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 March 31, 1998
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 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 May 13, 1998
LIFE MEDICAL SCIENCES, INC.
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations (unaudited) for the 3
three month periods ended March 31, 1997 and 1998
Condensed Balance Sheets as of December 31, 1997 4
and March 31, 1998 (unaudited)
Condensed Statements of Cash Flows (unaudited) for the 5
three month periods ended March 31, 1997 and 1998
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 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
1997 1998
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Royalty income $ 9 $ 13
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Operating expenses:
Research and development 1,133 1,217
Sales and marketing 175
General and administrative 857 379
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Operating expenses 1,990 1,771
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(Loss) from operations (1,981) (1,758)
Interest income 167 96
Interest expense (1) (1)
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Net (loss) $ (1,815) $ (1,663)
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Net (loss) per share - basic and diluted $ (0.23) $ (0.21)
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Weighted average shares outstanding 7,915 7,923
3
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(In thousands, except per share data)
(UNAUDITED)
DECEMBER 31, MARCH 31,
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1997 1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,733 $ 1,111
Short-term investments 4,306 3,838
Other current assets 90 563
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Total current assets 7,129 5,512
Long-term investments 530 545
Furniture and equipment-at cost
(less depreciation of $58 and $67) 114 105
Other assets 13 13
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TOTAL $ 7,786 $ 6,175
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligation $ 8 $ 8
Accounts payable and accrued expenses 1,146 1,212
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Total current liabilities 1,154 1,220
Capital lease obligation 26 25
Deferred royalty income 441 428
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Total liabilities 1,621 1,673
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized - 5,000;
none issued
Common stock, $.001 par value; shares authorized - 23,750;
issued and outstanding - 7,923 and 7,923 8 8
Additional paid-in capital 33,988 33,988
Accumulated deficit (27,831) (29,494)
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Total stockholders' equity 6,165 4,502
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TOTAL $ 7,786 $ 6,175
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4
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1997 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (1,815) $ (1,663)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation 12 9
Deferred royalty income (9) (13)
Fair value of options issued as compensation 412
Changes in operating assets and liabilities:
(Increase) in other assets (48) (473)
Increase (decrease) in accounts payable
and accrued expenses (32) 66
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Net cash (used in) operating activities (1,480) (2,074)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (9)
Purchase of investment securities (1,734) (1,576)
Proceeds from maturity of investment securities 2,029
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Net cash (used in) provided by investing activities (1,743) 453
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capitalized lease (2) (1)
Cost of registration of common stock previously issued (16)
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Net cash (used in) financing activities (18) (1)
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Net (decrease) in cash and cash equivalents (3,241) (1,622)
Cash and cash equivalents at beginning of period 11,236 2,733
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Cash and cash equivalents at end of period $ 7,995 $ 1,111
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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, 1997 included in the Company's annual report
on Form 10-K filed with the Securities and Exchange Commission.
B) SALES AND MARKETING
During the first quarter of 1998, the Company launched its
Clinicel line of silicone-based products for scar healing. The
Company incurred sales and marketing expense of $175,000 for the
three-month period ended March 31, 1998. In addition, during the
three-month period ended March 31, 1998, the Company expended
$319,000 as a deposit for direct-to-consumer advertising to run
during the second quarter of 1998. Accordingly, this expenditure was
recorded as a prepaid expense at March 31, 1998.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Life Medical Sciences, Inc. (the "Company"), is a
biomaterials company engaged in the development and commercialization
of innovative and cost-effective medical devices for therapeutic
applications. The Company's strategy is to apply its proprietary
polymer technology to the development of multiple products that
address unmet therapeutic needs or offer improved, cost-effective
alternatives to current methods of treatment. Products currently
under development focus on preventing or reducing post-operative
surgical adhesions. The Company has also developed and begun
commercialization of a line of novel silicone gel-filled cushions
intended for the treatment of hypertrophic and keloid scars.
