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, 2001
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.)
PO BOX 219 LITTLE SILVER, NEW JERSEY 07739
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(732) 728-1769
(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[ ] 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 - 10,343,342 SHARES OUTSTANDING AT APRIL 30, 2001
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 2001
Condensed Balance Sheets as of December 31,2000 and 4
March 31, 2001 (unaudited)
Condensed Statements of Cash Flows (unaudited) for the 5
three-month periods ended March 31, 2000 and 2001
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
Signature 11
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,
------------------------
2000 2001
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Revenue
Product sales $ 9 $ -
Royalties 10 8
Revenue 19 8
Cost of goods sold 1 0
Gross profit 18 8
Operating expenses:
Research and development 119 175
Sales and marketing 21 0
General and administrative 190 168
Operating expenses 330 343
Loss from operations (312) (335)
Interest income 7 7
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<
Net loss $ (305) (328)
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Net loss per share-basic and diluted $ (0.03) $ (0.03)
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Weighted average shares outstanding 9,744 10,343
3
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(In thousands, except per share data)
DECEMBER 31, MARCH 31,
2000 2001
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(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 844 $ 535
Prepaid expenses and advances 110 61
Total current assets 954 596
Furniture and equipment at cost (less depreciation of $47 and $14) 12 4
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TOTAL $ 966 $ 600
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,120 $ 1,132
Accrued expenses 162 138
Capital lease obligation 16
Other liabilities 169 169
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Total current liabilities 1,467 1,439
Capital lease obligation 2 0
Deferred royalty income 296 288
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Total liabilities 1,765 1,727
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized - 5,000;
Series A convertible shares issued and outstanding-none and 500 5 5
Common stock, $.001 par value; shares authorized 43,750;
issued and outstanding - 9,470 and 10,250 10 10
Additional paid-in capital 36,094 36,094
Accumulated deficit (36,908) (37,236)
Total stockholders' equity (799) (1,127)
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TOTAL $ 966 $ 600
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4
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
MARCH 31,
2000 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (305) (328)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Depreciation 7 3
Deferred royalty income (10) (8)
Fair value of options issued as compensation 11
Gain on termination of capital lease (10)
Changes in operating assets and liabilities:
Decrease/(increase) in prepaid expenses and advances (8) 49
(Decrease) in accounts payable and accrued expenses (112) (14)
Increase/(decrease) in other liabilities (35)
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Net cash (used in) operating activities (452) (308)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of equipment (1)
Proceeds from exercise of stock option,including paid in capital 108
Payments on capitalized lease (2)
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Net cash (used in)/provided by financing activities 106 (1)
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Net Increase/(decrease) in cash and cash equivalents (346) (309)
Cash and cash equivalents at beginning of period 724 844
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Cash and cash equivalents at end of period $ 378 $ 535
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Supplemental disclosure of noncash activities:
Termination of capital lease (see note C) $ 16
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, 2000
included in the Company's annual report on Form 10-K filed with the
Securities and Exchange Commission.
B) NET LOSS PER SHARE
Basic and diluted net loss 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.
C) CAPITAL LEASE
During the three months ended March 31, 2001, the Company
negotiated the termination of an equipment lease. Pursuant to the
arrangement, the Company returned equipment with a net book value of
$6,000 and reduced to $6,000 its obligation which previously consisted
of $18,000 of principal and $4,000 of accrued interest and maintenance
fees. Accordingly, the Company recognized a gain of $10,000 which has
been offset against general and administrative expenses.
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. During 2000, the Company postponed the
further advancement and expansion of product development programs based on its
proprietary bioresorbable polymer technology due to the lack of financial
resources to fund such activities. As a result of this cash shortfall, in July
2000, the Company terminated all but one of its remaining employees. Contingent
upon the receipt of additional funding, 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 December 2000, the Company received
approximately $1 million through the combination of a private placement of
convertible preferred stock and the sale of certain state tax losses. The
proceeds are, in part, being used to reinitiate activities in support of the
REPEL-CV clinical development program.
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. 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 month period ended March 31, 2001 of $8,000 was
attributable to royalties from product sales of the Sure-Closure System(TM).
This revenue figure compares to $19,000 for the three month period ended March
31, 2000 consisting of $10,000 and $9,000, respectively, of royalties from sales
of the Sure-Closure System and sales of CLINICEL products . The reduction in
revenue is primarily attributable to the discontinuation of the manufacturing
and sale of the CLINICEL products.
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. There were no comparable costs in 2001.
The Company incurred research and development expenses of $175,000 for
the three month period ended March 31, 2001, compared to $119,000 for the
comparable prior year period. 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 three month period
ended March 31, 2000, were exclusively associated with CLINICEL and consist
primarily of contracted customer service expense. There were no comparable
expenses in 2001.
General and administrative expenses totaled $168,000 for the three
month period ended March 31, 2001, compared to $190,000 for the comparable prior
year period. 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 fees.
Interest income was $7,000 for the three month period ending March 31,
2001, equal to the amount realized during the comparable prior year period.
The Company's net loss was $328,000 for the three months ended March
31, 2001. A net loss of $305,000 was recorded for the comparable prior year
period. The Company expects to incur losses in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $535,000 and $844,000 at March 31, 2001
and December 31, 2000, respectively.
At March 31, 2001, the Company had a working capital deficit of
$843,000. The cash and cash equivalents balance as of March 31, 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 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
additional state tax benefit transfers.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On January 9, 2001, the Company filed a report on Form 8-K
disclosing, under Item 5. Other Information, the completion, on
December 26, 2000, of a private placement of 500,000 shares of
Series A Convertible Preferred Stock for an aggregate purchase
price of $500,000 in cash.
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)
Date: April 30, 2001 /s/ ROBERT P. HICKEY
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ROBERT P. HICKEY
CHAIRMAN, PRESIDENT, CEO AND CFO