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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 23-3011702
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Parkway North, Deerfield, Illinois 60015
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(Address of principal executive offices) (Zip Code)
(847) 405-7800
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Issuer's telephone number
1523 Bowman Road, Suite A, Little Rock, Arkansas 72211
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(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
COMMON STOCK, $.0001 PAR VALUE: 10,500,934
AS OF AUGUST 9, 2000
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements 1
Condensed Balance Sheets as of June 30, 2000 (Unaudited) and
December 31, 1999 2
Condensed Statements of Operations for the three months and six
months ended June 30, 1999 and 2000 (Unaudited) and for the period
December 11, 1998 (date of inception) through June 30, 2000 (Unaudited) 4
Condensed Statements of Cash Flows for the six months ended June 30, 1999
and 2000 (Unaudited) and for the period December 11, 1998 (date of
inception) through June 30, 2000 (Unaudited) 5
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Overview 8
Results of Operations 9
Liquidity and Capital Resources 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Change in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CYTOMEDIX, INC.
(A DEVELOPMENT STAGE ENTITY)
Condensed Balance Sheet
ASSETS
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June 30, December 31,
2000 1999
(Unaudited)
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Current Assets
Cash $ 5,860,738 $ 123,795
Receivables and prepaid expenses 438,205 66,876
Note receivable - related party 5,500 5,500
------------- ----------
Total Current Assets 6,304,443 196,171
Property and Equipment, Net 276,191 65,616
Prepaid Expenses and Deposits 12,333 16,166
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$ 6,592,967 $ 277,953
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Short-term borrowings and current portion of long-term debt $ 117,547 $ 48,635
Notes payable - related party 100,052 125,052
Accounts payable and accrued expenses 161,949 214,460
Deferred revenue 30,000 30,000
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Total Current Liabilities 409,548 418,147
Long-Term Liabilities 105,746 81,550
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Total Liabilities 515,294 499,697
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Commitment and Contingencies
Mandatorily redeemable Series A 5% cumulative preferred stock;
$.0001 par value; $1 liquidation value; authorized, issued and outstanding -
1,625,000 shares 1,625,000 1,625,000
------------- -------------
Stockholders' Equity
Series B preferred stock
$.0001 par value; $.0001 liquidation value;
authorized - 7,500,000; at June 30, 2000,
issued and outstanding - 5,705,000 shares 571 600
Common stock; $.0001 par value; at June 30, 2000, authorized -
40,000,000 shares; issued and outstanding - 10,538,875 shares 1,054 861
Additional paid-in capital 43,082,402 10,005,641
Stock subscription note receivable (1,000) (55,500)
Deferred compensation (22,612,193) (5,575,833)
Deficit accumulated in the development stage (16,018,161) (6,222,513)
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Total Stockholders' Equity 4,452,673 (1,846,744)
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$ 6,592,967 $ 277,953
============= =============
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See notes to condensed financial statements
2
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CYTOMEDIX, INC.
(A DEVELOPMENT STAGE ENTITY)
Condensed Statements of Operations
December 11,
1998
(Date of
Three Months Ended June 30, Six Months Ended June 30, Inception)
--------------------------- ------------------------ through
1999 2000 1999 2000 June 30, 2000
----------- ------------ ----------- --------- -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Revenues $ - $ 129,833 $ 1,100 $ 164,337 $ 172,937
Cost of Sales - 31,091 - 36,327 62,197
----------- ------------ ----------- --------- -----------------
Gross Profit - 98,742 1,100 128,010 110,740
Operating Expenses
Salaries and wages 228,453 2,411,287 446,008 2,845,465 3,860,978
Consulting expense - 343,375 - 6,031,398 7,997,761
Professional fees - 403,179 - 599,183 881,110
Merger costs - - - - 2,678,700
General and administrative expenses 63,317 293,172 115,438 492,435 739,581
----------- ------------ ----------- --------- -----------------
Total Operating Expenses 291,770 3,451,013 561,446 9,968,481 16,158,130
----------- ------------ ----------- --------- -----------------
Loss from Operations (291,770) (3,352,271) (560,346) (9,840,471) (16,047,390)
----------- ------------ ----------- --------- -----------------
Other (Income) Expense
Interest expense - 3,343 - 6,034 8,927
Interest income - (71,686) - (91,481) (91,914)
----------- ------------ ----------- --------- -----------------
Total Other (Income), Net - (68,343) - (85,447) (82,987)
----------- ------------ ----------- --------- -----------------
Net Loss (291,770) (3,283,928) (560,346) (9,755,024) (15,964,403)
Preferred Dividend - 20,312 - 40,624 53,758
----------- ------------ ----------- --------- -----------------
Net loss to common stockholders $ (291,770) $ (3,304,240) $ (560,346) $(9,795,648) $(16,018,161)
=========== ============ =========== ========= =================
Basic and Diluted Loss Per Common Share $ (0.09) $ (0.31) $ (0.14) $ (0.99)
=========== ============ =========== =========
Weighted Average Shares Outstanding 3,398,352 10,534,369 4,035,911 9,938,729
=========== ============ =========== =========
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See notes to condensed financial statements
3
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CYTOMEDIX, INC.
