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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 March 31, 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: 0-19890
LifeCell Corporation
(Exact name of registrant as specified in its charter)
Delaware 76-0172936
(State or other jurisdiction of (IRS Employer
Incorporation or organization Identification No.)
3606 Research Forest Drive
The Woodlands, Texas 77381
(Address of principal executive office) (zip code)
(281) 367-5368
(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
As of May 9, 1997, there were outstanding 6,887,079 shares of Common Stock,
par value $.001, and 120,294 of Series B Preferred Stock, par value $.001
(which are convertible into approximately an additional 3,880,451 shares of
Common Stock), of the registrant.
Total number of pages in this document: 12
Exhibit Index is located on Page 11
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
BALANCE SHEETS
March 31, December 31,
1997 1996
--------- ----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 9,132,784 $ 10,748,250
Accounts and other receivables 649,838 436,839
Inventories 717,079 839,821
Prepayments and other 135,688 52,780
------------ ------------
Total current assets 10,635,389 12,077,690
FURNITURE AND EQUIPMENT, net 685,500 478,098
INTANGIBLE ASSETS, net 346,974 334,227
------------ ------------
$ 11,667,863 $ 12,890,015
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 954,804 $ 514,848
Accrued liabilities 562,072 539,271
Deferred revenues 36,508 138,792
------------ ------------
Total current liabilities 1,553,384 1,192,911
DEFERRED CREDIT 1,500,000 1,500,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A preferred stock, $.001 par value,
300,000 shares authorized, none and
260,000 issued and outstanding including
accrued dividends of none and $86,667 -- 5,291,473
Series B preferred stock, $.001 par value,
182,205 shares authorized, 122,373 and
124,157 issued and outstanding and accrued
dividends of 2,915 and 1,426 shares 125 126
Undesignated preferred stock, $.001 par value,
1,517,795 shares authorized, none issued
and outstanding
Common stock, $.001 par value, 25,000,000 shares
authorized, 6,820,018 and 4,899,944 shares
issued and outstanding, respectively 6,820 4,900
Warrants outstanding to purchase 3,245,168 and
3,378,264 shares of Common Stock,
respectively 421,946 423,218
Additional paid in capital 39,558,756 33,788,321
Accumulated deficit (31,373,168) (29,310,934)
------------ ------------
Total stockholders' equity 8,614,479 10,197,104
------------ ------------
Total liabilities and stockholders' equity $ 11,667,863 $ 12,890,015
============ ============
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
------------ ------------
REVENUES
Product sales $ 820,969 $ 420,636
Research funded by others 289,676 155,476
------------ ------------
Total revenues 1,110,645 576,112
------------ ------------
COSTS AND EXPENSES
Cost of goods sold 489,638 271,757
Funded research and development 289,676 155,476
Proprietary research and development 278,429 190,035
General and administrative 797,371 387,346
Selling and marketing 1,035,905 550,722
------------ ------------
Total costs and expenses 2,891,019 1,555,336
------------ ------------
LOSS FROM OPERATIONS (1,780,374) (979,224)
------------ ------------
Interest income and other, net 130,738 30,120
------------ ------------
NET LOSS $ (1,649,636) $ (949,104)
============ ============
Loss per share before preferred dividends $ (0.33) $ (0.22)
Effect of preferred dividends (0.08) (0.03)
------------ ------------
LOSS PER SHARE $ (0.41) $ (0.25)
============ ============
SHARES USED IN COMPUTING LOSS PER SHARE 5,062,164 4,403,658
============ ============
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,649,636) $ (949,104)
Adjustments to reconcile net loss to net
cash used in operating activities--
Depreciation and amortization 44,395 44,074
Stock and warrant compensation expense -- 19,906
Change in assets and liabilities--
(Increase) decrease in accounts and other (212,999) (186,224)
receivables
(Increase ) decrease in inventories 122,743 (149,905)
(Increase) decrease in prepayments and other (82,908) (84,409)
Increase in accounts payable and accrued
liabilities 411,440 220,339
Increase (decrease) in deferred revenues
and credit (102,284) 30,105
------------ ------------
Total adjustments 180,387 (106,114)
------------ ------------
Net cash used in operating activities (1,469,249) (1,055,218)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (248,455) (136,931)
Intangible assets (16,090) (6,345)
------------ ------------
Net cash used in investing activities (264,545) (143,276)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and warrants 135,305 --
Proceeds from issuance of notes payable 65,369 140,990
Dividends paid (68,293) --
Payments of notes payable (14,053) (8,256)
------------ ------------
Net cash provided by (used in)
financing activities 118,328 132,734
------------ ------------
Net Decrease in cash and Cash Equivalents (1,615,466) (1,065,760)
Cash and Cash Equivalents at Beginning of
Period 10,748,250 3,015,332
------------ ------------
Cash and Cash Equivalents at End of Period $ 9,132,784 $ 1,949,572
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 434 $ 1,919
The accompanying notes are an integral part of these financial statements.
