998 (date
of inception) through December 31, 1998, for the year ended
December 31, 1999 and the period December 11, 1998 (date of
inception) through December 31, 1999
Notes to Financial Statements
Index to Exhibits
2. Charter and Bylaws
2.1 Certificate of Incorporation *
2.2 Certificate of Amendment to Certificate
of Incorporation *
2.3 Bylaws *
2.4 Certificate of Amendment to Certificate
of Incorporation **
3. Instruments defining the rights of security holders *
3.1 Corrected Certificate of Designations of the
Relative Rights and Preferences of the Series A
5% Cumulative Preferred Stock and the Series B
Convertible Preferred Stock
5. Voting Agreement *
5.1 Voting Agreement
6. Material Contracts
6.1 Royalty Agreement with Charles Worden *
6.2 First Amendment to Royalty Agreement
with Charles Worden *
6.3 Consulting Agreement with BDR, Inc. *
6.4 Plan and Agreement of Merger and
Reorganization Charter and Bylaws *
* Incorporated by reference to the same numbered exhibit to
the Form 10-SB, file No. 0-28443
** Incorporated by reference to the same numbered exhibit to
the Form 8-K dated April 4, 2000, file No. 0-28443
42
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT
OF 1934, THE REGISTRANT HAS CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CYTOMEDIX, INC.
By: /s/ Dennis G. Hendren
Dennis G. Hendren, President and CEO
DATE: April 12, 2000.
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the date indicated:
Signature Title Date
/s/ Dennis G. Hendren Chief Executive Officer/ April 12, 2000
Dennis G. Hendren Director
/s/ William L. Brown Chief Operating Officer April 12, 2000
William L. Brown and Secretary/Director
/s/ W. Michael Chunn Vice President/Marketing April 12, 2000
W. Michael Chunn and Operations/Director
/s/ Glenn M. Charlesworth Chief Financial Officer April 12, 2000
Glenn M. Charlesworth
43
<PAGE>
CYTOMEDIX, INC.
(A Development Stage Entity)
Financial Statements and
Independent Auditors' Report
For the Period December 11, 1998 (Date of
Inception) through December 31, 1998
and for the Year Ended December 31, 1999
<PAGE>
Cytomedix, Inc
(A Development Stage Entity)
INDEX TO THE FINANCIAL STATEMENTS
Page
Independent Auditors' Report F2
Balance Sheets as of December 31, 1998 and 1999 F3
Statements of Operations for the period December 11,
1998 (date of inception) through
December 31, 1998, for the year ended December 31,
1999 and the period
December 11, 1998 (date of inception) through F5
December 31, 1999
Statements of Changes in Stockholders' Deficit for the
period December 11, 1998
(date of inception) through December 31, 1998, for
the year ended December 31, 1999
and the period December 11, 1998 (date of inception) F6
through December 31, 1999
Statements of Cash Flows for the period December 11,
1998 (date of inception) through
December 31, 1998, for the year ended December 31,
1999 and the period
December 11, 1998 (date of inception) through F8
December 31 1999
Notes to Financial Statements F9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Cytomedix, Inc.
Little Rock, Arkansas
We have audited the accompanying balance sheets of Cytomedix,
Inc. (a development stage entity) as of December 31, 1998 and
1999, and the related statements of operations, changes in
stockholders' deficit and cash flows for the period December 11,
1998 (date of inception) through December 31, 1998, the year
ended December 31, 1999 and the period December 11, 1998 (date of
inception) through December 31, 1999. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
<PAGE>
of Cytomedix, Inc. as of December 31, 1998 and 1999 and the
results of its operations, changes in stockholders' deficit and
cash flows for the period December 11, 1998 (date of inception)
through December 31, 1998, the year ended December 31, 1999 and
the period December 11, 1998 (date of inception) through December
31, 1999, in conformity with generally accepted accounting
principles.
L J SOLDINGER ASSOCIATES
Arlington Heights, Illinois
March 15, 2000
F-2
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Balance Sheets
ASSETS
______
December 31,
------------------
1998 1999
------- ------
Current Assets
Cash $92 $123,795
Interest receivable - 23,866
Employee receivable - 9,511
Note receivable - stockholder and
related party - 5,500
Prepaid expenses 4,448 33,499
------ -------
Total Current Assets 4,540 196,171
Property and Equipment, Net - 65,616
Prepaid Expenses and Deposits - 16,166
------ -------
$4,540 $277,953
====== ========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Balance Sheets
LIABILITIES AND STOCKHOLDERS' DEFICIT
_____________________________________
December 31,
----------------
1998 1999
------ ------
Current Liabilities
Short-term borrowings $ - $23,724
Notes payable - stockholders and related
parties - 125,052
Advances - stockholder and related party 20,728 19,000
Current portion of long-term debt - 24,911
Accounts payable 3,074 136,691
Accrued expenses - 58,769
Deferred revenue - 30,000
------- -------
Total Current Liabilities 23,802 418,147
------- -------
Long-Term Liabilities
Dividends payable on Series A preferred stock - 13,134
Long-term debt, net of current portion - 15,916
Deferred revenue - 52,500
------- ------
Total Long-Term Liabilities - 81,550
------ -------
Total Liabilities 23,802 499,697
------ -------
Commitment and Contingencies
Mandatorily redeemable Series A 5% cumulative
preferred stock; $.0001 par value; $1
liquidation value; at December 31, 1998,
authorized and outstanding - none; at
December 31, 1999, authorized, issued
and outstanding - 1,625,000 shares - 1,625,000
Stockholders' Deficit
Series B preferred stock
$.0001 par value; $.0001 liquidation value;
at December 31, 1998, authorized and
outstanding - none; at December 31, 1999,
authorized - 7,500,000 shares; issued and
outstanding - 6,000,000 shares 500 600
Common stock; $.0001 par value; at December 31,
1998, authorized - 40,000,000 shares; issued
and outstanding - 5,000,000 shares;
$.0001 par value; at December 31, 1999,
authorized - 40,000,000 shares; issued,
issuable and outstanding - 8,612,375 500 861
Additional paid-in capital (900) 10,005,641
Stock subscription note receivable (55,500)
Deferred compensation (5,575,833)
Deficit accumulated in the development stage (19,362) (6,222,513)
-------- -----------
Total Stockholders' Deficit (19,262) (1,846,744)
-------- -----------
$4,540 $277,953
======== ===========
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Statements of Operations
December 11, 1998 Year December 11, 1998
(Date of Inception) Ended (Date of Inception)
through December 31, through
December 31, 1998 1999 December 31, 1999
--------------- ---------- ---------------
Revenues $ - $ 8,600 $ 8,600
Cost of Sales - 25,870 25,870
--------- --------- ----------
Gross Profit - (17,270) (17,270)
Operating Expenses
Salaries and wages - 1,015,513 1,015,513
Consulting expense 3,000 1,963,363 1,966,363
Professional fees 14,180 267,747 281,927
Merger costs - 2,678,700 2,678,700
Selling, general and
administrative expenses 2,182 244,965 247,147
--------- --------- ----------
Total Operating Expenses 19,362 6,170,288 6,189,650
--------- --------- ---------
Loss from Operations (19,362) (6,187,558) (6,206,920)
---------- ----------- -----------
Other (Income) Expense
Interest expense - 2,892 2,892
Interest income - (433) (433)
--------- ----------- -----------
Total Other Expense, Net - 2,459 2,459
---------- ----------- -----------
Net Loss (19,362) (6,190,017) (6,209,379)
Preferred Dividend on Series
A Preferred Stock - 13,134 13,134
---------- ------------ -----------
Net Loss for Common
Shareholders $ (19,362) $(6,203,151) $(6,222,513)
=========== ============ ============
Basic and Diluted Loss Per
Common Share $ (0.01) $ (0.93)
=========== ============
Weighted Average Shares
Outstanding 2,500,000 6,641,904
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
Cytomedix, Inc.