(A DEVELOPMENT STAGE ENTITY)
Condensed Statements of Cash Flows
Six Months Ended June 30, December 11, 1998
------------------------------ (Inception) through
1999 2000 June 30, 2000
----------- ------------ -------------------
(Unaudited) (Unaudited) (Unaudited)
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Cash Flows from Operating Activities
Net loss $ (560,346) $(9,755,024) $ (15,964,403)
----------- ------------ ---------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization - 20,603 24,658
Consulting expense recorded for issuance of warrants
and options under service agreement - 5,823,500 7,677,301
Compensation expense recorded for issuance of stock
options under stock option plan - employees and officer 371,250 2,268,332 3,010,832
Compensation expense recorded for the assumption of
debt of an officer - related party - - 67,000
Merger expenses recorded for issuance of common stock
in connection with merger with Informatix - - 2,678,700
Changes in assets 4,448 (371,946) (421,611)
Changes in liabilities 35,472 (48,511) 185,432
----------- ------------ ---------------
Total Adjustments 411,170 7,691,978 13,222,312
----------- ------------ ---------------
Net Cash Used in Operating Activities (149,176) (2,063,046) (2,742,091)
----------- ------------ ---------------
Cash Flows from Investing Activities
Purchase of equipment - (231,178) (249,254)
Cash acquired in merger with Informatix - - 398,934
(Advances to) repayment from employees and related parties (775) 4,450 (10,561)
----------- ------------ ---------------
Net Cash (Used in) Provided by Investing (775) (226,728) 139,119
----------- ------------ ---------------
Cash Flows from Financing Activities
Proceeds from line of credit - 76,276 100,000
Repayments on long-term debt - (8,793) (19,561)
Proceeds from notes payable - stockholders 152,221 - 193,324
Repayment of notes payable - stockholders - (44,000) (258,500)
Proceeds from sale of common stock, net of offering costs paid - 8,003,234 8,448,447
----------- ------------ ---------------
Net Cash Provided by Financing Activities 152,221 8,026,717 8,463,710
----------- ------------ ---------------
Net Increase in Cash 2,270 5,736,943 5,860,738
Cash, Beginning of Period 92 123,795 -
----------- ------------ ---------------
Cash, End of Period $2,362 $ 5,860,738 $ 5,860,738
=========== ============ ===============
Cash Paid for Interest $ - $ 6,034 $ 10,293
=========== ============ ===============
Cash Paid for Income Taxes $ - $ - $ -
=========== ============ ===============
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See notes to condensed financial statements
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CYTOMEDIX, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements included herein have been prepared by
Cytomedix, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Cytomedix's
Annual Report on Form 10-KSB for the year ended December 31, 1999.
In the opinion of Cytomedix's management, the accompanying unaudited
condensed financial statements contain all adjustments, consisting solely of
those adjustments which are of a normal recurring nature, necessary to present
fairly its financial position as of June 30, 2000 and the results of its
operations and its cash flows for the interim periods presented and the period
from December 11, 1998 (inception) through June 30, 2000.
The results of operations for the interim periods presented herein are
not necessarily indicative of the results to be expected for the entire fiscal
year.
Cytomedix is a development stage enterprise, and accordingly, certain
additional financial information is required to be included in the financial
statements from the inception of Cytomedix to the current balance sheet date.
The combination of Cytomedix and AuTologous Wound Therapy, Inc. in
November 1999 has been treated as a recapitalization of Cytomedix. Cytomedix was
the legal acquirer in the merger. AuTologous Wound Therapy, Inc. was the
accounting acquirer since its shareholders acquired a majority ownership
interest in Cytomedix. Consequently, the historical financial information
included in these financial statements prior to November 1999 is that of
AuTologous Wound Therapy, Inc. 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.
Basic and diluted loss per share was calculated based upon the net loss
available to common shareholders divided by the weighted average number of
shares of common stock outstanding during the period. 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 loss
periods presented.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
On January 12, 2000, Cytomedix and The Kriegsman Group entered into a
three-year consulting agreement, whereby Kriegsman agreed to assist Cytomedix in
recruiting members for its Board of Directors, Advisory Board and senior
executives to complete Cytomedix's management team. In consideration for these
services, Kriegsman received a non-refundable consulting fee of $25,000 and is
entitled to additional consulting fees up to a maximum of $25,000 per month if
certain conditions of the agreement are met. The monthly consulting fee will
commence once these conditions are met and continues over the three year term of
the agreement. For signing the agreement in January 2000, Kriegsman received
options to purchase 150,000 shares of common stock of Cytomedix. The options
have a term of five years and an exercise price of $4.00 per share. Cytomedix
has agreed to register the common stock underlying these options under certain
conditions as outlined in the agreement. Kriegsman is also entitled to receive
additional options to purchase up to a maximum of 450,000 shares of common stock
with a term of five to eight years and an exercise price of $4.00, based on
Kriegsman meeting certain performance criteria as outlined in the agreement.
