<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-Q
ON
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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: 0-19890
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 September 30, 1997, there were outstanding 6,990,917 shares of Common
Stock, par value $.001, and 124,036 of Series B Preferred Stock, par value
$.001 (which are convertible into approximately an additional 4,001,161
shares of Common Stock), of the registrant.
Page 1 of 14
Exhibit Index on page 13
<PAGE> 2
The Company hereby amends and restates in its entirety its Quarterly
Report on Form 10-Q for the period ended September 30, 1997 (Commission File
No. 0-19890) as follows:
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
BALANCE SHEETS
September 30, December 31,
1997 1996
--------- ----------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 5,535,837 $ 10,748,250
Accounts and other receivables 860,069 436,839
Inventories 981,317 839,821
Prepayments and other 151,392 52,780
------------ ------------
Total current assets 7,528,615 12,077,690
FURNITURE AND EQUIPMENT, net 839,689 478,098
INTANGIBLE ASSETS, net 376,741 334,227
OTHER ASSETS 66,838 --
------------ ------------
$ 8,811,883 $ 12,890,015
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 324,226 $ 514,848
Accrued liabilities 966,966 539,271
Deferred revenues 106,510 138,792
------------ ------------
Total current liabilities 1,397,702 1,192,911
DEFERRED CREDIT 1,500,000 1,500,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A preferred stock, $.001 par value,
none and 300,000 shares authorized, none
and 260,000 issued and outstanding, including
accrued dividends of none and $86,667,
respectively -- 5,291,473
Series B preferred stock, $.001 par value,
182,205 shares authorized, 124,036 and
124,157 issued and outstanding and accrued
dividends of 1,837 and 1,426 shares,
respectively 126 126
Undesignated preferred stock, $.001 par value,
1,817,795 and 1,517,795 shares authorized,
none issued and outstanding
Common stock, $.001 par value, 25,000,000 shares
authorized, 6,990,917 and 4,899,944 shares
issued and outstanding, respectively 6,991 4,900
Warrants outstanding to purchase 3,189,507 and
3,378,264 shares of Common Stock,
respectively 416,540 423,218
Additional paid in capital 40,199,622 33,788,321
Accumulated deficit (34,709,098) (29,310,934)
------------ ------------
Total stockholders' equity 5,914,181 10,197,104
------------ ------------
Total liabilities and stockholders' equity $ 8,811,883 $ 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 September 30,
-------------------------------
1997 1996
------------ ------------
REVENUES
Product sales $ 1,409,900 $ 560,672
Research funded by others 223,926 255,454
------------ ------------
Total revenues 1,633,826 816,126
------------ ------------
COSTS AND EXPENSES
Cost of goods sold 694,773 355,647
Funded research and development 223,926 255,454
Proprietary research and development 329,824 209,014
General and administrative 516,255 423,288
Selling and marketing 1,346,120 597,214
------------ ------------
Total costs and expenses 3,110,898 1,840,617
------------ ------------
LOSS FROM OPERATIONS (1,477,072) (1,024,491)
------------ ------------
Interest income and other, net 83,859 11,988
------------ ------------
NET LOSS $ (1,393,213) $ (1,012,503)
============ ============
Loss per Common share before preferred
dividends, accretion of preferred stock
and warrant exercises $ (0.20) $ (0.22)
Effect of preferred dividends, accretion
of preferred stock and warrant exercises (0.03) (0.11)
------------ ------------
LOSS PER COMMON SHARE $ (0.23) $ (0.33)
============ ============
SHARES USED IN COMPUTING LOSS PER COMMON SHARE 6,941,013 4,548,547
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
REVENUES
Product sales $ 3,238,333 $ 1,410,373
Research funded by others 779,149 659,385
------------ ------------
Total revenues 4,017,482 2,069,758
------------ ------------
COSTS AND EXPENSES
Cost of goods sold 1,704,963 899,805
Funded research and development 779,149 659,385
Proprietary research and development 889,686 550,354
General and administrative 2,007,130 1,196,104
Selling and marketing 3,572,769 1,699,739
------------ ------------