(A Development Stage Entity)
Statement of Changes in Stockholders' Deficit
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Common Stock Series B Additional Subscrip- Deferred During the
Preferred Paid-In tion Compen- Development
Shares Amount Shares Amount Capital Receivable sation Stage
------ ------ ------ ------ ------- ---------- ----- ---------
Balances,
December 11,
1998 (Date of
Inception) - $ - - $ - $ - $ - $ - $ -
Common stock
issued for
cash
12/11/98* 5,000,000 500 5,000,000 500 (900) - - -
Net loss - - - - - - - (19,362)
--------- ------ --------- ----- ------- ------- ------ ----------
Balances,
December 31,
1998 5,000,000 500 5,000,000 500 (900) - - (19,362)
Share
retirement
for employee
stock
option plan (1,000,000) (100) (1,000,000) (100) 100 - - -
Share
retirement
for
marketing
option (250,000) (25) (250,000) (25) 25 - - -
Share
retirement
for private
placement
offering (500,000) (50) (500,000) (50) 50 - - -
Common stock
issued in
connection
with private
placement
offering,
net of
offering
costs, 3rd
quarter
1999; $2
per share 250,000 25 250,000 25 445,088 - - -
Warrant
issued
under
consulting
agreement
9/22/99;
250,000
shares;
$1.68 per
share - - - - 421,050 - - -
Option issued
under
consulting
agreement
9/22/99;
250,000
shares;
$1.81 per
share - - - - 451,800 - - -
<PAGE>
Options issued
under the Stock
Option Plan
9/1/99;
750,000
shares;
$1.98 per
share based
on the
difference
between FMV
of common
stock less
exercise
price at
option - - - - 1,485,000 - (742,500) -
-------- -------- ------- ---- --------- ------- ---------- --------
Balances to
be Brought
Forward 3,500,000 $ 350 3,500,000 $350 $2,802,213 $ - $(742,500) $(19,362)
========= ======== ========= ==== ========== ======== ========== =========
* Per share amount reflects the 1,000:1 common stock split on June
8, 1999 and the merger with Autologous and subsequent 1:2 common
stock split on November 8, 1999. The original capitalization of
the Company was 100 shares, $1.00 par value stock for $100.00.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
<TABLE>
Cytomedix, Inc.
(A Development Stage Entity)
Statement of Changes in Stockholders' Deficit
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Common Stock Series B Additional Subscrip- Deferred During the
Preferred Paid-In tion Compen- Development
Shares Amount Shares Amount Capital Receivable sation Stage
------ ------ ------ ------ ------- ---------- ----- ---------
Balances
Brought
Forward 3,500,000 $350 3,500,000 $350 $2,802,213 $ - $(742,500) $ (19,362)
Common Stock
issued for
cancella-
tion of
fee under
consulting
contract
10/29/99;
$2 per
share 2,500,000 250 2,500,000 250 4,999,750 - (4,833,333) -
Options
issued for
cancella-
tion of
fee under
consulting
contract
10/29/99;
135,000
shares at
$2.81 per
share - - - - 379,350 - - -
Net assets
and
liablilites
acquired in
merger with
Informatix 2,212,375 221 - - (1,289,266) (55,500) - -
Investment
banking
shares
issued in
connection
with merger 400,000 40 - - 1,567,960 - - -
Options
issued for
consulting
services
October 1999;
22,550 shares
at an average
per share
price of
$1.86 per
share - - - - 41,934 - - -
Options
issued for
cancellation
of fee under
consulting
contract
10/29/99;
50,000 shares
at $7.86 per
share - - - - 393,000 - - -
<PAGE>
Options
issued for
investment
banking
services in
connection
with the
merger
11/4/99;
290,000
shares at
$3.83 per
share - - - - 1,110,700 - - -
Preferred
dividend
on Series A
preferred
stock - - - - - - - (13,134)
Net Loss - - - - - - - (6,190,017)
-------- ------- -------- ---- --------- -------- --------- -----------
Balances,
December
31, 1999 8,612,375 $861 6,000,000 $600 $10,005,641 $(55,500) $(5,575,833) $(6,222,513)
========= ====== ========= ==== =========== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Statements of Cash Flows
December 11, December 11,
1998 1998
(Inception) Year (Inception)
through Ended through
December 31, December 31, December 31,
1998 1999 1999
---------- --------- ---------
Cash Flows from Operating Activities
Net loss $ (19,362) $(6,190,017) $(6,209,379)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activites
Depreciation and amortization - 4,055 4,055
Consulting expense recorded for
issuance of stock, warrants and
options under service agreement - 1,853,801 1,853,801
Compensation expense recorded
for issuance of options under
stock option plan - employees
and officer - 742,500 742,500
Compensation expense recorded
for the assumption of debt of
an officer - related party - 67,000 67,000
Merger expense recorded for
issuance of common stock in
connection with merger with
Informatix - 2,678,700 2,678,700
Increase in assets and liabilities
Prepaid expenses and deposits (4,448) (45,217) (49,665)
Accounts payable 23,802 93,617 117,419
Accrued expenses - 34,024 34,024
Deferred revenue - 82,500 82,500
------- --------- ---------
Total Adjustments 19,354 5,510,980 5,530,334
------- --------- ---------
Net Cash Used in
Operating Activities (8) (679,037) (679,045)
-------- ---------- ----------
Cash Flows from Investing Activities
Purchase of equipment - (18,076) (18,076)
Cash acquired in merger with
Informatix - 398,934 398,934
Advances to stockholders - related
parties - (5,500) (5,500)
Advances to employees - (9,511) (9,511)
--------- ---------- ---------
Net Cash Provided by Investing
Activities - 365,847 365,847
--------- --------- --------
Cash Flows from Financing Activities
Proceeds from line of credit - 23,724 23,724
Repayments on long-term debt - (10,768) (10,768)
Proceeds from notes payable -
stockholders - 193,324 193,324
Repayment of notes payable -
stockholders - (214,500) (214,500)
Proceeds from sale of common stock,
net of offering costs paid 100 445,113 445,213
---------- --------- ---------
<PAGE>
Net Cash Provided by Financing
Activities 100 436,893 436,993
---------- --------- ---------
Net Increase in Cash 92 123,703 123,795
Cash, Beginning of Period - 92 -