Cytomedix agreed that Kriegsman met certain of his performance obligations and
in March 2000 issued to him options to purchase 275,000 shares of common stock.
Should Kriegsman satisfy the remaining stated criteria, then Cytomedix will
issue him additional options in accordance with the terms and conditions of the
agreement.
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CYTOMEDIX, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Financial Statements
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 (see
Note 3). In the first quarter of 2000, Kriegsman raised $2,650,000 and
consequently received a fee of approximately $213,000. Cytomedix has also agreed
to issue Kriegsman warrants representing the rights to purchase 10% of the
shares issued in the equity placement (or shares into which debt is
convertible). As such, Cytomedix, Inc. issued to Kriegsman warrants for 26,500
shares of Cytomedix's common stock with an exercise price equal to the offering
price of $10.00 per share. The warrants will have a term of five years. By
amendment to the agreement dated February 22, 2000, the parties agreed that in
the event Kriegsman arranges for the merger, sale or acquisition of Cytomedix,
then all remaining outstanding options shall immediately vest and Kriegsman will
be paid a success fee on the closing of the transaction equal to 6% of the value
of the consideration received in such transaction by Cytomedix or its
stockholders.
NOTE 3 - CAPITAL STOCK ACTIVITY
In February 2000, Cytomedix completed a private placement offering to
one accredited investor. The private placement offering was for 250,000 shares
of Cytomedix's common stock at $3.00 per share, raising gross proceeds of
$750,000. Costs paid for investment banking fees relating to this offering
amounted to $75,000.
In March 2000, Cytomedix completed another private placement offering
of its common stock. Cytomedix sold 771,500 shares of its common stock at $10.00
per share, raising gross proceeds of $7,715,000. In connection with this private
placement, Cytomedix paid investment banking fees of approximately $441,267. In
addition, 20,000 shares of Cytomedix's common stock were issued to two separate
investment bankers as placement fees; and warrants for 26,500 shares of common
stock were issued as a placement fee pursuant to an agreement between Kriegsman
(see Note 2) and Cytomedix, based on gross funds raised by Kriegsman. This
private placement also completed the requirements of the Agreement of Merger and
Reorganization between Cytomedix and old AuTologous Wound Therapy, whereby
Cytomedix was required to raise gross proceeds of $1,200,000 in a series of
private placements over one year following the merger. The merger agreement
called for the conversion of three shares of Series B preferred stock into three
shares of Cytomedix's common stock for each share of common stock sold in
private placements to raise the $1,200,000. Therefore, Cytomedix issued 885,000
shares of its common stock in conversion of 885,000 shares of Series B preferred
stock.
Cytomedix has 1,625,000 shares of Series A 5% cumulative preferred
stock outstanding, with a par value of $.0001, 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 Cytomedix meeting certain performance criteria,
Cytomedix is obligated to redeem the shares in cash at the liquidation value
plus all accrued and unpaid dividends. Cytomedix may, in its sole discretion,
pay the dividends in cash or in common stock of Cytomedix. Each share of Series
A preferred stock has one vote in all matters voted on by holders of the common
stock of Cytomedix. As of June 30, 2000, Cytomedix had accrued cumulative
preferred dividends in the amount of $53,759.
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CYTOMEDIX, INC.
(A DEVELOPMENT STAGE ENTITY)
Notes to Condensed Financial Statements
(Unaudited)
NOTE 4 - OPTIONS AND WARRANTS GRANTED
During the quarter ended March 31, 2000, Cytomedix issued 425,000
options to Kriegsman according to the terms of the agreement (See Note 2).
Cytomedix recorded consulting expense in the amount of $4,985,000 in connection
with the issuance of these options. In addition, Kriegsman was issued warrants
for 26,500 shares of Cytomedix's common stock as per its agreement with
Cytomedix (See Note 2). The issuance of these warrants was considered to be a
cost of raising capital. Therefore, the warrants were recorded by an increase
and corresponding decrease to additional paid in capital.
Cytomedix recorded consulting expense in the amount of $338,500 in
connection with the issuance of options to purchase 50,000 shares of common
stock granted to Sigma Healthcare Consulting in January 2000. The options have
an exercise price of $4.00 per share and a term of five years.
In March 2000, Cytomedix issued options to purchase 1,600,000 shares of
Cytomedix's common stock to four new executives under their respective
employment agreements with Cytomedix. In addition, in June 2000, Cytomedix
issued options to purchase 400,000 shares of Cytomedix's common stock to two new
executives under their respective employment agreements with Cytomedix. All the
aforementioned options have an exercise price of $7.00 per share. The deferred
compensation related to the options will be amortized ratably over the three
year vesting periods, ending on either December 31, 2002 or June 30, 2003,
according to the respective agreements. However, all options shall become
immediately exercisable at such time that certain criteria are met as set forth
in the respective agreements.
