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, 2000
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 X 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 - 10,249,756 shares outstanding at April 24, 2000
LIFE MEDICAL SCIENCES, INC.
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations (unaudited) for the three-month 3
periods ended March 31, 2000 and 1999
Condensed Balance Sheets as of March 31, 2000 (unaudited) 4
and December 31, 1999
Condensed Statements of Cash Flows (unaudited) for the 5
three-month periods ended March 31, 2000 and 1999
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 2. Changes in Securities and Use of Proceeds 10
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,
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1999 2000
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Revenue
Product sales $ 803 $ 9
Royalties 13 10
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Revenue 816 19
Cost of goods sold 283 1
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Gross profit 533 18
Operating expenses:
Research and development 191 119
Sales and marketing 134 21
General and administrative 364 190
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Operating expenses 689 330
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(Loss) from operations (156) (312)
Interest income 3 7
Interest expense (1)
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Net (loss) before extraordinary item (154) (305)
Extraordinary item 432 --
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Net (loss)/income $ 278 $ (305)
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Net (loss)/income per share - basic and diluted $ 0.04 $ (0.03)
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Weighted average shares outstanding 7,923 9,744
3
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(In thousands, except per share data)
December 31, March 31,
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1999 2000
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 724 $ 378
Prepaid expenses and advances 19 27
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Total current assets 743 405
Furniture and equipment-at cost (less depreciation of $121 and $128) 55 48
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TOTAL $ 798 $ 453
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,084 $ 965
Accrued expenses 95 102
Capital lease obligation 9 10
Other liabilities 253 218
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Total current liabilities 1,441 1,295
Capital lease obligation 9 7
Deferred royalty income 339 328
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Total liabilities 1,789 1,630
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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 - 9,470 and 10,250 10 10
Additional paid-in capital 35,387 35,506
Accumulated deficit (36,388) (36,693)
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Total stockholders' equity (991) (1,177)
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TOTAL $ 798 $ 453
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4
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months ended
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March 31,
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1999 2000
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Cash flows from operating activities:
Net (loss) before extraordinary item $(154) $(305)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Extraordinary item 432
Depreciation 8 7
Deferred royalty income (13) (10)
Fair value of options issued as compensation 58 11
Changes in operating assets and liabilities:
Decrease in inventory 60
Decrease in accounts receivable 65
Decrease/(increase) in prepaid expenses and advances 31 (8)
(Decrease) in accounts payable and accrued expenses (350) (112)
Increase/(decrease) in other liabilities 11 (35)
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Net cash (used in) operating activities 148 (452)
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Cash flows from financing activities:
Proceeds from exercise of stock option,including paid in capital 108
Payments on capitalized lease (2) (2)
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Net cash (used in)/provided by financing activities (2) 106
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Net Increase/(decrease) in cash and cash equivalents 146 (346)
Cash and cash equivalents at beginning of period 485 724
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Cash and cash equivalents at end of period $ 631 $ 378
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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 have been
presented on a going concern basis and do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern. These condensed financial statements should be read in
conjunction with the Company's audited financial statements for the year
ended December 31, 1999 included in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission.
B) Net (Loss)/Income Per Share
Basic and diluted net (loss)/income per share is computed using the
weighted average number of shares outstanding during each period, which
excludes outstanding options and warrants since their inclusion would, in
the case of a net loss, reduce the loss per share.
6
Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations
General
Life Medical Sciences, Inc. is a biomaterials company engaged in the
development and commercialization of innovative and cost-effective medical
devices for therapeutic applications. Currently the Company focusing on the
advancement and expansion of product development programs based on its
proprietary bioresorbable polymer technology. The Company intends to apply its
platform 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 adhesions subsequent to a broad range of surgical
procedures and are in various stages of clinical trials and preclinical studies.
In February 2000, the Company completed a pilot clinical trial for its
REPEL-CV(TM) bioresorbable adhesion barrier film, the first surgical device
approved by the FDA for human evaluation in the prevention of adhesions after
open-heart surgical procedures. In conjunction with its strategic focus on the
development of medical products based on its bioresorbable polymer technology,
the Company discontinued, effective February 29, 2000, the manufacturing and
sale of the CLINICEL(R) silicone gel-filled cushions.
The Company's bioresorbable polymer technology is based on a proprietary group
of polymers. The Company believes that these polymers display desirable
properties, which enable them to be tailored to a wide variety of applications.
