UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
--------------------
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 0-20580
LIFE MEDICAL SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 14-1745197
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) identification No.)
214 Carnegie Center, Princeton, NJ 08540
(Address of principal executive offices)
(Zip Code)
(609) 452 - 0707
(Registrant's telephone number, including area code)
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[_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.001 Par Value - 7,831,486 shares outstanding at August 8,1996
LIFE MEDICAL SCIENCES, INC.
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations (unaudited) for the 3
three month and six month periods ended June 30, 1995 and 1996
Condensed Balance Sheets (unaudited) as of December 31, 4
1995 and June 30, 1996
Condensed Statements of Cash Flows (unaudited) for the 5
six month periods ended June 30, 1995 and 1996
Notes to Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit Index 11
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------------ -----------------------------------
1995 1996 1995 1996
----------- ------------ ---------------- -------------
Royalty income $ 47,976 $ 28,921 $ 160,341 $ 91,126
----------- ------------ ---------------- --------------
Operating expenses:
Research and development expenses 606,748 416,217 978,038 957,502
General and administrative expenses 303,573 480,802 586,108 902,218
----------- ------------ ---------------- --------------
Operating expenses 910,321 897,019 1,564,146 1,859,720
----------- ------------ ---------------- --------------
(Loss) from operations (862,345) (868,098) (1,403,805) (1,768,594)
Interest income 52,148 121,728 80,597 159,338
Interest expense (710) (1,446)
----------- ------------ ---------------- --------------
Net (loss) $ (810,197) $ (747,080) $ (1,323,208) $ (1,610,702)
=========== ============ ================ ==============
Net (loss) per share $ (0.18) $ (0.11) $ (0.30) $ (0.27)
=========== ============ ================ ==============
Weighted average shares outstanding 4,400,649 6,676,765 4,354,926 6,061,575
3
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(unaudited)
December 31, June 30,
----------------- -----------------
1995 1996
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,827,530 $ 15,679,629
Other current assets 19,559 273,997
----------------- -----------------
Total current assets 3,847,089 15,953,626
Furniture and equipment-at cost (less accumulated
depreciation of $41,957 and $56,131) 96,570 93,860
Deposits 21,322 9,620
----------------- -----------------
TOTAL $ 3,964,981 $ 16,057,106
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligation $ 2,468 $ 2,684
Accounts payable 40,675 70,259
Accrued expenses 147,398 236,341
----------------- -----------------
Total current liabilities 190,541 309,284
Capital lease obligation 15,160 13,763
Deferred royalty income 643,622 567,819
Other liabilities 14,678 0
----------------- -----------------
Total liabilities 864,001 890,866
Stockholders' equity:
Preferred stock, $.01 par value; shares authorized - 5,000,000;
none issued
Common stock, $.001 par value; shares authorized -
23,750,000; issued and outstanding - 5,422,320 and 7,772,153 5,422 7,772
Additional paid-in capital 19,429,815 33,103,427
Accumulated deficit (16,334,257) (17,944,959)
----------------- -----------------
Total stockholders' equity 3,100,980 15,166,240
----------------- -----------------
TOTAL $ 3,964,981 $ 16,057,106
================= =================
4
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
June 30,
-----------------------------------------
1995 1996
---------------- ----------------
Cash flows from operating activities:
Net (loss) $ (1,323,208) $ (1,610,702)
Adjustments to reconcile net (loss) to net cash
(used in) operations:
Depreciation 12,561 14,174
Deferred royalty income 75,803
Changes in operating assets and liabilities:
Decrease in accounts receivable 56,193
Decrease in other receivables 952,024
Decrease (increase) in other assets and deposits 53,229 (242,736)
Increase (decrease) in accounts payable and accrued expenses (20,394) 103,849
---------------- ----------------
Net cash (used in) operating activities (269,595) (1,811,218)
---------------- ----------------
Cash flows from investing activities:
Purchase of equipment (25,768) (11,464)
---------------- ----------------
Net cash (used in) investing activities (25,768) (11,464)
---------------- ----------------
Cash flows from financing activities:
Payments on capitalized lease (1,181)
Proceeds from issuance of common stock, net of expenses 2,592,250 13,675,962
---------------- ----------------
Net cash provided by financing activities 2,592,250 13,674,781
---------------- ----------------
Net increase in cash and cash equivalents 2,296,887 11,852,099
Cash and cash equivalents at beginning of period 1,979,615 3,827,530
---------------- ----------------
Cash and cash equivalents at end of period $ 4,276,502 $ 15,679,629
================ ================
5
LIFE MEDICAL SCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
A) Basis of Presentation
The accompanying condensed financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but in the opinion of management, contain all adjustments
(which consist of only normal recurring adjustments) necessary for a fair
presentation of such financial information. Results of operations for
interim periods are not necessarily indicative of those to be achieved for
full fiscal years. These condensed financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 1995 included in the Company's annual report on Form 10-K
filed with the Securities and Exchange Commission.