The 2,000,000 options issued to Cytomedix's executives are subject to
anti-dilution provisions, which will prevent the value of the options from being
reduced should Cytomedix issue any type of equity security, or act in any other
way that would immediately reduce the value of the options. Therefore, as a
result of the March 2000 private placement, Cytomedix was required under the
anti-dilution provisions to issue 173,440 additional options to four of the six
new executives. The options to purchase shares expire ten years from the date
each option becomes exercisable. Cytomedix recorded $19,326,628 of deferred
compensation in connection with the 2,173,440 options issued to the six new
executives. As of June 30, 2000 Cytomedix had amortized approximately $1,731,115
of the above deferred compensation.
During the first quarter, Cytomedix issued options to purchase 45,000
shares of Cytomedix's common stock to other employees. These options have
exercise prices ranging from $4.00 to $5.00 per share. The options all carry
terms of five years from the date of issuance, and vest 12 months after
issuance. Cytomedix recorded $478,063 of deferred compensation in connection
with the issuance, $119,516 of which was expensed as compensation during the
second quarter. The remaining balance of $312,095 will be ratably expensed over
the vesting period.
NOTE 5 - LOSS PER SHARE
As of June 30, 1999 and 2000 Cytomedix had issued and issuable warrants
and options to acquire 750,000 and 4,467,490 shares of common stock of
Cytomedix, respectively, with exercise prices ranging from $.0002 to $10.00 per
share. These options and warrants were not included in the calculation of
weighted average common stock outstanding as of June 30, 1999 and 2000 because
the effect would have been anti-dilutive to the presentation of loss per share.
NOTE 6 - LONG-TERM INCENTIVE PLAN
Cytomedix's original non-qualified stock option plan was amended and
restated to a long-term incentive plan covering its employees, directors,
officers, consultants and independent contractors. The plan provides for the
compensation committee of the board of directors to have authority over all
aspects of the plan and for each award granted. All options and grants made
under the former non-qualified plan are now subject to the new plan, which
provides for awards of stock appreciation rights, options and incentive options,
unit grants, dividend equivalents and restricted stock. The plan is limited to
making awards up to 15% of the fully diluted common stock of Cytomedix as of
the effective date of board approval of the plan.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our condensed
financial statements and related notes thereto included in Item 1 above and our
audited financial statements and related notes thereto, and management's
discussion and analysis for the year ended December 31, 1999, included in our
annual report filed on Form 10-KSB for such period.
The terms "Cytomedix," "our" and "we," as used in this quarterly report,
refer to Cytomedix, Inc.
When used in this Form 10-QSB and in other filings by Cytomedix with
the Securities and Exchange Commission, the words "believes," "plans,"
"anticipates", "will likely result," "will continue," "projects," "expects," and
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, which could cause
actual results to differ materially from those projected.
Cytomedix cautions the readers not to place undue reliance on any forward
looking statements, which are based on certain assumptions and expectations
which may or may not be valid or actually occur, and which involve risks of
product demand, market acceptance, economic conditions, competitive products and
pricing, difficulties in product development, adequacy and availability of
reimbursement or other payments from private and public insurance programs,
adverse changes in government regulation or policy, 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,
our actual results for future periods could differ materially from those
anticipated or projected.
These forward-looking statements speak only as of the date hereof. We do
not intend to update the forward-looking statements contained in this report, so
as to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events, except as may occur as part of our ongoing
periodic reports filed with the Securities and Exchange Commission.
OVERVIEW
We are a Delaware corporation formed on April 29, 1998. Prior to November
4, 1999, we were known as Informatix Holdings, Inc., which was originally a
public shell company, defined as an inactive, publicly-traded company with
nominal assets and liabilities. On November 4, 1999, AuTologous Wound Therapy,
Inc., an Arkansas corporation formed on December 11, 1998, merged with and into
Informatix Holdings. In the merger, each share of issued and outstanding common
stock of AuTologous Wound Therapy was converted into fifty shares of common
stock and fifty shares of Series B convertible preferred stock of Informatix
Holdings after giving effect to a one-for-two reverse stock split of Informatix
Holdings' common stock effective November 8, 1999. Simultaneously with the
consummation of the merger, the name of the surviving corporation, Informatix
Holdings, was changed to AuTologous Wound Therapy, Inc. We subsequently changed
our name to Cytomedix, Inc., effective March 30, 2000.
Prior to the above merger, we had no products or services and we were
not conducting any viable enterprise. By virtue of the merger, we acquired the
business of AuTologous Wound Therapy. We are continuing this business, which
involves the development, marketing and sale of a proprietary system and related
disposable treatment packs for the treatment of chronic, non-healing wounds. Our
proprietary system is based upon the use of a process for the application of an
autologous platelet-rich concentrated gel, known as AuTolo-Gel(TM) , to chronic,
non-healing wounds. To date, we have realized minimal revenues. Since its
inception, our predecessor, and since the merger, we have been engaged in
research and testing of AuTolo-Gel, the development of the system and a
single-use license agreement which will accompany the sale of the disposable
treatment packs. Our goal is to become a leading provider of cellular therapies.