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CONDENSED NOTES TO FINANCIAL STATEMENTS
1. Organization and Certain Significant Risks:
LifeCell Corporation, a Delaware corporation ("LifeCell" or the "Company"), is
engaged in the research, development and commercialization of transplantable
tissue and transfusable blood products. The Company was incorporated on
January 6, 1992, for the purpose of merging with its predecessor entity, which
was formed in 1986. LifeCell commercially introduced its first transplantable
tissue product, AlloDerm?, during December 1993. Sales of AlloDerm products
to date have not been sufficient to fund the Company's operations, and the
Company expects continued operating losses during 1997. The future operating
results of the Company will be principally dependent on the market acceptance
of its current and future products, competition from other products or
technologies, protection of the Company's proprietary technology, and access
to funding as required. Accordingly, there can be no assurance of the
Company's future success. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" elsewhere herein.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission (the
"Commission"). Certain information and footnote disclosures normally included
in the annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
those rules and regulations. This financial information should be read in
conjunction with the Financial Statements included within the Company's Form
10-K for the year ended December 31, 1996.
In the opinion of the management of the Company, the accompanying financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) that are necessary for a fair presentation of financial position
and the results of operations for the periods presented. Financial results for
interim periods are not necessarily indicative of the results for the full
year or future interim periods.
3. Redemption of Series A Preferred Stock
The Series A Preferred Stock was automatically convertible into Common Stock
on November 9, 1997, and could be redeemed sooner by the Company if, after
November 9, 1995, the closing bid price of the Company's Common Stock averaged
or exceeded $5.17 per share for 20 consecutive days. Pursuant to such
provisions, during February 1997, the Company called for redemption all
outstanding shares of Series A Preferred Stock. During March 1997 the Company
issued 1,739,128 shares of Common Stock to redeem the Series A Preferred Stock
and paid a cash dividend of $65,000 and issued an additional 33,305 shares of
Common Stock for dividends accrued through the date of redemption.
4. Dividends Payable on Series B Preferred Stock
The Series B Preferred Stock bears cumulative dividends, payable quarterly for
five years, at the greater of the annual rate of $6.00 per share or the rate
of any dividends paid on the Series A Preferred Stock (effectively $10.00 per
share until the Series A Preferred Stock was redeemed in March 1997).
Dividends may be paid in cash, in additional shares of Series B Preferred
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Stock based on the stated value of $100 per share, or any combination of cash
and Series B Preferred Stock at the Company's option. While the preferred
shares are outstanding or any dividends are owed thereon, the Company may not
declare or pay cash dividends on its Common Stock.
During 1996, the Company declared accrued dividends on the Series B Preferred
Stock of $145,867 payable through the issuance of 1,426 additional shares of
Series B Preferred Stock on February 15, 1997. Such dividends were accrued at
December 31, 1996.
During the first quarter of 1997, the Company accrued dividends on the Series
B Preferred Stock of $300,007, payable in cash of $8,509 and 2,915 shares of
Series B Preferred Stock. Such dividend was at the rate of $10.00 per share
for the period through March 26, 1997, the date of redemption of the Series A
Preferred Stock, and $6.00 per share thereafter.
5. Loss Per Share
Loss per share has been computed by dividing net loss, which has been
increased by imputed and stated dividends on outstanding Preferred Stock, by
the weighted average number of shares of Common Stock outstanding during the
periods. Such imputed and stated dividends totaled $146,681 and $408,342 for
the three months ended March 31, 1996 and 1997, respectively. In all
applicable periods, all Common Stock equivalents, including the Series A
Preferred Stock and the Series B Preferred Stock, were anti-dilutive and,
accordingly, were not included in the computation.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Statement 128
establishes standards for computing and presenting earnings per share ("EPS").
This statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, "Earnings per Share", and makes them
comparable to international EPS standards. The statement also retroactively
revises the presentation of earnings per share in the financial statements.
