Certain statements in this Report on Form 10-Q (the “Report”) under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding future cash requirements and the ability of the company to raise capital. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Without limiting the foregoing, the words “anticipates”, “plans”, “intends”, “expects” and similar expressions are intended to identify such forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Results of Operations
Revenue for the three and six month periods ended June 30, 2001 of $9,000 and $17,000, respectively, was attributable to royalties from product sales of the Sure-Closure System™. These revenue figures compare to $62,000 and $81,000 for the three and six month periods ended June 30, 2000, respectively, consisting of $50,000 and $59,000, respectively, in sales of CLINICEL products and $12,000 and $22,000, respectively, of royalties from sales of the Sure-Closure System. The reduction in revenue is primarily attributable to the discontinuation of the manufacturing and sale of the CLINICEL products.
Cost of goods sold of $3,000 and $4,000 for the three and six month periods ended June 30, 2000, respectively, reflects costs to package and ship CLINICEL to the Company’s consumer and trade customers. The Company incurred no cost of goods sold in 2001.
The Company incurred research and development expenses of $165,000 and $340,000 for the three and six month periods ended June 30, 2001, respectively, compared to $69,000 and $187,000 for the comparable prior year periods. The increase in expenditures compared to the prior year is primarily attributable to the initiation of manufacturing and clinical development activities associated with the REPEL-CV cardiac surgery adhesion barrier film.
Sales and marketing expenses of $21,000 for the six month period ended June 30, 2000, were exclusively associated with CLINICEL and consist primarily of contracted customer service expense. The Company incurred no sales and marketing expenses in 2001.
General and administrative expenses totaled $241,000 and $419,000 for the three and six month periods ended June 30, 2001, respectively, compared to $283,000 and $473,000 for the comparable prior year periods. These expenses consisted primarily of management compensation, legal fees, and other general and administrative costs. The reduction in spending is primarily attributable to lower payroll-related expenses partially offset by increased legal and consulting fees.
Interest income was $5,000 and $12,000 for the three and six month periods ending June 30, 2001, respectively, and $4,000 and $11,000 for the comparable prior year periods.
The Company recorded extraordinary gains of $70,000 and $80,000 for the three and six month periods ended June 30, 2001, respectively. There were no comparable prior year amounts. See Note C for the basis for these entries.
The Company’s net loss was $322,000 and $650,000 for the three and six month periods ended June 30, 2001, respectively, compared to $290,000 and $594,000 for the comparable year periods. The Company expects to incur losses in future periods.
Liquidity and Capital Resources
Cash and cash equivalents were $251,000 and $844,000 at June 30, 2001 and December 31, 2000, respectively.
At June 30, 2001, the Company had a working capital deficit of $1,173,000. The cash and cash equivalents balance as of June 30, 2001 will not be sufficient to meet the Company’s cash requirements for operating activities through the remainder of 2001. The Company will be required to raise substantial additional funds to continue the clinical development and commercialization of its proposed products and to fund the growth that is expected to occur if any of its current and proposed products are approved for marketing. There can be no assurance that such arrangements or financings will be available as needed or on terms acceptable to the Company. The Company is pursuing such additional funding through collaborative arrangements with strategic partners and additional equity or debt financings. The Company continues to be in discussion with venture and private investors regarding a private placement of new equity in amounts sufficient to support near term operations. Any additional financings may be dilutive to existing stockholders. The Company is also pursuing other initiatives, including additional state tax benefit transfers.
PART II - - OTHER INFORMATION
ITEM 1. Legal Proceedings
In July 2001, the Company entered into an Application for an Agreed Judgment with Dimotech, Ltd. related to a lawsuit filed against the Company and its chief executive officer for non-payment of royalties and accrued interest of approximately $125,000 under an agreement relating to CLINICEL products. The litigation was previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000. Under the terms of the Application, which is subject to court approval, the parties agreed to a final settlement of the litigation upon the following principal terms:
| | • | The Company will pay Dimotech $10,000 in cash (which amount has been paid) and an additional $37,237 by August 31, 2001. Upon payment of these amounts, all claims against the Company’s chief executive officer will be dismissed with prejudice. |
| | • | The Company will issue to Dimotech by August 31, 2001, 5-year 6.5% convertible debentures in the aggregate principal amount of $40,000. Interest shall be payable quarterly and principal shall be due at maturity. The debentures shall be convertible, at any time prior to maturity at the option of the holder, into 40,000 shares of Common Stock, or such other senior equity security as may be outstanding at the time of conversion. |
| | • | The Company will issue to Dimotech $25,000 worth of securities in the Company’s planned financing. |
| | • | The Company has agreed to pay penalties in varying amounts in the event it fails to comply with aspects of the settlement. |
| | • | Except for $5,000 of Dimotech’s legal costs which the Company has paid, each party has agreed to bear its own legal expenses. |
ITEM 5. Other Information
As previously reported, in December 2000, the Company completed a private placement of 500,000 shares of Series A Convertible Preferred Stock for an aggregate purchase price of $500,000 in cash. On June 15, 2001, these preferred shares automatically converted by their terms into an aggregate of 5,000,000 shares of the Company’s Common Stock.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30, 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | Life Medical Sciences, Inc. |
| | (Registrant) |
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| Date: July 31, 2001 | /s/ Robert P. Hickey |
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| | Robert P. Hickey |
| | Chairman, President, CEO and CFO |