We have initially made investments in bioactive wound care products, but we
continue to explore opportunities in the full range of cellular therapies and
molecular biotechnology.
Our most important current activities include:
1. Sale and distribution of the disposable treatment packs, subject to the
single-use license.
8
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2. Research and testing of AuTolo-Gel.
3. Development of the protocols and other criteria necessary to commence
independent clinical trials.
4. Filing patent and trademark applications with the relevant government
agencies.
5. Raising working capital.
6. Development of our marketing plan and distribution methods.
7. Recruiting key management and sales representatives.
8. Development of reimbursement and third party payor strategies.
9. Development of the next generation of disposable treatment packs and
packaging.
10. Evaluation of a broader range of opportunities in the cellular therapy
and molecular biotechnology market.
11. Evaluation of our corporate structure with the goal of positioning
Cytomedix in the global market place and enhancing shareholder value.
12. Development of our web site.
For the next twelve months, we plan to continue to engage in the
activities enumerated above. In order to achieve the above goals, we have hired
Kent Smith as our Vice President of Sales and Marketing and Glenn Charlesworth
as our Chief Financial Officer and Vice President of Finance. We also added
Arthur Staubitz and Dr. Fabrizio Bonanni to our Board of Directors, as more
fully described under Item 5 of this report. We expect to incur additional costs
for the continued development of our proprietary system, legal and professional
fees for licensing, patent and trademark services, streamlining and
rationalizing existing operations, and to expand the promotion and marketing of
the use of AuTolo-Gel through the sale of the disposable treatment packs. In
addition, we are seeking to expand our operations through internal growth and
acquisitions. While we have not entered into any binding agreements to purchase
businesses or assets, we intend to actively evaluate purchasing opportunities.
RESULTS OF OPERATIONS
This discussion and analysis of our results of operations utilizes our
financial statements which, for the period prior to November 4, 1999, are those
of AuTologous Wound Therapy, Inc., since the merger that occurred as of that
date has been treated as a recapitalization for accounting purposes, and not as
a business combination.
We are a development stage company as defined in Statement of Financial
Accounting Standards No. 7 and had only limited operations through June 30,
2000. Our main activities during this start-up phase have consisted of
recruiting and hiring a new management team and corresponding personnel, as well
as the development of the licensing strategy for, and market expansion of,
AuTolo-Gel and related disposable treatment packs. We generated minimal revenues
from inception through June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30,
1999
Our revenues for the six months ended June 30, 2000 were $164,337, as
compared to $1,100 for the same period in 1999. The increase in revenue in 2000
compared to 1999 was due to our entering into five license agreements, which
were not in effect during 1999.
Our cost of sales for the six months ended June 30, 2000 was $36,327,
as compared to $0 for the same period in 1999. The increase in cost of sales in
2000 compared to 1999 was due to increased sales of disposable packs.
9
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Our gross profit for the six months ended June 20, 2000 was $128,010,
as compared to $1,100 for the same period in 1999. The increase in gross profit
in 2000 compared to 1999 was due to the reasons stated above.
Our total operating expenses for the six months ended June 30, 2000 were
$9,968,481, as compared to $561,446 for the same period in 1999. The increase in
the total operating expenses in 2000 as compared to 1999 was due to an increase
in our salaries and wages, consulting expenses, professional fees, and general
and administrative expenses.
Our compensation expense for the six months ended June 30, 2000 was
approximately $2,845,465, as compared to $446,008 for the same period in 1999.
The increase in the compensation expense in 2000 compared to 1999 was primarily
due to $2,268,332 of non-cash amortization expense of deferred compensation
generated from the granting of options to the new executives and our employment
of additional personnel. We expect compensation expense to grow as we amortize
our deferred compensation and retain additional employees to help us with
administrative, marketing and support efforts as we continue to grow our
business. During the six months ended June 30, 2000, we granted 2,173,440
options (including anti-dilutive options issued) to our new executives with an
exercise price of $7.00, which was less than the fair market value of our common
stock on the respective dates. Consequently, we recorded deferred compensation
expense for the difference between the stock purchase price and the fair market
value of our common stock on the date of this grant. As of June 30, 2000, we had
approximately $18,279,000 of deferred compensation expense. We expect to
amortize this deferral into stock based non-cash compensation expense as
follows: $4,128,264 in the remainder of our fiscal year 2000, $7,109,025 in
fiscal year 2001 and $7,041,574 in fiscal year 2002. As of June 30, 2000, we
have approximately $4,333,334 of deferred consulting fees which will be
amortized ratably to expense through September 2004.