B) Net (loss) Per Share
The net loss per share is computed using the weighted average number
of common shares outstanding during each period, as modified in accordance
with certain rules of the Securities and Exchange Commission. Outstanding
options and warrants have not been considered since their effect would be
antidilutive.
C) Capital
The Company's Registration Statement pertaining to its offering of
2,300,000 shares of common stock (initial offering of 2,000,000 shares plus
an additional 300,000 shares issued due to the exercise of the
underwriters' over allotment option) was declared effective by the
Securities and Exchange Commission on May 3, 1996. The proceeds of the
offering were approximately $13.4 million, including proceeds received upon
exercise of the underwriters' over-allotment option and after deducting
underwriting discounts and commissions and offering expenses. The Company
intends to use the proceeds from the offering to fund continued clinical
trials, research and development and for general corporate purposes.
6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Life Medical Sciences, Inc. (the "Company") is a biotechnology company
engaged in the development and commercialization of innovative and cost-
effective medical products for therapeutic applications. The Company's proposed
products are derived from its two proprietary platform technologies: (i) its in-
situ (occurring on or at a body site) tissue culturing technology, and (ii) its
polymer technology. Products currently under development focus on wound
healing, stimulating hair regrowth, improving the success rate of autologous fat
transplantation and preventing or reducing post-operative surgical adhesions.
Since its inception, the Company has been engaged primarily in research and
development of its technologies, commercialization of the Sure-Closure/TM
/System ("Sure-Closure") and organizational activities. In September 1993, the
Company began selling the Sure-Closure products. The Company built and
supported a direct sales organization of 24 sales representatives calling on
surgeons. To date, all revenues have been derived from sales of the Sure-
Closure products or royalties thereon. In July 1994, the Company sold its Sure-
Closure product line for initial payments aggregating $4 million plus a 10%
royalty on net sales through June 2004. Following the sale of the Sure-Closure
System, sales and marketing expenses were eliminated.
Certain statements in this Report under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including, without limitation,
statements regarding future cash requirements. 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. Such
factors include, among others, the following: delays in product development;
problems or delays with clinical trails; failure to receive or delays in
receiving regulatory approval; lack of enforceability of patents and proprietary
rights; or changes in business strategy or development plans.
Results of Operations
The Company earned revenues from royalties on product sales of Sure-Closure
of $28,921 and $91,126 for the three months and six months ended June 30, 1996,
respectively, which compares to $47,976 and $160,341 for the corresponding
periods of 1995. The royalty income recognized during the three month period
ended June 30, 1996, represents royalties from Sure-Closure product sales of the
first quarter of 1996.
The Company incurred research and development expenses of $416,217 and
$606,748 for the three months ended June 30, 1996 and 1995, respectively, and
$957,502 and $978,038 for the six months ended June 30, 1996 and 1995,
respectively. These expenses represent expenditures on the Company's in-situ
tissue culturing technology and products derived therefrom, polymer technology
and products derived therefrom and other products. Research and development
expenses are expected to continue to increase in future quarters as the Company
continues to develop its in-situ tissue culturing technology products and
polymer technology products and expands clinical trials for these and other
products.