---------- --------- ---------
Cash, End of Period $ 92 $123,795 $123,795
========== ========= =========
Cash Paid for Interest $ - $ 4,258 $ 4,258
========== ========= ========
Cash Paid for Income Taxes $ - $ - $ -
========== ========= ========
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 1 - DESCRIPTION OF THE BUSINESS
Nature of Operations
____________________
The Company, a development stage entity, is in the business of
providing proprietary, turnkey solutions to the chronic wound care
field through its AuTolo-Cure System developed by the founder of
the Company. The Company's target market is worldwide.
History
_______
Cytomedix, Inc., formerly AuTologous Wound Therapy, Inc., and
Informatix Holdings, Inc. ("Informatix"), (the "Company") was
incorporated under the laws of the state of Nevada on June 10,
1987 and reincorporated in the State of Delaware on April 29,
1998. The Company was initially a public shell company, defined
as an inactive, publicly- quoted company with nominal assets and
liabilities.
The operations and financial statements of the Company are those
of AuTologous Wound Therapy, Inc. ("AuTologous"), an operating
company incorporated under the laws of the state of Arkansas on
December 11, 1998. AuTologous was merged into the Company on
November 4, 1999 at which time the Company changed its name to
Autolougs Wound Therapy, Inc. The Company was the surviving legal
entity. In connection with the merger, the Company exchanged 50
shares of its common stock and 50 shares of its Series B
convertible preferred stock in exchange for each issued and
outstanding share of common stock of AuTologous after adjusting
for a one-for-two reverse common stock split on November 8, 1999.
The former shareholders of AuTologous acquired a majority interest
in the Company (see Note 12).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
_______________________
The Company's financial statements are prepared on the accrual
basis of accounting in accordance with generally accepted
accounting principles, and have been presented on a going concern
basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The combination of the Company and AuTologous has been treated as
a recapitalization of the Company. The Company was the legal
acquirer in the merger. AuTologous was the accounting acquirer
since its shareholders acquired a majority ownership interest in
the Company. Consequently, the historical financial information
included in these financial statements prior to November 1999 is
that of AuTologous. All significant intercompany transactions and
balances have been eliminated. Pro forma financial information is
not presented since the combination is a recapitalization and not
a business combination.
<PAGE>
Development Stage Enterprise
____________________________
The Company is a Development Stage Enterprise, as defined in
Statement of Financial Accounting Standards No. 7 ("SFAS No. 7")
Accounting and Reporting for Development Stage Enterprises.
Under SFAS No. 7, certain additional financial information is
required to be included in the financial statements for the period
from inception of the Company to the current balance sheet date.
Since the inception of the Company, management has been in the
process of raising capital through stock offerings and its merger
with Informatix Holdings, Inc., hiring personnel, obtaining
customers and developing and marketing the Company's product line.
Use of Estimates
________________
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual
results could differ from those estimates.
F-9
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share
______________
Loss per share is calculated in accordance with Statement of
Financial Accounting Standard No. 128 Earnings Per Share. Basic
loss per share is computed based upon the weighted average number
of shares of common stock outstanding for the period and excludes
any potential dilution. Diluted earnings per share reflect
potential dilution from the exercise of securities into common
stock. Options and warrants to purchase common stock are not
included in the computation of diluted loss per share because the
effect of these instruments would be anti-dilutive for the loss
periods presented.
Segment Information
___________________
The Company operates as a provider of health delivery systems in
the chronic wound field.
Fair Value of Financial Instruments
___________________________________
The carrying value of accounts receivable, accounts payable and
accrued expenses approximates the fair market value due to the
relatively short maturity of these instruments.
Cash Equivalents
________________
For purposes of the statements of cash flows, the Company
considers all highly-liquid instruments purchased with a maturity
of three months or less to be cash equivalents.
Concentration of Credit Risk
____________________________
The Company provides credit in the normal course of business and
performs ongoing credit evaluations of its customers.
During the periods presented in these financial statements, the
Company maintained cash balances in a money market fund at a
financial brokerage firm. These funds are not covered under the
Federal Deposit Insurance Corporation ("FDIC"). At December 31,
1999, the amount of funds in accounts not covered under FDIC
insurance was $4,095. Management does not believe that a
significant risk existed by maintaining balances in the money
market account.
Revenue and Expense Recognition
_______________________________
Revenue from the sale of disposable supplies are recognized when
shipments are made to the customer. The Company also recognizes
revenue for certification and for billing services at the time
such services are rendered. Revenue from licensing agreements
entered into with hospitals, clinics and wound care facilities for
the licensing of technology is deferred upon receipt and then
amortized on a straight line basis over the life of the license
agreement.
