SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 1997
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
379 THORNALL STREET, EDISON, NEW JERSEY 08837
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(732) 494-0444
(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 - 7,922,559 SHARES OUTSTANDING AT AUGUST 8,1997
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, 1996 and 1997
Condensed Balance Sheets as of December 31, 4
1996 and June 30, 1997 (unaudited)
Condensed Statements of Cash Flows (unaudited) for the 5
six month periods ended June 30, 1996 and 1997
Notes to Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 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,
---------------------------- ----------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
Royalty income $ 28,921 $ 23,619 $ 91,126 $ 32,758
------------- ------------- ------------- -------------
Operating expenses:
Research and development expenses 416,217 1,496,398 957,502 2,629,110
General and administrative expenses 480,802 540,631 902,218 1,398,307
------------- ------------- ------------- -------------
Operating expenses 897,019 2,037,029 1,859,720 4,027,417
------------- ------------- ------------- -------------
(Loss) from operations (868,098) (2,013,410) (1,768,594) (3,994,659)
Interest income 121,728 155,967 159,338 323,407
Interest expense (710) (959) (1,446) (1,958)
============= ============= ============= =============
Net (loss) $ (747,080) $ (1,858,402) $ (1,610,702) $ (3,673,210)
============= ============= ============= =============
Net (loss) per share $ (0.11) $ (0.23) $ (0.27) $ (0.46)
============= ============= ============= =============
Weighted average shares outstanding 6,676,765 7,916,861 6,061,575 7,915,846
3
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(unaudited)
DECEMBER 31, JUNE 30
----------------- -----------------
1996 1997
----------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,235,976 $ 5,418,773
Short-term investments 3,041,993 5,844,600
Other current assets 311,330 469,076
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Total current assets 14,589,299 11,732,449
Furniture and equipment-at cost (less accumulated
depreciation of $59,830 and $83,138) 182,349 170,077
Deposits 29,190 13,312
================= =================
TOTAL $ 14,800,838 $ 11,915,838
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligation $ 6,798 $ 7,142
Accounts payable 111,265 161,870
Accrued expenses 349,447 653,747
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Total current liabilities 467,510 822,759
Capital lease obligation 34,128 30,469
Deferred royalty income 504,877 472,119
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Total liabilities 1,006,515 1,325,347
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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 - 7,914,820
and 7,922,559 7,915 7,923
Additional paid-in capital 33,951,059 34,420,429
Accumulated deficit (20,164,651) (23,837,861)
----------------- -----------------
Total stockholders' equity 13,794,323 10,590,491
================= =================
TOTAL $ 14,800,838 $ 11,915,838
================= =================
4
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (1,610,702) $ (3,673,210)
Adjustments to reconcile net (loss) to net cash (used in)
operations:
Depreciation 14,174 23,308
Deferred royalty income (75,803) (32,758)
Fair value of options issued as compensation 515,981
Changes in operating assets and liabilities:
(Increase) in other assets and deposits (242,736) (141,868)
Increase in accounts payable and accrued expenses 103,849 354,905
------------- -------------
Net cash (used in) operating activities (1,811,218) (2,953,642)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (11,464) (11,036)
Proceeds from maturity of investment securities 3,041,993
Purchase of investment securities (5,844,600)
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Net cash (used in) investing activities (11,464) (2,813,643)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capitalized lease (1,181) (3,315)
Proceeds from issuance of common stock, net of expenses 13,675,962
Cost of registration of common stock previously issued (46,603)
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Net cash provided by (used in) financing activities 13,674,781 (49,918)
------------- -------------
Net increase (decrease) in cash and cash equivalents 11,852,099 (5,817,203)
Cash and cash equivalents at beginning of period 3,827,530 11,235,976
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Cash and cash equivalents at end of period $ 15,679,629 $ 5,418,773
============= =============
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 Company's audited
financial statements for the year ended December 31, 1996 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. Outstanding
options and warrants have not been considered since their effect would
be antidilutive.
C) OPTIONS
The Company applies APB Opinion 25 and related Interpretations in
accounting for its options to employees. Although no compensation cost
has been recognized for its stock option grants to employees, the
Company has included stock based compensation costs associated with
options previously granted under consulting agreements in research and
development expenses and general and administrative expenses of $164,120
and $351,861, respectively, for the six month period ended June 30,
1997. No such expenses were recorded during the corresponding period for
the prior year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Life Medical Sciences, Inc. (the "Company") is 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 polymer
technology, and (ii) its in-situ (occurring on or at a body site) tissue
culturing technology. Products currently under development focus on preventing
or reducing post-operative surgical adhesions, wound healing, stimulating hair
regrowth and improving the success rate of autologous fat transplantation.
Since its inception, the Company has been engaged primarily in research
and development of its technologies, commercialization of the Sure-ClosureTM
System ("Sure-Closure") and organizational activities. In September 1993, the
Company began selling its Sure-Closure products. 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. To date, all revenue has been
derived from sales of the Sure-Closure products or royalties thereon.