Our consulting expenses for the six months ended June 30, 2000 were
approximately $6,031,398 as compared to $0 for the same period in 1999. The
increase in the consulting expenses in 2000 compared to 1999 was primarily due
to the costs incurred from the issuance of stock and options to acquire our
common stock, which amounted to $5,823,500 of non-cash costs in addition to the
cash costs of $207,899 in the six months ended June 30, 2000. These expenses
were mainly related to services provided to us in the areas of marketing,
investor relations and management placement.
During the six-month period ended June 30, 2000, we incurred
professional fees of approximately $599,183 as compared to $0 for the same
period in 1999. The increase in the professional fees in 2000 compared to 1999
was primarily due to an increase in legal and accounting fees.
Our general and administrative expenses for the six months ended June
30, 2000, were $492,435 compared to $115,438 for the same period in 1999. The
increase was primarily due to an increase in most components of our general and
administrative expenses, such as rent, insurance, utilities, supplies, marketing
and travel.
Our interest income for the six months ended June 30, 2000, was $91,481
compared to $0 for the six months ended June 30, 1999. The increase in our
interest income in the 2000 period was primarily due to an increase of cash.
Our net loss to common stockholders for the six months ended
June 30, 2000 was $9,795,648, as compared to a net loss of $560,346 for the same
period in 1999. The increase in the net loss in 2000 compared to 1999 was
primarily due to higher salaries, $2,268,332 of which was from non-cash costs
incurred from the issuance of options to acquire our common stock, and higher
consulting expenses, $5,823,500 of which was from non-cash costs incurred from
the issuance of stock and options to acquire our common stock, and higher
professional fees, and other general and administrative expenses.
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THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE
30, 1999
Our revenues for the three months ended June 30, 2000 were $129,833, as
compared to $0 for the same period in 1999. The increase in revenue in the 2000
compared to 1999 was due to our entering into five license agreements, which
were not in effect during 1999.
Our cost of sales for the three months ended June 30, 2000 was $31,091,
as compared to $0 for the same period in 1999. The increase in cost of sales in
2000 compared to 1999 was due to increased sales of disposable packs.
Our gross profit for the three months ended June 20, 2000 was $98,742,
as compared to $0 for the same period in 1999. The increase in gross profit in
2000 compared to 1999 was due to the reasons stated above.
Our total operating expenses for the three months ended June 30, 2000
were $3,451,013, as compared to $291,770 for the same period in 1999. The
increase in the total operating expenses in 2000 as compared to 1999 was due to
an increase in our salaries and wages, consulting expenses, professional fees,
and general and administrative expenses.
Our compensation expense for the three months ended June 30, 2000 was
approximately $2,411,287, as compared to $228,453 for the same period in 1999.
The increase in the compensation expense in 2000 compared to 1999 was primarily
due to $2,006,880 of non-cash amortization expense of deferred compensation
generated from the granting of options to the new executives and our employment
of additional personnel. We expect compensation expense to grow as we amortize
our deferred compensation and retain additional employees to help us with
administrative, marketing and support efforts as we continue to grow our
business. In June 2000 we granted 400,000 options to two new executives with an
exercise price of $7.00, which was less than the fair market value of our common
stock on that date. Consequently, we recorded deferred compensation expense of
$572,500 for the difference between the stock purchase price and the fair market
value of our common stock on the date of these grants.
Our consulting expenses for the three months ended June 30, 2000 were
approximately $343,375, as compared to $0 for the same period in 1999. The
increase in the consulting expenses in 2000 compared to 1999 was primarily due
to the costs incurred from the issuance of stock, which amounted to $250,000 of
non-cash expense in the three months ended June 30, 2000. These expenses were
mainly related to services provided to us in the areas of marketing, investor
relations and clinical support.
During the three-month period ended June 30, 2000, we incurred
professional fees of approximately $403,179, as compared to $0 for the same
period in 1999. The increase in the professional fees in 2000 compared to 1999
was primarily due to an increase in legal and accounting fees.
Our general and administrative expenses for the three months ended June
30, 2000, were $293,172, as compared to $63,317 for the same period in 1999. The
increase was primarily due to an increase in most components of our general and
administrative expenses, such as rent, insurance, utilities, supplies, marketing
and travel.
Our interest income for the three months ended June 30, 2000, was
$71,686 compared to $0 for the three months ended June 30, 1999. The increase in
our interest income in the 2000 period was primarily due to an increase of cash.
Our net loss to common stockholders for the three months ended June 30,
2000 was $3,304,240, as compared to a net loss of $291,770 for the same period
in 1999. The increase in the net loss in 2000 compared to 1999 was primarily due
to higher salaries, $2,006,880 of which was from non-cash costs incurred from
the issuance of options to acquire our common stock, and higher consulting
expenses,
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$250,000 of which was from non-cash costs incurred from the issuance of stock
and options to acquire our common stock, and higher professional fees, and other
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of the date of this report, we have not generated positive cash flow
from our operations. This is primarily due to the start-up nature of our
operations, investment in development and testing of AuTolo-Gel and building of
a corporate infrastructure to support our future operations. During the first
quarter of 2000, we raised capital through private placements of our common
stock.