The Company uses sales and marketing agents to place licenses with
doctors, hospitals and clinics. The Company expects to pay
commissions on the sale of each license and on the sale of the
disposable supplies. The commission agreements call for the
commissions to be payable when the Company receives payment from
the licensee. The Company will defer all direct incremental costs
of each license and will amortize these costs on a straight line
basis over the life of the license agreement. Direct incremental
costs will include commissions paid to sales agents, amounts paid
to consultants hired to perform the on-site training, travel costs
and disposable supplies expense incurred in connection with the
training. All other costs associated with the licenses are
expensed when incurred.
F-10
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In the fourth quarter of 1999, the Company entered into its first
licensing agreement, whereby the Company agreed to sell two pieces
of equipment to the licensee. The Company recorded deferred
revenue upon receipt of the revenue and is amortizing the revenue
over the three-year period of the agreement. The Company has
deferred the related sales commission incurred and is recognizing
it over the three-year life of the agreement. The cost of the
equipment was charged to cost of goods sold when the equipment was
sold to the licensee.
Property and Equipment
______________________
Property and equipment are recorded at cost. Property and
equipment are depreciated using the straight-line method over
their estimated useful lives, ranging from five to seven years.
Income Taxes
____________
The Company accounts for its income taxes under Statement of
Financial Accounting Standard No. 109, Accounting for Income
Taxes. Income taxes are recorded in the period in which the
related transactions have been recognized in the financial
statements, net of the valuation allowances which have been
recorded against deferred tax assets. Deferred tax assets and/or
liabilities are recorded for the expected future tax consequences
of temporary differences between the tax basis and financial
reporting basis of assets and liabilities.
Compensatory Stock-Based Arrangements
_____________________________________
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123 Accounting for Stock-Based
Compensation ("SFAS 123".) As permitted under SFAS 123, the
Company has continued to follow Accounting Principles Board No. 25
Accounting for Stock-Based Compensation ("APB 25") in accounting
for its stock-based compensation. SFAS 123 recognizes
compensation expense using the fair market value of stock options,
warrants and common stock issuances as of the grant date. APB 25
recognizes the intrinsic value of the instruments issued by the
Company as of the measurement date, which is generally the date at
which both the number of shares that an individual is entitled to
receive and the purchase price are known.
Stock Splits
____________
On June 8, 1999 and November 8, 1999, the Company's Board of
Directors approved a one thousand-for-one common stock split and
one-for-two reverse common stock split, respectively.
Stockholders of record on June 8, 1999 and November 8, 1999,
received one thousand shares of common stock for each share held
<PAGE>
on June 8, 1999 and one share of common stock for each two shares
held on November 8, 1999. All share numbers in these financial
statements and notes presented herein have been adjusted to
reflect the one thousand-for-one and the one-for-two reverse
common stock split, respectively. While not changing
stockholders' deficit in the aggregate, the common stock split did
change the allocation of capital between par value and additional
paid-in capital.
Statement of Changes in Stockholders' Deficit
_____________________________________________
The recapitalization resulted in the Company's equity accounts
being restated based on the ratio of the shares issued to
AuTologous' shareholders in the merger. The number of shares
restated was equivalent to the number of shares of the Company's
common stock issued for each share of AuTologous common stock.
While not changing stockholders' deficit in the aggregate, the
restatement changed the allocation of capital between par value
and additional paid-in-capital. The par value of the Company's
common stock is $.0001per share versus a par value of $.10 per
share of common stock for AuTologous.
F-11
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 3 - NOTE RECEIVABLE - STOCKHOLDER AND RELATED PARTY
In July 1999, the Company loaned $5,500 to BDR Consulting, Inc.
The loan is due and payable on July 1, 2000 and bears interest at
the rate of 7.5 percent per annum.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
-----------------
1998 1999
------ ------
Office furniture and fixtures $ - $1,090
Medical equipment - 32,763
Medical equipment under capital lease - 34,845
------ -------
- 68,698
Accumulated depreciation - (3,082)
------ -------
Total $ - $65,616
======= =======
NOTE 5 - LINE OF CREDIT
On December 9, 1999, the Company obtained a line of credit from
First State Bank. The loan agreement provides for a maximum
aggregate borrowing limit of $75,000 with advances made against,
and secured by, machines purchased for use in the AuTolo-Cure
System. The line is due on demand, bears an interest rate of 8%
per annum and matures on January 8, 2001 if no demand has been
made before then.
NOTE 6 - NOTES PAYABLE - STOCKHOLDERS AND RELATED PARTIES
During 1999, the Company was advanced funds by stockholders of the
Company to meet working capital requirements. The advances are
payable on demand with interest rates ranging from .05% to 1% per
annum. In July 1999, the Company and stockholders agreed to waive
the interest payable. Management has not discounted the below
market rate loans due to their immateriality.
<PAGE>
NOTE 7 - LONG-TERM DEBT
During 1999, the Company entered into agreements to lease medical
equipment in the amount of $51,595. As of December 31, 1999, the
Company was obligated on these leases in the amount of $40,827.
These borrowings bear interest at rates ranging from approximately
14% to 16% per annum and are payable in equal monthly installments
of $1,765, consisting of principal and interest payments, and
mature between February and May 2002. The equipment has been
pledged as collateral for the lease.
F-12
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 7 - LONG-TERM DEBT (Continued)
The following is a schedule by year of future minimum lease
payments required under the capital leases together with the
present value of the net minimum lease payments as of December 31,
1999:
2000 $28,132
2001 14,241
2002 3,259
------
Total minimum lease payments 45,632
Less amount representing
interest (4,805)
------
Present value of net minimum
lease payments 40,827
Less amount due within one
year (15,916)
--------
Noncurrent portion $24,911
========
NOTE 8 - MANDATORILY REDEEMABLE PREFERRED STOCK
In November 1999, Informatix issued 1,625,000 shares of Series A
5% cumulative preferred stock in satisfaction of notes assumed
with a principal and accrued interest balance of $1,525,000 and to
satisfy investment banking fees owed in the amount of $100,000 in
connection with a 1998 private placement of its equity securities.
The Series A preferred stock has a par value of $.0001 per share,
a liquidation preference of $1.00 per share and pays a 5%
cumulative dividend on the liquidation value. The Series A
preferred stock has a mandatory redemption feature, whereby at the
earlier of seven years after issuance or the Company meeting
certain performance criteria, the Company is obligated to redeem
the shares in cash at the liquidation value plus all accrued and
unpaid dividends. The Company may, in its sole discretion, pay
the dividends in cash or in common stock of the Company. Each
share of Series A preferred stock has one vote in all matters
voted on by holders of the common stock of the Company. As of
December 31, 1999, the Company had accrued cumulative preferred
dividends in the amount of $13,134.