Total costs and expenses 8,953,697 5,005,387
------------ ------------
LOSS FROM OPERATIONS (4,936,215) (2,935,629)
------------ ------------
Interest income and other, net 320,389 55,371
------------ ------------
NET LOSS $ (4,615,826) $ (2,880,258)
============ ============
Loss per Common share before preferred
dividends, accretion of preferred stock
and warrant exercises $ (0.73) $ (0.65)
Effect of preferred dividends, accretion
of preferred stock and warrant exercises (0.13) (0.18)
------------ ------------
LOSS PER COMMON SHARE $ (0.86) $ (0.82)
============ ============
SHARES USED IN COMPUTING LOSS PER COMMON SHARE 6,304,204 4,452,307
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (4,615,826) $ (2,880,258)
Adjustments to reconcile net loss to net
cash used in operating activities--
Depreciation and amortization 156,644 124,332
Stock and warrant compensation expense -- 19,906
Change in assets and liabilities--
(Increase) decrease in accounts and other (423,229) (156,205)
receivables
(Increase) decrease in inventories (141,496) (415,651)
(Increase) decrease in prepayments and other (98,613) (340,886)
Increase in accounts payable and accrued
liabilities 206,720 530,497
Increase (decrease) in deferred revenues
and credit (32,281) (9,966)
------------ ------------
Total adjustments (332,255) (247,973)
------------ ------------
Net cash used in operating activities (4,948,081) (3,128,231)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (498,745) (152,205)
Intangible assets (55,466) (41,592)
------------ ------------
Net cash used in investing activities (554,211) (193,797)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock 406,294 1,061,605
Proceeds from issuance of notes payable 65,369 432,316
Deferred offering expenses accrued (66,838) --
Dividends paid (79,927) --
Payments of notes payable (35,019) (47,661)
------------ ------------
Net cash provided by financing
activities 289,879 1,446,260
------------ ------------
Net Decrease in Cash and Cash Equivalents (5,212,413) (1,875,768)
Cash and Cash Equivalents at Beginning of
Period 10,748,250 3,015,332
------------ ------------
Cash and Cash Equivalents at End of Period $ 5,535,837 $ 1,139,564
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 4,059 $ 6,719
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
CONDENSED NOTES TO FINANCIAL STATEMENTS
1. Organization and Certain Significant Risks:
LifeCell Corporation, a Delaware corporation ("LifeCell" or the "Company"),
is a bio-engineering company engaged in the development and commercialization
of tissue regeneration and cell preservation products. The Company was
incorporated on January 6, 1992, for the purpose of merging with its
predecessor entity, which was formed in 1986. LifeCell began commercial sales
of its first transplantable tissue product, AlloDerm acellular dermal graft,
during 1994. Sales of AlloDerm products to date have not been sufficient to
fund the Company's operations, and the Company expects continued operating
losses at least into 1998. 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 ending 2001, 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 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.
<PAGE> 7
While the shares of Series B Preferred Stock are outstanding or any dividends
are owed thereon, the Company may not declare or pay cash dividends on its
Common Stock.
During the third quarter of 1997, the Company accrued dividends on the Series
B Preferred Stock of $187,237, payable in cash of $3,537 and 1,837 shares of
Series B Preferred Stock. Such dividend is payable on November 15, 1997.
During the first nine months of 1997, the Company accrued dividends on the
Series B Preferred Stock of $669,748, payable in cash of $15,148 and 6,546
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 as
well as in 1996 the effect of inducement of warrant exercises, by the
weighted average number of shares of Common Stock outstanding during the
periods. Such imputed and stated dividends and effect of warrant exercise
inducement totaled $498,597 and $187,237 for the three months ended September
30, 1996, and 1997, respectively, and $791,959 and $782,324 for the nine
months ended September 30, 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 September 30, 1997.