At June 30, 2000, we had cash and cash equivalents of approximately
$5,860,000. Working capital at June 30, 2000 was approximately $5,900,000. For
the three months ended June 30, 2000, we invested approximately $87,000 in
capital and leasehold improvements. These expenditures represent, primarily,
additional investment in office furniture, fixtures and equipment.
In February 2000, we issued an aggregate of 250,000 shares of our
common stock to one accredited investor at a purchase price of $3.00 per share,
in a private placement pursuant to Rule 506 of Regulation D under the Securities
Act of 1933, as amended. We received gross cash proceeds from this placement of
$750,000, from which we paid aggregate advisory and placement fees of $75,000 to
SPH Investments, Inc. and LCP Capital Corporation.
In March 2000, we issued an aggregate of 771,500 shares of our common
stock to 31 accredited investors at a purchase price of $10.00 per share, in a
private placement pursuant to Rule 506 of Regulation D under the Securities Act.
We received gross proceeds from this placement of $7,715,000, from which we paid
aggregate advisory and placement fees of $441,267, and issued 20,000 shares of
our common stock and warrants representing the right to purchase 26,500 shares
of common stock at $10.00 per share as additional placement fees. See Notes 2
and 3 to the condensed financial statements included in Item 1 of Part I of this
report.
Management believes that the working capital described in this section,
and sales of the disposable treatment packs, will be sufficient to meet our
operating needs for the next twelve months, provided we do not undertake a
significant acquisition or otherwise expand at a higher rate than currently
expected.
While in the past we leased or purchased the sequestration machines
provided to licensees of our product, we intend to require future licensees to
purchase or lease the sequestration machines directly from third-party
manufacturers. In the event that we are unable to impose such requirement on the
licensees, or if we can no longer obtain our own leasing agreements and are
required to purchase the machines, our need for working capital to fund the
acquisition of these machines could increase. However, because we now intend to
require future licensees to purchase the sequestration machines directly from
third-party manufacturers, we anticipate that we will not need significant
working capital for leases or purchases of the sequestration machines.
We currently have 18 employees and anticipate hiring additional
employees to our staff as necessary. Management anticipates a short-term need
for five to seven additional employees, including site implementation personnel
hired to install and train a licensee's personnel in connection with the use of
our product at the licensee's location, sales and marketing personnel, and
administrative support at the headquarters of Cytomedix. The timing of the
hiring of such site implementation personnel will be based upon sales activities
and on an as needed basis. The working capital to fund the cost of the site
implementation teams would be provided from the sales of disposable treatment
packs to the various sites and current working capital and is a variable cost to
us.
The potential market response to AuTolo-Gel and the system and the
timing of our receipt of the patents necessary to conduct our business could
significantly increase demands on our personnel and resources. While most of the
expenses relating to the system and the sale of the treatment packs are variable
costs based on demand, we could require significant additional working capital
if the response to our product is as anticipated, our pending patent
applications are granted, and third party reimbursement is obtained in relation
to the use of AuTolo-Gel and the system.
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We can offer no assurance that we will achieve profitability in the
near future. The continuation of our operating losses, together with the risks
associated with our ability to gain new customers, the sale of disposable
treatment packs to existing customers and other changes in our operating assets
and liabilities, may have a material adverse effect on our liquidity. In this
regard, we may need to raise additional capital in the foreseeable future by way
of equity or debt offerings in order to implement our business, sales or
marketing plans, and take advantage of opportunities that may present themselves
in the future, such as more rapid expansion, acquisitions of or partnerships
with complementary businesses. We may also need to respond to unforeseen
difficulties, such as the decrease in demand for our products and services,
meeting applicable regulatory requirements, or the timing of revenues due to a
variety of factors previously discussed. We may otherwise have to react to
unanticipated competitive or other market pressures. The need to raise
additional working capital may require us to delay, curtail or terminate some of
our development and clinical testing, sales and marketing efforts and could
otherwise have a material adverse effect on our operations. An additional equity
financing required in such event may involve a significant dilution to the
holdings of our shareholders.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
For a complete discussion of the private placements of our common stock
during the first quarter of 2000, please see "Liquidity and Capital Resources"
under Item 2 of Part I of this report. Other issuances of unregistered options
and warrants are described in notes 2, 3 and 4 to the condensed financial
statements included in Item 1 of Part I of this report.
We plan to use the proceeds from the above private placements to fund our
operating needs, product development and clinical testing, sales and marketing
efforts, and for general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
We report certain information with respect to a change in our senior
management. Our press release announcing the change in management, dated April
6, 2000, was filed as an exhibit to our quarterly report for the three-month
period ended March 31, 2000, filed on Form 10-QSB for such period.
On April 14, 2000, we appointed Mr. James A. Cour to our Board of
Directors, and to serve as our President and Chief Executive Officer. Prior to
joining us, Mr. Cour served in a variety of management positions at Baxter
International.