NOTE 9 - DEFERRED REVENUE
The Company entered into an agreement on September 23, 1999 to
license two AuTolo-Cure Systems, each for a period of thirty-six
months with total payments due of $45,000 per system. The Company
has deferred $82,500 of the revenue collected from these licenses
and will amortize the deferred revenue over three years on a
straight-line basis.
<PAGE>
NOTE 10 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
timing differences between the carrying amounts of assets and
liabilities reflected on the financial statements and the amounts
used for income tax purposes. The tax effects of temporary
differences and net operating loss carryforwards that give rise to
significant portions of the deferred tax assets recognized are
presented below:
F-13
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 10 - INCOME TAXES (Continued)
December 31,
------------------
1998 1999
------ ------
Deferred tax assets :
Common stock, warrants and options
issued to employees and consultants $ - $1,555,000
Other temporary differences - 21,000
Deferred tax assets from Informatix - 802,000
Federal and state deferred tax
benefit arising from net operating
loss carryforwards
Autologous 3,600 203,000
Cytomedix - 627,000
------- ---------
3,600 3,208,000
Less valuation allowance (3,600) (3,208,000)
------- -----------
Total deferred tax assets $ - $ -
========= ==========
Income tax benefit consists of the following:
December 31,
-------------------
1998 1999
------ ------
Deferred
Federal $ - $2,021,000
State - 353,400
Tax benefit of net operating
loss carryforward 3,600 830,000
------ ---------
3,600 3,204,400
Less valuation allowance (3,600) (3,204,400)
------- ----------
Total $ - $ -
========= ==========
The Company has a loss carryforward of approximately $2,073,000 as
of December 31, 1999 that may be offset against future taxable
income. The carryforwards will expire between 2018 and 2019.
F-14
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 10 - INCOME TAXES (Continued)
The following table presents the principal reasons for the
difference between the Company's effective tax rates and the
United States federal statutory income tax rate of 34%:
December 31,
1998 1999
------ -----
U.S. federal statutory income tax 15% 34%
Federal income tax benefit at
statutory rate $ 2,904 $ 2,104,600
State and local income tax benefits,
net of effect of federal benefit 696 126,300
Non-deductible compensation for
stock, options and warrants issued
to employees and consultants - (472,000)
Valuation allowance for deferred
income tax benefit (3,600) (1,758,900)
------- -----------
Income Tax Expense $ - $ -
========= ===========
Effective Income Tax Rate 0% 0%
========= ===========
NOTE 11 - OPERATING LEASES
The Company executed a new sixty-month lease for office space in
Little Rock, Arkansas, commencing December 1, 1999. Monthly
payments under the lease are $3,000.
The following is a schedule, by year, of minimum rentals required
under operating leases:
Year 2000 $ 36,000
2001 36,000
2002 36,000
2003 36,000
2004 33,000
--------
Total $177,000
========
NOTE 12 - CAPITAL STOCK ACTIVITY
On December 11, 1998, the Company issued 5,000,000 shares of
common stock for an aggregate purchase price of $100.
<PAGE>
On March 8, 1999, the sole shareholder of the Company returned
250,000 shares of common stock to the Company to be reserved for
issuance under a consulting and marketing agreement with Sigma
Health Care Consulting (see Note 16).
On April 29, 1999, the Company and its sole shareholder entered
into an agreement with Quasar Investments, LLC whereby the sole
shareholder returned 500,000 shares of common stock to the Company
to be held for a private placement offering through the efforts of
Quasar Investments, LLC.
F-15
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 12 - CAPITAL STOCK ACTIVITY (Continued)
On June 8, 1999, the Company amended its Articles of Incorporation
changing the par value of its common stock to $.01 per share and
authorizing the issuance of up to 1,000,000 shares of common
stock.
On June 8 , 1999, a shareholder of the Company returned 1,000,000
shares of common stock to the Company to be reserved for issuance
under the Non-Qualified Stock Option Plan.
In October 1999, the Company completed a private placement
offering of 250,000 shares of common stock, under exemptions of
the Securities and Exchange Act of 1933, for an aggregate purchase
price of $500,000. Costs related to this offering amounted to
$54,887.
On October 29, 1999, the Company and BDR Investment Partnership
amended the February 23, 1999 consulting agreement whereby the
Company issued 2,500,000 shares of common stock to BDR Investment
Partnership in exchange for cancellation of the agreement. This
resulted in the Company recording deferred consulting fees of
$5,000,000, which will be amortized over the five-year term of the
agreement. As of December 31, 1999, the Company had amortized
$166,667 of the deferred consulting fees.
On November 4, 1999, the Company consummated a plan of merger and
reorganization with AuTologous whereby the Company remained the
surviving legal entity. The merger has been accounted for as a
recapitalization. At the time of the merger, the Company had
2,212,375 shares of its common stock issued and outstanding. The
merger resulted in the exchange of 50 shares of the Company's
common stock for each share of AuTologous common stock, par value
$.0001, and 50 shares of the Company's Series B convertible
preferred stock, par value $.0001 after adjusting for a one-for-
two reverse common stock split on November 8, 1999. Each warrant
and option share of AuTologous was exchanged for a similar option
or warrant to acquire 50 shares of the Company's common stock and
50 shares of Series B convertible preferred stock. In
conjunction with the merger, AuTologous rescinded its right of
first refusal upon the sale of shares of its common stock between
certain stockholders. The merger also called for the Company to
raise minimum gross proceeds of $1,200,000 from the sale of its
common stock within one year of the merger in one or more private
placements. In connection with the merger, 400,000 shares of
<PAGE>
common stock were issued as payment for investment banking fees
which resulted in the Company recording merger costs of
$1,568,000. The Company also issued options to consultants to
purchase 290,000 shares of its common stock with an exercise price
of $4.00 and terms of five years. The options were valued at
$3.83 per share, using the Black-Scholes model, which resulted in
the Company recording additional merger costs of $1,110,700.