6. Commitments and Contingencies
The Company is subject to numerous risks and uncertainties and from time to
time may be subject to various claims in the ordinary course of its
operations. The Company maintains insurance coverage for events and in
amounts that it deems appropriate. There can be no assurance that the level
of insurance maintained will be sufficient to cover any claims incurred by
the Company or that the type of claims will be covered by the terms of
insurance coverage.
7. Subsequent Events
In October 1997, the Company filed a registration statement with the
Securities and Exchange Commission in connection with a proposed public
offering of 4,500,000 shares of its Common Stock, of which 4,000,000 shares
will be issued and sold by LifeCell and 500,000 shares will be sold by
certain selling stockholders of the Company.
On November 4, 1997, Integra (Artificial Skin) Corporation ("Integra"), a
subsidiary of Integra LifeSciences Corporation, and Massachusetts Institute of
Technology ("MIT") filed a lawsuit in the United States District Court for the
District of Massachusetts, alleging that the Company infringes two patents
licensed by MIT to Integra (the "Integra Patents"). The lawsuit seeks injunctive
relief, an accounting of revenues, enhanced monetary damages and attorneys'
fees. On November 14, 1997, LifeCell responded to the complaint denying the
infringement claims and asserting certain affirmative defenses and
counterclaims. The Company has received an opinion from its patent counsel to
the effect that the intended uses of AlloDerm do not infringe the Integra
Patents. This opinion represents only the reasoned professional judgment of the
Company's patent counsel and is not binding on any court or third party. Patent
litigation involves complex legal and factual questions. As a result, the
outcome of such litigation is inherently unpredictable, and there can be no
assurance that the result of this proceeding will be favorable to the Company or
that it will not have a material adverse effect on the Company's business,
operating results or financial condition. If it is determined that the Company
is infringing the Integra Patents, the court could issue an injunction
prohibiting the Company from making, using or selling its AlloDerm product for
some or all of its intended uses. Such injunction could also extend to the
Company's other potential products under development. In addition, the court
could assess significant damages and attorneys' fees against the Company, which
would have a material adverse effect on the Company's business, operating
results and financial condition and otherwise affect the ability of the Company
to continue as a viable enterprise. In addition, an adverse determination in
this proceeding could require the Company to seek licenses from Integra, which
may not be available on reasonable terms, if at all. Regardless of the outcome,
defending such claims could involve significant costs and diversion of
management resources, which could have a material adverse effect on the
Company's business, operating results or financial condition.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion of operations and financial condition of LifeCell
should be read in conjunction with the Financial Statements and Notes herein.
Special Note: Certain statements set forth below constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. See "Special Note Regarding Forward-Looking Statements and Risk
Factors."
General and Background
LifeCell is a bio-engineering company engaged in the development and
commercialization of tissue regeneration and cell preservation products. The
Company's patented tissue processing and cell preservation technologies serve
as platforms for a broad range of potential products addressing significant
clinical needs in multiple markets. The Company's first commercial product is
AlloDerm, a tissue graft consisting of an extracellular tissue matrix that
retains the essential biochemical and structural composition of human dermis.
The Company believes that AlloDerm is the only commercial tissue transplant
product that promotes normal human soft tissue regeneration. AlloDerm
currently is being marketed in the United States and internationally for use
in reconstructive plastic, dental and burn surgery and has been successfully
transplanted in over 20,000 patients. LifeCell also is developing several
additional products, including injectable AlloDerm, composite skin grafts,
heart valves, vascular grafts and ThromboSolTM platelet storage solution.
LifeCell was organized in 1986 and, since inception, has been financed through
the public and private sale of equity securities, through product sales,
through a corporate alliance with Medtronic, Inc. ("Medtronic") and through
the receipt of government grants and contracts.
LifeCell began the sale of AlloDerm grafts as a dermal replacement in the
grafting of third-degree burns in December 1993 and commenced commercial
activities in 1994. LifeCell commenced the sale of AlloDerm for periodontal
surgery in September 1995 and for reconstructive plastic surgery uses in
November 1995. To date, proceeds from the sale of AlloDerm products have not
been sufficient to fund in full the Company's operating activities.