Since its inception, the Company has been engaged primarily
in research and development of its technologies and proposed
products, commercialization of the Sure-Closure System and Clinicel
line of products and organizational activities. In July 1994, the
Company sold the Sure-Closure System and focused its resources
primarily on development of its in-situ tissue culturing technology
and bioresorbable polymer technology as well as proposed products to
be derived from such technologies. During the second half of 1997,
the Company concluded that its in-situ tissue culturing technology
products in clinical trials would not yield the desired benefits and
therefore revised its strategy to concentrate its resources on the
proposed products based on its bioresorbable polymer technology. All
revenue to date has been derived from sales of the Sure-Closure
System or the royalties thereon.
Certain statements in this Report on 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.
When used in the Report, statements that are not statements of
material facts may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "anticipates", "plans",
"intends", "expects", "believes" 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.
7
RESULTS OF OPERATIONS
The Company had revenue of $9,000 and $13,000 from royalties
on sales of the Sure-Closure System for the three-month periods ended
March 31, 1997 and 1998, respectively. The increase in royalties from
1997 to 1998 can be attributed to a modest increase in sales of the
Sure-Closure System.
The Company incurred research and development expenses of
$1,133,000 and $1,217,000 for the three-month periods ended March 31,
1997 and 1998, respectively. The expenditures for the three-month
period ended March 31, 1998 can be attributed to the development of,
the conducting of pre-clinical and clinical studies and the
manufacturing development of bioresorbable polymer adhesion
prevention products, the termination of the Piliel clinical program
and additional expenditures supporting the management of the research
and development function. Research and development expenses are
expected to increase in future periods as the Company expands
development of and conducts additional clinical trials on several
proposed products.
The Company incurred sales and marketing expenses of
$175,000 for the three-month period ended March 31, 1998. There were
no such expenses during the corresponding quarter of 1997. The
Company has begun to market its Clinicel line of silicone-based
products. Sales and marketing expenses are expected to increase
significantly in future periods as the Company expands its direct-to-
consumer and professional media advertising programs.
General and administrative expenses, which consist
principally of management compensation, professional fees, investor
materials and travel expenses were $857,000 and $379,000 for the
three-month periods ended March 31, 1997 and 1998, respectively. A
non-cash expense for stock based compensation costs of $331,000 was
recorded during the three-month period ended March 31, 1997. There
was no such expense during the corresponding period of 1998.
Additionally, there were reduced levels of expenditures associated
with staffing and professional fees during the three-month period
ended March 31, 1998 when compared to the corresponding period of
1997.
Interest income was $167,000 and $96,000 for the three-month
periods ended March 31, 1997 and 1998, respectively. Interest income
decreased primarily as a result of a smaller average cash balance in
1998 as compared to 1997.
For the three-month periods ended March 31, 1997 and 1998,
interest expense represents the interest on capital leases entered
into during 1996 and 1997 to acquire certain office equipment.
The Company's net loss was $1,815,000 and $1,663,000 for the
three-month periods ended March 31, 1997and 1998, respectively. This
decrease was primarily the result of not incurring a non-cash expense
for stock based compensation for the three-month period ended March
31, 1998 which was offset by an increased scale of operations as the
Company expanded its product development efforts. The Company expects
to incur additional losses in the future.
8
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and investments of
$5,494,000 compared to $7,569,000 at December 31, 1997. The cash and
investments at March 31, 1998, primarily reflect the remaining
proceeds of the approximately $13.4 million public offering of Common
Stock made during May 1996.
The Company believes that the available cash will not be
sufficient to meet its cash requirements through 1998 based on its
current operating plan. 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 proposed products are
approved for marketing. The Company plans to seek such additional
funding through collaborative arrangements with strategic partners,
including licensing arrangements for certain of its proposed products
and additional public or private financings, including equity
financings. Any additional equity financings may be dilutive to
stockholders. There can be no assurance that the Company will be able
to secure additional financing when required or that such financings
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.
9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
10
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: MAY 13, 1998 /S/ DONALD W. FALLON
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DONALD W. FALLON
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND TREASURER
(Duly Authorized Officer & Principal
Financial Officer)
11
EXHIBIT INDEX
27 Financial Data Schedule
12