Holders of Series B preferred stock are not be entitled to any
dividends. Each share of Series B preferred stock has one vote on
all matters voted on by holders of the common stock of the
Company. The Series B preferred stock is subject to mandatory
conversion, whereby if the Company raises gross proceeds of
$1,200,000 or more from the sale of its common stock within one
year of the issuance of the Series B preferred stock, then for
every share of common stock issued by the Company in the raising
of the $1,200,000, the Company will convert one share of Series B
preferred stock into three (3) shares of common stock of the
Company (see Note 18).
In May 1999, the President of the Company loaned the Company
$25,000. The founder and majority shareholder of the Company
guaranteed the loan on behalf of the Company by pledging three
percent of the Company's outstanding common stock as collateral.
The Company did not repay the loan and in October 1999, the
President received three percent of the outstanding stock of the
Company, 150,000 shares, from the founder of the Company in
exchange for the promissory note for the loan.
F-16
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 12 - CAPITAL STOCK ACTIVITY (Continued)
The Company follows the provisions of SFAS 123. As permitted
under SFAS 123, the Company has continued to follow APB 25 in
accounting for its stock-based compensation. SFAS 123 recognizes
compensation expense using the fair market value of stock options,
warrants and common stock issuances as of the grant date. APB 25
recognizes the intrinsic value of the instruments issued by the
Company as of the measurement date, which is generally the date at
which both the number of shares that an individual is entitled to
receive and the purchase price are known. Had compensation
expense for the period ended December 31, 1998 and the year ended
December 31, 1999 been determined under the fair value provisions
of SFAS 123, the Company's net loss and net loss per share would
have differed as follows:
December 11, 1998
(Date of Inception) Year Ended
through December 31, 1998 December 31, 1999
-------------------- --------------------
Net Loss Per Share Net Loss Per Share
-------- --------- -------- ---------
As Reported Under APB 25 $(19,362) $(0.01) $(6,203,151) $(0.93)
========= ======= ============ =======
Pro Forma Under SFAS 123 $(19,362) $(0.01) $(6,115,776) $(0.92)
========= ======= ============ =======
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 weighted average fair
values of options at their grant date during 1999, where exercise
price equals or exceeds the market price on the grant date, was
$0. The estimated fair value of each option granted is calculated
using the Black-Scholes option pricing model. The following
summarizes the weighted average of the assumptions used in the
model.
1998 1999
---- ----
Risk free rate (3-month
Treasury bill) - 4.72%
Expected years until
exercise - 9.33
Expected stock
volatility - 200.00%
Dividend yield - 0%
<PAGE>
Loss Per Share
______________
The Company follows the guidance of State of Financial Accounting
Standards No. 128 in the presentation of earnings per share for
all periods presented in the financial statements. Options and
warrants to purchase common stock are not included in the
computation of diluted loss per share because the effect of these
instruments would be anti-dilutive for the loss periods presented.
The common shares potentially issuable arising from these
instruments, which were outstanding during the periods presented
in the financial statements, are as follows:
December 31,
Exercise ---------------
Price 1998 1999
----- ---- -----
Options $.02 to $5.00 - 1,497,550
Warrants $.0002 - 250,000
-------- ---------
- 1,747,550
======== =========
F-17
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 13 - NON-QUALIFIED STOCK OPTION PLAN
On June 8, 1999, the Company adopted a Non-Qualified Stock Option
Plan (the NSO Plan ) which provides for the granting of options
to employees, officers, directors and consultants of the Company.
The number of shares of common stock which can be purchased under
this plan is limited to 1,000,000 shares, adjustable for changes
in the capital structure of the Company. The exercise prices of
the options granted under the NSO Plan are to be determined by the
Board of Directors or other NSO Plan administrators on the date
the option is granted. The expiration date for an option granted
shall be determined at the discretion of the Board of Directors
and shall not expire later than ten years after date of grant.
Any options which have not been exercised prior to termination of
services will be deemed canceled immediately as a result of
resignation or dismissal and after 180 days subsequent to death or
disability. The Company will incur compensation expense to the
extent that the market value of the stock a the date of grant to
employees exceeds the amount the grantee is required to pay for
the options (see Note 12). As of December 31, 1999, the Company
had issued options to acquire 1,497,550 shares under the plan.
The following table summarizes information about fixed stock
options outstanding:
Options Outstanding Options Exercisable
----------------------- ----------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Outstanding Contract Exercise Outstanding Exercise
Shares Life Price Shares Price
--------- ------- ------- --------- -------
December 31, 1999 1,497,550 7.24 $ 1.00 1,111,550 $ 1.21
========= ====== ======= ========= =======
<PAGE>
The Company incurred $1,485,000 of compensation expense in
connection with the issuance of 750,000 options to employees under
the Company's stock option plan. The exercise prices were 1% of
the fair market value of the underlying common stock and therefore
the Company has recorded the issuances of these options in the
same manner as if common stock had been granted. As of December
31, 1999, $742,500 of the $1,485,000 has been expensed as
compensation for services rendered, and the remaining $742,500 has
been recorded as deferred compensation and will be ratably
expensed over the period ending December 31, 2000 as services are
rendered by the employees.
The Company recorded consulting expense in the amount of $379,350
in connection with the issuance of options to purchase 135,000
shares of stock in exchange for cancellation of its commission
agreement with Bennett Medical, LLC ("BMI"). BMI also received
warrants to acquire 250,000 shares of common stock with an
exercise price of $.0002 per share. Upon exercise of the
warrants, BMI is entitled to receive one option with an exercise
price of $.02 per share for every warrant share exercised (see
Note 16).
The Company recorded consulting expense in the amount of $393,000
in connection with the issuance of options to purchase 50,000
shares of stock to Little Rock Foot Clinic in exchange for
cancellation of its consulting agreement with Little Rock Foot
Clinic. The options have an exercise price of $2.50 per share and
a term of five years (see Note 16).
The Company recorded consulting expense in the amount of $41,934
in connection with the issuance of options to purchase 22,550
shares of its common stock with exercise prices ranging from $2.00
to $5.00 and with exercise terms of five years.
The Company recorded merger costs in the amount of $1,110,700 for
options to acquire 290,000 shares of common stock issued to
consultants in connection with the merger with AuTologous. The
options have an exercise price of $4.00 per share and a term of
five years.
F-18
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 14 - SUPPLEMENTAL CASH FLOW DISCLOSURES - NON CASH
TRANSACTIONS
In 1999 the Company entered into capital leases to acquire
property and equipment in the amount of $51,595.