These properties include bioresorbability, flexibility, strength and
biocompatibility. Potential applications for products derived from these
polymers are in medical areas such as the prevention of post-operative
adhesions, sutures, stents, implantable device coatings and drug delivery. The
Company is currently developing bioresorbable adhesion barrier films for the
prevention or reduction of post-operative surgical adhesions in cardio-vascular
surgery (REPEL-CV(TM)), gynecological and general surgical procedures
(REPEL(TM)), as well as in bioresorbable adhesion barrier coatings (viscous
solutions) for the prevention or reduction of post-operative surgical adhesions
in gynecological and general abdominal surgical procedures (RESOLVE(TM)) and
orthopedic and spinal surgical procedures (RELIEVE(TM)). These products are in
various stages of development:
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. 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" 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
Revenue for the three month period ended March 31, 2000 of $19,000, was
primarily attributable to royalties from product sales of the Sure-Closure
System(TM) of $10,000 and the balance of $9,000 from the sale of CLINICEL(R)
products. These revenue figures compare to $816,000 for the three month period
ended March 31, 1999 consisting primarily of $13,000 and $803,000, respectively,
of royalties from sales of the Sure-Closure System and sales of CLINICEL
products . The reduction in revenue for the three months ended March 31, 2000
compared to the comparable prior year period is primarily attributable to the
discontinuation of the manufacturing and sale of the CLINICEL products,
effective from February 29, 2000.
Cost of goods sold of $1,000 for the three month period ended March 31,
2000, reflects costs to package and ship CLINICEL to the Company's consumer and
trade customers. Cost of goods sold was $283,000 for the comparable period ended
March 31,1999. The reduction in the cost of goods sold is directly related to
the lower CLINICEL sales volume.
The Company incurred research and development expenses of $119,000 for the
three month period ended March 31, 2000, compared to $191,000 for the comparable
prior year period. The reduction in expenditures compared to the prior year is
primarily attributed to reduced spending on the development of bioresorbable
adhesion prevention products and reduced spending for clinical trials. Research
and development spending in 2000 has been primarily to conduct the pilot
clinical trial for REPEL-CV(TM) , the first product to receive an IDE from the
FDA for clinical testing to determine safety for use as an anti-adhesion barrier
in cardiovascular surgery.
Sales and marketing expenses of $21,000 for the three month period ended
March 31, 2000, were exclusively associated with CLINICEL and consist primarily
of contracted customer service expense. The costs for the comparable prior year
period were $134,000. The reductions in expense are primarily attributable to
reduced advertising and marketing of the CLINICEL products.
General and administrative expenses totaled $190,000 for the three month
period ended March 31, 2000, compared to $364,000 for the comparable prior year
period. These expenses consisted primarily of management compensation, legal
fees, and other general and administrative costs. The reductions in spending are
primarily attributable to lower headcount as well as reduced legal fees,
consulting fees and general cost control.
Interest income was $7,000 for the three month period ending March 31,
2000, and $3,000 for the comparable prior year period. The increases in interest
income are directly attributable to higher balances of cash and cash
equivalents.
Interest expense represents interest on capital leases for certain office
equipment.
The Company recorded other income of $432,000 for the three month period
ended March 31, 1999. This other income is attributable to a reduction in
accrued expenses in exchange for certain equipment, the cost of which had
previously been charged to research and development expense. There was no
comparable other income in the current period ended March 31, 2000.
The Company's net loss was $305,000 for the three months ended March 31,
2000. Net income of $278,000 was recorded for the comparable prior year period.
The comparison to the prior year is distorted by the impact of the other income
explained above. The Company expects to incur losses in future periods.
8
Liquidity and Capital Resources
Cash and cash equivalents were $378,000 and $724,000 at March 31, 2000 and
December 31, 1999, respectively.
At March 31, 2000, the Company had a working capital deficit of $890,000.
The cash and cash equivalents balance as of March 31, 2000 may not be sufficient
to meet the Company's cash requirements for operating activities through the
remainder of 2000. 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 plans to seek such additional funding
through collaborative arrangements with strategic partners, licensing
arrangements for certain of its proposed products 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 and with its advisors regarding other public
financing vehicles. Any additional financings may be dilutive to existing
stockholders. The Company is also pursuing other initiatives, including state
tax benefit transfers and licensing/marketing agreements intended to improve its
financial condition. The company has reduced spending on certain programs as a
means of preserving its cash resources and is currently in discussions with
third parties regarding the licensing of certain technologies which it might
otherwise seek to commercialize itself.
9
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
The Company has extended the expiration of its Class A and Class B
redeemable warrants to 5:00 PM (Eastern Time) on September 21, 2000 from March
21, 2000.
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 4, 2000 /s/ Robert P. Hickey
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Robert P. Hickey
Chairman, President, CEO and acting CFO
11
EXHIBIT INDEX
27. Financial Data Schedule
12