The Company will adopt this Standard for the year ended December 31, 1997, but
such adoption is not expected to have a significant effect on net loss per
share for the period ended March 31, 1997..
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction with the
Financial Statements and related notes contained elsewhere herein.
General and Background
LifeCell was organized in 1986 and, since inception, has been financed through
the public and private sale of equity securities to individuals, venture
capital firms and corporations, through product sales, through a corporate
alliance with Medtronic, Inc. and through the receipt of government grants and
contracts.
In December 1993, LifeCell began commercial distribution of AlloDerm? grafts.
The initial AlloDerm product was used as a dermal replacement in the grafting
of third-degree burns. LifeCell commenced commercial sales of AlloDerm for
periodontal surgery in September 1995 and for plastic and reconstructive
surgery uses in June 1995. To date, proceeds from the sale of AlloDerm
products have not been sufficient to fund the Company's operating activities.
In March 1994, LifeCell entered into an agreement with Medtronic pursuant to
which Medtronic agreed (subject to certain rights to terminate at Medtronic's
discretion) to fund the development of LifeCell's proprietary tissue
processing technology in the field of heart valves. Additionally, LifeCell's
research and development of blood cell products has been substantially funded
through government grants and contracts.
Results of Operations
The net loss for the three months ended March 31, 1997 was approximately
$1,650,000, or an increase of approximately $701,000 over the same period of
1996. The increase was principally attributable to higher costs associated
with the Company's increased marketing activities for its AlloDerm products
and the development of the infrastructure to administer its increased
activities. This investment in increased marketing activities was partially
offset by a rise in product sales as discussed further below.
Total revenues for the three months ended March 31, 1997 were approximately
$1,110,000, or an increase of approximately $534,000 over the same period of
1996. Approximately $400,000 of such increase was attributable to increases in
sales of AlloDerm products, which were the result of expanded sales and
marketing activities and increased distribution activities during the 1997
period. The remaining $134,000 increase in revenues was the result of
increased research activities under funding arrangements; amounts recognized
as revenues under such cost-reimbursement arrangements are for expenses
incurred during the periods.
Cost of goods sold for the three months ended March 31, 1997 was approximately
$490,000, with a gross margin of approximately 40%, for the three months ended
March 31, 1997. The gross margin for the three months ended March 31, 1996 was
approximately 35%. The increase in gross margin is principally attributable to
the allocation of fixed costs to higher volumes of products produced in 1997
as well as the implementation of certain production efficiencies.
Research and development expenses for the three months ended March 31, 1997
were approximately $568,000, an increase of $222,000 over the comparable
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period in 1996. Of such increase, approximately $134,000 was attributable to
increased activities related to research funded by others. Such activities
increased in 1997 as a result of the receipt during 1996 of three contracts
with government agencies to fund research and development activities. The
remaining $88,000 increase in research and development expense is attributable
to changing allocations of staff-related costs and increased production of
products for clinical and research activities.
General and administrative expenses during the three months ended March 31,
1997 were approximately $797,000, or an increase of approximately $410,000
over the same period of 1996. Such increase is principally attributable to
increased staff levels, recruiting fees, and other professional related to the
Company's expansion of the infrastructure to support its increased sales
activities.
Selling and marketing expenses were approximately $1,036,000 during the three
months ended March 31, 1997, or an increase of approximately $485,000 over the
same period of 1996. The increase was primarily attributable to increased
promotional activities as well as the addition of sales personnel related to
AlloDerm marketing.
The category "Interest income and other, net" was approximately $131,000
during the three months ended March 31, 1997, or an increase of approximately
$101,000 over the same period of 1996. The increase was principally
attributable to higher funds available for investment during the current
period as a result of the sale of Series B Preferred Stock in November 1996.
Liquidity and Capital Resources
Since its inception, LifeCell's principal sources of funds have been equity
offerings, product sales, the Medtronic corporate alliance, government grants
and contracts and interest on investments.
LifeCell primarily funds research and development activities for products
other than AlloDerm with external funds from its corporate alliance and
government grants. In April 1996, LifeCell was awarded a one-year $613,000
contract from the U.S. Navy related to the development of ThromboSol TM. In
August 1996, LifeCell was awarded a two-year $300,000 National Science
Foundation Phase II grant related to its keratinocytes program. In December
1996, LifeCell was awarded a two-year contract from the U.S. Army to support
the development of vascular graft products.