NOTE 15 - RELATED PARTY TRANSACTIONS NOT DESCRIBED ELSEWHERE
BDR Consulting, Inc. is the managing member of, and significant
investor in, Quasar Investments, LLC which owns a controlling
interest in the Company. BDR Consulting, Inc., through a voting
trust agreement, is entitled to vote on matters relating to
election of Directors, merger, sale and liquidation of the Company
on behalf of Quasar Investments, LLC. As of December 31, 1999,
Quasar Investments, LLC controlled 58.6% of the outstanding stock
of the Company.
BDR Consulting, Inc. is also affiliated with BDR Investment
Partnership through common ownership. The principal in both
entities provided consulting services to the Company amounting to
$25,000 for the period ending December 31, 1999.
On February 23, 1999, the Company and BDR Consulting, Inc. ("BDR")
entered into a consulting agreement. The agreement called for BDR
to provide contacts, potential investors, expertise in marketing,
general business and certain legal services required by the
Company. Initially, the Company was to pay a consulting fee of
ten percent of the gross value of any contracts entered into with
a party introduced by BDR. On October 28, 1999, BDR assigned its
rights to the consulting fees to BDR Investment Partnership (see
Note 12).
On October 29, 1999, the Company and BDR entered into a subsequent
consulting agreement, providing for BDR to receive compensation
based on the annualized gross revenue of the Company. The amended
agreement specified a graduated monthly fee as follows: $6,000
per month on annual revenues of $0 to $7.5 million; $10,000 per
month if annualized revenues are $7.5 million to $14 million;
$15,000 per month if annualized revenues are $14 million to $25
million; and $20,000 per month if annualized gross revenues are in
excess of $25 million. The consulting fee is to be based on the
rolling twelve month aggregate gross revenues of the Company
measured as of the close of the month immediately prior to the
month for which payment due is being calculated. The amended
agreement has a term of five years from the date of amendment.
<PAGE>
The founder and sole stockholder of the Company, the Company and
Quasar Investments, LLC entered into an agreement on April 27,
1999, which was subsequently amended October 29, 1999, amending an
earlier option agreement between the founder and Quasar
Investments, LLC. Under the amended agreement, the Company is to
pay the founder a royalty of five percent of the gross profit
derived from the sale, license or other exploitation of the
intellectual property of the Company, payable thirty days after
the end of each quarter, in exchange for the founder delivering
fifty-one percent of the issued and outstanding common stock of
the Company held by the founder to Quasar Investments, LLC and the
assignment of certain intellectual property rights to the Company.
The royalty would be limited to $1,000,000 in the aggregate during
any four consecutive quarters. The agreement also calls for the
founder to be paid a consulting fee of $50,000 per year until
royalty fees exceed $150,000 per year.
On June 8, 1999, the principal stockholders and the Company
entered into an agreement whereby the principal stockholders would
be required to give the Company the right of first refusal to
purchase their stock if any of those stockholders desired to sell
their stock to anyone other than the stockholders involved.
On September 1, 1999 the Company granted options to purchase
250,000 shares of the Company's common stock to the President of
the Company, 350,000 shares of the Company's common stock to the
Chief Operating Officer of the Company and 150,000 shares to the
Vice President of Technical Operations. The exercise price for
each issuance was $.02 per share. These three officers are also
Directors of the Company.
F-19
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 16 - COMMITMENTS AND CONTINGENCIES
On February 13, 1999, the Company filed a patent application with
the United States Patent and Trademark Office for an Improved
Enriched Platelet Wound Healant, which encompasses the AuTolo-
Cure System.
On March 8, 1999, and subsequently amended on January 13, 2000,
the Company and Sigma Health Care Consulting, Inc. ("Sigma")
entered into a consulting agreement whereby Sigma would use its
contacts to sell licenses of the AuTolo-Cure System. The amended
agreement called for Sigma to receive a one-time payment of $3,000
for its efforts to place systems, a commission of approximately
22% of the license fee received by the Company for every license
Sigma sells in the future, and an option to purchase 50,000
shares of the Company's common stock for an exercise price of $4
per share with a term of five years (see Note 12).
On September 22, 1999, the Company, Keith Bennett, M.D.
("Bennett") and Bennett Medical, LLC ("BMI") entered into a
service agreement whereby Bennett and BMI agreed to test the
AuTolo-Cure TM System on 75 cases on behalf of the Company. The
Company was obligated to provide operational and technical support
in connection with the technology. As compensation for the
trials, Bennett and BMI retained all professional fees associated
with the trials and received a warrant to purchase up to 250,000
shares of the Company's common stock upon completion of the
trials. The warrant may be exercised at any time after January 1,
2000 and is exercisable through September 22, 2004. The exercise
price of the warrant is $.0002 per share of underlying common
stock. Upon exercise of the warrant, BMI will be entitled to
participate in the Non-Qualified Stock Option Plan (see Note 13)
on a one-for-one basis with the number of shares exercised under
the warrant (up to 250,000 shares). The options have a term of
five years and an exercise price of $.02 per share. BMI will also
act as a sales agent for the lease of equipment, licensing fees,
sale of disposable supplies and training services for the Company.
The agreement calls for BMI to receive a commission of twenty-five
percent of the gross profit from these sales and licenses to
customers designated in their sales territory and to receive a
commission of five percent of the gross profit for sales and
licenses to certain designated customers. On October 29, 1999,
the Company and BMI amended the commission agreement whereby BMI
waived the five percent commission on the gross profit of sales
and licenses to certain designated customers in exchange for an
option to purchase 135,000 shares of common stock of Informatix at
an exercise price of $1.00 per share. The number of shares and
the per share amount for the option to purchase 135,000 shares of
Informatix common stock reflects the recapitalization and
subsequent reverse stock split affected by the Company in
connection with its merger with AuTologous (see Note 12). As of
December 31, 1999, BMI had completed the 75 trials under the
<PAGE>
agreement. The Company recorded consulting expense in the amount
of $872,850 for the difference in price between the exercise price
of the warrant and option versus the fair market value of the
common stock of $1.68 and $1.81 for the warrants and options,
respectively, determined using the Black-Scholes model.