General and administrative expenses, which consist of compensation for
management, professional fees, investor relations expenses and materials,
consulting expenses and travel expenses, were $480,802 and $303,573 for the
three months ended June 30, 1996 and 1995, respectively, and $902,218 and
$586,108 for the six months ended June 30, 1996 and 1995, respectively. The
increase is attributable to salaries and related expenses associated with
additional management and increased expenses in connection with the investor
relation effort as the Company increased its scale of operations. General and
administrative expenses are expected to continue to increase in future quarters
as the Company continues to increase its scale of operations.
Interest income was $121,728 and $52,148 for the three months ended June
30, 1996 and 1995, respectively and $159,338 and $80,597 for the six months
ended June 30, 1996 and 1995, respectively. The increase for the periods
presented is primarily attributable to an increased cash balance.
Interest expense of $710 for the three months ended June 30, 1996 and
$1,446 for the six months ended June 30, 1996 was from a capital lease entered
into to acquire office equipment. There was no interest expense for the
corresponding periods of 1995.
The Company's net loss was $747,080 and $810,197 for the three months
ended June 30, 1996 and 1995, respectively, and $1,610,702 and $1,323,208 for
the six months ended June 30, 1996 and 1995, respectively. The Company expects
to incur additional losses in the future.
7
Liquidity and Capital Resources
The Company had cash and cash equivalents of $15,679,629 and $3,827,530 at
June 30, 1996 and December 31, 1995, respectively. The increase in cash results
from the funds provided from the public offering consummated during the second
quarter of 1996, less expenditures made for funding the Company's operations and
expenses in connection with the Company's public offering.
In May 1996, the Company completed a public offering of 2,300,000 shares of
common stock (initial offering of 2,000,000 shares plus an additional 300,000
issued due to the exercise of the underwriters' over-allotment option) and
received net proceeds of approximately $13.4 million, including proceeds
received upon the exercise of the underwriters' over-allotment option and after
deducting underwriting discounts and commissions and offering expenses. The
Company intends to use the proceeds from the offering to fund continued clinical
trials, research and development and for general corporate purposes.
Although the Company believes that the net proceeds from the offering,
together with available cash, will be sufficient to meet its cash requirements
for approximately the next 24 months, there can be no assurance that the Company
will not require additional financing during that time or that financing will be
available on acceptable terms or at all. The Company will be required, however,
to raise substantial additional funds to continue the clinical development and
commercialization of its products and to fund the growth that is expected to
occur if any of its products are approved for marketing. The Company plans to
seek such additional funding through collaborative arrangements with strategic
partners, licensing arrangements for certain of its products and additional
public or private financing, including equity financing. Any additional equity
financing may be dilutive to stockholders. There can be no assurance that such
arrangements or financing will be available as needed or on terms acceptable to
the Company. Insufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and development programs and manufacturing
and marketing efforts or require it to license to third parties certain products
or technologies that the Company would otherwise seek to commercialize itself.
8
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Life Medical Sciences, Inc.
was held on May 30, 1996.
(b) The following four Directors were reelected at the Annual Meeting:
Dr. Herbert Moskowitz
Coy Ecklund
Joel L. Gold
Irwin M. Rosenthal
(c) The vote was as follows for the ratification of Richard A. Eisner &
Company, LLP as the Company's independent public accountantS:
For: 4,055,694
Against: 13,650
Abstain: 11,590
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.39 Employment Agreement dated May 29, 1996 between Registrant
and Robert P. Hickey
10.40 Employment Agreement dated May 30, 1996 between Registrant
and Dr. Herbert Moskowitz
27. Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 20, 1996 to announce the
appointment of Robert P. Hickey as the Company's President and CEO.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Life Medical Sciences, Inc.
(Registrant)
Date: August 8, 1996 /s/ Donald W. Fallon
--------------------------------
Donald W. Fallon
Vice President and Chief Financial Officer
(Duly Authorized Officer & Principal
Financial Officer)
10
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- -------------------------------- --------
10.39 Employment Agreement dated May 29, 1996
between Registrant and Robert P. Hickey
10.40 Employment Agreement dated May 30, 1996
between Registrant and Dr. Herbert Moskowitz
27 Financial Data Schedule
11