In 1994, LifeCell entered into agreements with Medtronic pursuant to which
Medtronic paid LifeCell a license fee of $1.5 million and agreed, subject to
certain rights to terminate at Medtronic's discretion, to fund the development
of LifeCell's proprietary tissue processing technology in the field of heart
valves. Through March 31, 1997, LifeCell has recognized approximately $1.8
million in revenues for development funding, excluding the initial license
fee, for this program.
In June 1996, LifeCell engaged DENTSPLY International ("DENTSPLY") to
distribute AlloDerm grafts for periodontal surgery on a worldwide basis. In
March 1997, however, DENTSPLY advised LifeCell that it intended to discontinue
operations of the division with responsibility for distributing AlloDerm.
Accordingly, LifeCell has assumed marketing AlloDerm for periodontal
applications through its direct sales force. While the Company anticipates
that the termination of the DENTSPLY agreement may have some impact on
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revenues attributable to sales of AlloDerm for periodontal applications during
this transition, LifeCell believes that it will not materially affect the
Company's overall revenues attributable to AlloDerm sales.
LifeCell expects to incur substantial expenses for AlloDerm marketing and the
Company's product development programs (including costs of clinical studies),
production, sales and marketing, product introduction, technical seminars,
support of ongoing administrative activities and research and development
activities, such as regulatory and quality assurance programs and continuing
applications for patent protection for the proprietary aspects of its
technology. The Company currently intends to fund these activities from its
existing cash resources, sales of products, and research and development
funding received from others. There can be no assurance that such sources of
funds will be sufficient to meet these future expenses. The Company's need for
additional financing will be principally dependent on the degree of market
acceptance achieved by the Company's products and the extent to which the
Company can achieve substantial growth in product sales during 1997 and 1998
as well as the extent to which the Company may decide or may be required to
use its own resources, in addition to external funding, to expand its product
development efforts. There can be no assurance that the Company will be able
to obtain any such additional financing on acceptable terms.
LifeCell has had losses since inception and therefore has not been subject to
federal income taxes. As of December 31, 1996, LifeCell had NOL and research
and development tax credit carryforwards for income tax purposes of
approximately $26 million and $385,000, respectively, available to reduce
future income tax and tax liabilities. Federal tax laws provide for a
limitation on the use of NOL and tax credit carryforwards following certain
ownership changes that could limit LifeCell's ability to use its NOL and tax
credit carryforwards. Accordingly, LifeCell's ability to use such
carryforwards to reduce future taxable income may be restricted.
Forward-Looking Statements and Risk Factors
Certain of the statements contained in this report are forward-looking
statements. While these statements reflect the Company's beliefs as of the
date of this report, they are subject to uncertainties and risks that could
cause actual results to differ materially. In addition, the operations and
activities of the Company and investments in its securities are subject to
certain significant risks. These risks include, but are not limited to, the
demand for the Company's products and services, economic and competitive
conditions, competitive products and technologies, uncertainty of patent
protection, access to borrowed or equity capital on favorable terms, and other
risks detailed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None.
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Part II. OTHER INFORMATION
Item 2. Changes in Securities.
During the three months ended March 31, 1997, the Company issued a total of
13,096 shares of Common Stock for an aggregate consideration of $54,086 to
various stockholders of the Company pursuant to the exercise of certain stock
purchase warrants. None of such issuances involved underwriters. The Company
considers these securities to have been offered and sold in transactions not
involving a public offering and, therefore, to be exempted from registration
under Section 4(2) of the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIFECELL CORPORATION
Date: May 14, 1997 By: /s/ Paul M. Frison
-----------------------
Paul M. Frison
President and Chief
Executive Officer
Date: May 14, 1997 By: /s/ J. Donald Payne
----------------------
J. Donald Payne
Vice President, Chief
Financial Officer and
Secretary
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INDEX TO EXHIBITS
Exhibit No.
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,132,784
<SECURITIES> 0
<RECEIVABLES> 649,838
<ALLOWANCES> 0
<INVENTORY> 717,079
<CURRENT-ASSETS> 10,635,389
<PP&E> 685,500
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,667,863
<CURRENT-LIABILITIES> 1,553,384
<BONDS> 0
0
125
<COMMON> 6,820
<OTHER-SE> 8,607,534
<TOTAL-LIABILITY-AND-EQUITY> 11,667,863
<SALES> 820,969
<TOTAL-REVENUES> 1,110,645
<CGS> 489,638
<TOTAL-COSTS> 289,676
<OTHER-EXPENSES> 2,601,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,649,636)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,649,636)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,649,636)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