Certain statements in this Form 10-Q (the "Report") under this Item 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. 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 trials; failure to receive or delays in
receiving regulatory approval; lack of enforceability of patents and proprietary
rights; lack of reimbursement; general economic and business conditions;
industry capacity; industry trends; demographic changes; competition; material
costs and availability; the loss of any significant customers; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; changes in, or the failure to comply with,
government regulations; and other factors referenced in this Report.
RESULTS OF OPERATIONS
The Company earned revenues from royalties on product sales of
Sure-Closure of $23,619 and $32,758 for the three months and six months ended
June 30, 1997, respectively, which compares to $28,921 and $91,126 for the
corresponding periods of 1996. The royalty income recognized during the three
month period ended June 30, 1997, represents royalties from Sure-Closure product
sales during the first quarter of 1997.
The Company incurred research and development expenses of $1,496,398 and
$416,217 for the three months ended June 30, 1997 and 1996, respectively, and
$2,629,110 and $957,502 for the six months ended June 30, 1997 and 1996,
respectively. The increase in the three month and six month periods ended June
30, 1997 compared to June 30, 1996 is due to increased spending for the
preclinical and clinical studies of the bioresorbable polymer adhesion
prevention products, and the clinical studies of the in-situ tissue culturing
technology products; and increased expenditures supporting the management of the
research and development function. Subsequent to June 30, 1997, the Company
terminated its multi-center venous stasis ulcer trial in Europe on Cariel. The
termination of this trial, which was initiated earlier in 1997, will allow funds
that would have been spent on continued venous stasis ulcer trials to be applied
to advancing other development programs, including the application of Cariel in
possible future clinical trials for diabetic ulcers and burns. Additionally,
non-cash expenses for stock based compensation costs of $164,120 were recorded
during the six month period ended June 30, 1997. Research and development
expenses are expected to continue to increase in future quarters as the Company
continues to develop its bioresorbable polymer technology products and in-situ
tissue culturing technology products and expand clinical trials for these and
other products.
General and administrative expenses, which consist primarily of
compensation for management, professional fees, investor relations expenses and
materials, consulting expenses and travel expenses, were $540,631 and $480,802
for the
7
three months ended June 30, 1997 and 1996 respectively, and $1,398,307 and
$902,218 for the six months ended June 30, 1997 and 1996, respectively. The
increases are attributable to expenses associated with additional personnel and
increased expenses in connection with the investor relation and business
development efforts. Additionally, non-cash expenses for stock based
compensation costs of $351,861 were recorded during the six month period ended
June 30, 1997. 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 $155,967 and $121,728 for the three months ended
June 30, 1997 and 1996, respectively and $323,407 and $159,338 for the six
months ended June 30, 1997 and 1996, respectively. The increase for the periods
is primarily attributable to an increased balance in cash and investments.
Interest expense of $959 and $710 for the three months ended June 30,
1997 and 1996, respectively and $1,958 and $1,446 for the six months ended June
30, 1997 and 1996, respectively, was from a capital lease entered into to
acquire office equipment for the Company.
The Company's net loss was $1,858,402 and $747,080 for the three months
ended June 30, 1997 and 1996, respectively, and $3,673,210 and $1,610,702 for
the six months ended June 30, 1997 and 1996, respectively. These increases are
due primarily to the increased scale of operations.
The Company expects to incur additional losses in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and investments available of $11,263,373 and
$14,277,969 at June 30, 1997 and December 31, 1996, respectively. The decrease
in cash and investments from December 31, 1996 to June 30, 1997 results from the
expenditures made for funding the Company's operations which primarily consists
of continued clinical trials, research and development costs, commercialization
of the Company's product portfolio and administrative expenses.
Although the Company believes that the available cash will be sufficient
to meet its cash requirements for the next twelve 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 June 3, 1997 (and June 18, 1997 with regards to the
proposal to amend the Company's Amended and Restated 1992 Stock
Option Plan).
(b) The following seven Directors were reelected at the Annual Meeting:
Edward A. Celano Walter R. Maupay
Coy Eklund Dr. Herbert Moskowitz
Joel L. Gold Irwin M. Rosenthal
Robert P. Hickey
(c) The vote was as follows to approve the amendment to increase the
number of shares with respect to which options and SAR's may be
granted under the Company's Amended and Restated 1992 Stock Option
Plan to 1,407,500 shares:
For 4,378,838
Against 568,689
Abstain 72,386
(d) The vote was as follows for the ratification of Richard A. Eisner &
Company, LLP as the Company's independent public accountants:
For 7,017,649
Against 25,700
Abstain 32,231
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amended and Restated 1992 Stock Option Plan
of Registrant
27 Financial Data Schedule
(b) Reports on Form 8-k
None
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, 1997 /S/ DONALD W. FALLON
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DONALD W. FALLON
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(Duly Authorized Officer & Principal
Financial Officer)
10
EXHIBIT INDEX
10.1 Amended and Restated 1992 Stock Option Plan for Registrant
27 Financial Data Schedule
11