On September 23, 1999, the Company and Little Rock Foot Clinic
("LRFC") entered into an agreement whereby the Company will pay a
commission equal to five percent of the gross profit earned on any
sales, licenses or training that LRFC is directly responsible for
providing to the Company. The Company licensed one machine to
LRFC for an unlimited period, at no charge, in return for being
the first commercial operation to utilize the process. In
November, 1999, the Company and LRFC amended the commission
agreement, whereby the Company issued options to purchase 50,000
shares of the Company's common stock in exchange for amending the
commissions payable under the agreement for license sales made by
LRFC. The options have an exercise price of $2.50 per share and
vest immediately.
In December 1999, the Company sold the equipment included in the
first two licenses sold by the Company to the licensee. The
equipment that was sold was financed by the Company through a
capital lease obligation. At the time of the sale of equipment,
the Company remained obligated under the lease. As of December
31, 1999, the remaining lease obligation was $13,891. Management
is in the process of arranging for the payoff of this capital
lease.
F-20
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 17 - SEGMENT INFORMATION
For the year ended December 31, 1999, the Company recognized
$8,600 of revenues, of which $7,500 was from the sale of its first
two licenses. The license revenues were earned from one customer
which is domiciled in the United States.
NOTE 18 - SUBSEQUENT EVENTS
On January 12, 2000, the Company and The Kriegsman Group
("Kriegsman") entered into a three-year consulting agreement,
whereby Kriegsman will assist the Company in recruiting members
for its Board of Directors, Advisory Board and senior executives
to complete the management team. The agreement also calls for
Kriegsman to help the Company raise equity capital through private
placements, to arrange and negotiate possible strategic alliances,
license agreements with major companies and joint ventures, and to
seek out and approach investment banks to help fund the
development of the Company. In consideration for these services,
Kriegsman will receive a non-refundable consulting fee of $25,000
and a consulting fee of $5,000 per month over the life of the
agreement for every $3 million raised through equity placements,
strategic alliances, joint ventures or license agreements up to a
maximum of $25,000 per month. The monthly consulting fee will
commence once Kriegsman has raised the first $3 million. The
agreement also grants options to Kriegsman to purchase 150,000
shares of common stock of the Company. The options have a term of
five years and an exercise price of $4.00 per share (the number of
shares and the per share amount reflect the recapitalization and
subsequent reverse stock split affected by the Company in
connection with its merger with Informatix) (see Note 12). The
common stock underlying these options also has been granted
registration rights in the Company's next registration statement.
The Company also granted additional options to purchase up to a
maximum of 450,000 shares of common stock with a term of five
years and an exercise price of $4.00, based on Kriegsman meeting
certain performance criteria. Kriegsman will be entitled to
options to purchase 150,000 shares of common stock for placement
of a senior executive, options to purchase 125,000 shares of
common stock for placement of two members on the Board of
Directors of the Company and options to purchase 125,000 shares of
common stock for every $1 million
<PAGE>
dollars raised by Kriegsman over $3 million. The above options
have a one-time extension, whereby if the Food and Drug
Administration requires the Company to go through regulatory
approval, Kriegsman will be granted a three-year extension to the
term of his options. The agreement also calls for Kriegsman to
receive a fee of 8% of the proceeds raised from any equity or debt
placement initiated by Kriegsman. The Company has also agreed to
issue Kriegsman warrants representing the rights to purchase 10%
of the shares issued in the equity placement (or shares in which
the debt is convertible into). The warrants will have a term of
five years and an exercise price equal to the per share price of
any equity raise or the conversion price of common stock for any
convertible debt offerings. In the event Kriegsman arranges for
the merger, sale or acquisition of the Company, then all remaining
outstanding options shall immediately vest and Kriegsman will be
paid a success fee on the closing of the transaction equal to six
percent of the value of the consideration received in such
transaction by the Company or its Stockholders. The Company shall
have the right to terminate the agreement on the eleventh (11th)
month anniversary date of the execution of the Agreement (or at
any time thereafter) upon delivering written notice of such
termination to Kriegsman of the effective date of such
termination, in the event that Kriegsman has not accomplished the
following performance objectives:
(a) Raising a minimum of two million dollars
($2,000,000.00) in equity capital or proceeds from
joint ventures, strategic alliances or licensing
transactions arranged for the Company by Kriegsman.
(b) Initiated research coverage of the Company by
Kriegsman with a buy recommendation.
(c) Recruited at least two (2) members that accepted
appointment to AWT's Board of Directors.
Upon the Company's election to terminate this agreement, any
remaining unissued options shall not be issued and any rights
thereto immediately forfeited without any further action on behalf
of the Company. Consulting payments, options, warrants and any
other fees earned, due and payable under the agreement shall be
paid for the services of Kriegmans occurring on or before the
effective date of the termination of the agreement.
F-21
<PAGE>
Cytomedix, Inc.
(A Development Stage Entity)
Notes to Financial Statements
NOTE 18 - SUBSEQUENT EVENTS (Continued)
On January 24, 2000, the Company entered into two development
rights agreements. The five-year agreements give exclusive
marketing and sales territories to two companies to market and
sell licenses for the AuTolo-Cure System. The agreement
specifies the companies will receive a commission equal to 29% of
the sales price for each license they place. The agreement also
requires the companies to sell a minimum number of licenses.
Failure to sell the minimum number of licenses gives the Company
the right to terminate the agreement.
In February, 2000, the Company completed a private placement
offering to one accredited investor. The private placement
offering was for 250,000 shares of the Company's common stock at
$3.00 per share (the number of shares and the per share amount
reflect the recapitalization and subsequent reverse common stock
split affected by the Company in connection with its merger with
Informatix). In connection with the private placement offering,
the Company paid an investment banking fee of 10% of the gross
proceeds.
In March 2000, the Company completed a private placement offering
of its common stock. The Company sold approximately 771,500
shares of its common stock at $10 per share, raising gross
proceeds of approximately $7,715,000. The Kriegsman Group raised
approximately $2,650,000 of those proceeds and was paid a
commission of 8% and issued warrants for 26,500 shares of the
Company's common stock, as per its agreement with the Company.
This offering also completed the $1,200,000 offering as agreed to
in the plan of merger and reorganization with Informatix through
the issuance of 295,000 shares to outside investors and,
therefore, the Company will convert 295,000 shares of the Series B
preferred stock into 885,000 shares of common stock of the
Company.
From January 1 through March 15, 2000, the Company issued options
to purchase 45,000 shares of the Company's common stock to
employees. These options have exercise prices ranging from $2.00
to $5.00 per share. The options all carry terms of five years
from the date of issuance.
F-22
<PAGE>