In addition, on April 14, 2000, we appointed Dr. Robin L. Geller to
serve as our Vice President of Science and Technology. Before this appointment,
Dr. Geller served in a variety of technical positions at Baxter Healthcare since
1993, most recently serving as Associate Director of Regulatory and Clinical
Affairs. Prior to her Baxter employment, she was a member of the faculty of the
University of Minnesota in the departments of Laboratory Medicine & Pathology
and Pediatrics, where she also conducted post-doctoral research in cellular
immunology.
Further, on April 14, 2000, we appointed Mr. Christopher J. Caywood to
serve as our Vice President of Strategy & Business Development. Mr. Caywood has
been with Baxter International Inc. since 1998, where he worked as Director of
Business Planning and Development, and prior to that, Mr. Caywood was employed
in various financial and legal capacities by Sears, Roebuck and Co.
Further, on April 14, 2000, we appointed Mr. David C. Demarest to serve
as our Vice President, General Counsel and Corporate Secretary. Mr. Demarest
practiced law with the firm of Preston, Gates & Ellis during the past three
years, where he specialized in biotechnology, pharmaceutical transactions,
high-technology research and development projects, and corporate transactional
matters. During the previous fourteen years, Mr. Demarest served as in-house
counsel for Baxter World Trade Corporation in a variety of expatriate
assignments.
Also, on April 13, 2000, William Brown and W. Michael Chunn resigned as
our Chief Operating Officer and Vice President of Technical Operations,
respectively. In addition, on April 17, 2000, Dennis Hendren resigned as our
President and Chief Executive Officer. These three individuals simultaneously
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resigned as members of our Board of Directors. They did not have any
disagreement with our operating policies or practices.
We also report the appointment of two new directors to fill vacancies
on our Board of Directors. On May 26, 2000 we appointed Mr. Arthur F. Staubitz,
Esq. and Dr. Fabrizio Bonanni to our Board of Directors. Mr. Staubitz has more
than two decades of experience in the biomedical industry. He has served in a
number of senior management positions for the past twenty years at Baxter
International, Inc., most recently, as a Senior Vice President for Portfolio
Strategy. He also served as Corporate Vice President and General Counsel of
Amgen, Inc. Dr. Bonanni currently is a Senior Vice President for Quality and
Compliance of Amgen, Inc. Prior to that, Dr. Bonanni served as Corporate
Vice President, Regulatory and Clinical Affairs and Corporate Vice President,
Quality Systems at Baxter International, Inc.
Also, on June 30, 2000 we appointed Mr. Kent Smith to serve as our Vice
President of Sales and Marketing. Most recently, Mr. Smith served as the Senior
Vice President of Market Development of medibuy.com, a development stage
Internet company specializing in business-to-business healthcare. During the
previous nineteen years, he served in a variety of operations, sales and
marketing, and general management roles at Baxter International, Inc. and Baxter
World Trade, Inc.
In addition, on June 30, 2000 we appointed Mr. Glenn Charlesworth to
serve as our Chief Financial Officer and Vice President of Finance. Mr.
Charlesworth joins us following a twenty-five year career practicing as a
Certified Public Accountant. After leaving a large regional accounting firm in
1983, where he served as a Senior Tax Manager, Mr. Charlesworth started his own
firm. Mr. Charlesworth served a diverse clientele and has extensive experience
in both audit and tax. Mr. Charlesworth filed a petition for personal bankruptcy
in 1999 due to financial hardship resulting from his business partner committing
fraud by converting business assets to personal use and leaving the U. S. Mr.
Charlesworth's bankruptcy petition has been settled and discharged.
Finally, we report that Cytomedix has relocated its corporate
headquarters to suburban Chicago, Illinois. Our new corporate address is Three
Parkway North, Deerfield, Illinois 60015. Our former office located in Little
Rock, Arkansas will be phased out and closed in the near future.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
10.1 Employment agreement, dated as of June 30, 2000, between
Cytomedix, Inc. and Glenn M. Charlesworth
10.2 Employment Agreement, dated as of June 30, 2000, between
Cytomedix, Inc. and Kent T. Smith
10.3 AuTologous Wound Therapy, Inc. Long-Term Incentive Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
On April 4, 2000, we filed a report on Form 8-K describing a change of
our name and completion of a private placement of our common stock to certain
investors, which is more fully described in our quarterly report for the
three-month period ended March 31, 2000 filed on Form 10-QSB.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYTOMEDIX, INC.
Dated: August 14, 2000 /s/ James A. Cour
-------------------------------------
James A. Cour
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 14, 2000 /s/ Glenn M. Charlesworth
-------------------------------------
Glenn M. Charlesworth
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT LIST
10.1 Employment agreement, dated as of June 30, 2000, between
Cytomedix, Inc. and Glenn M. Charlesworth
10.2 Employment Agreement, dated as of June 30, 2000, between
Cytomedix, Inc. and Kent T. Smith
10.3 AuTologous Wound Therapy, Inc. Long-Term Incentive Plan
27 Financial Data Schedule
17