Results of Operations
Three Months Ended September 30, 1997 and 1996.
The net loss for the three months ended September 30, 1997 increased 38% to
approximately $1.4 million compared to approximately $1.0 million for 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 September 30, 1997 increased 100% to
approximately $1.6 million compared to approximately $816,000 for the same
period of 1996. Approximately $849,000 of such increase was attributable to
increased sales of products, which were the result of expanded sales and
marketing activities and increased distribution activities during the 1997
period. This increase was offset in part by a $32,000 decrease in revenues
from funded research and development. The decrease in funding is attributable
primarily to a decrease in expenditures for the heart valve program which is
<PAGE> 9
funded in part by Medtronic. 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 September 30, 1997 was
approximately $695,000 with a gross margin of approximately 51%. The gross
margin for the three months ended September 30, 1996 was approximately 37%. The
increase in gross margin is principally attributable to the implementation of
certain production efficiencies and the allocation of fixed costs to higher
volumes of products produced in 1997, as well as an increase in sales of certain
higher margin AlloDerm products and the price of certain AlloDerm products.
Research and development expenses for the three months ended September 30,
1997 increased 19% to approximately $554,000 compared to approximately
$464,000 for the comparable period in 1996. The increase in research and
development expenses was partially offset by the $32,000 decrease in research
funded by others discussed above. The increased research and development
expense is primarily attributable to increased production of products for
clinical and research activities, as well as higher allocations of resources
to certain proprietary research and development programs.
General and administrative expenses during the three months ended September
30, 1997 increased 22% to approximately $516,000 compared to approximately
$423,000 for the same period of 1996. Such increase is principally
attributable to increased staff levels and other professional fees related to
the Company's expansion of the infrastructure to support its increased sales
activities.
Selling and marketing expenses increased 125% to approximately $1.3 million
during the three months ended September 30, 1997 compared to approximately
$597,000 for 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.
Interest income and other, net increased 600% to approximately $84,000 during
the three months ended September 30, 1997 compared to approximately $12,000
for 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.
Nine Months Ended September 30, 1997 and 1996.
The net loss for the nine months ended September 30, 1997 increased 60% to
approximately $4.6 million compared to approximately $2.9 million for 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 nine months ended September 30, 1997 increased 94% to
approximately $4.0 million compared to approximately $2.1 million for the same
period of 1996. Approximately $1.8 million of such increase was attributable
to increases in sales of products, which were the result of expanded sales and
marketing activities and increased distribution activities during the 1997
period. The remaining $120,000 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
<PAGE> 10
incurred during the periods.
Cost of goods sold for the nine months ended September 30, 1997 was
approximately $1.7 million, with a gross margin of approximately 47%. The
gross margin for the nine months ended September 30, 1996 was approximately
36%. The increase in gross margin is principally attributable to the
implementation of certain production efficiencies and the allocation of fixed
costs to higher volumes of products produced in 1997, as well as an increase
in sales of certain higher margin AlloDerm products and the price of certain
AlloDerm products.
Research and development expenses for the nine months ended September 30, 1997
increased 38% to approximately $1.7 million compared to approximately $1.2
million for the comparable period in 1996. Of such increase, approximately
$120,000 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 $340,000 increase in research and development expense
is attributable to increased production of products for clinical and research
activities as well as higher allocations of resources to certain proprietary
research and development programs.
General and administrative expenses during the nine months ended September
30, 1997 increased 68% to approximately $2.0 million compared to
approximately $1.2 million for the same period of 1996. Such increase is
principally attributable to increased staff levels, recruiting fees, and
other professional fees related to the Company's expansion of the
infrastructure to support its increased sales activities.
Selling and marketing expenses increased 110% to approximately $3.6 million
during the nine months ended September 30, 1997 compared to approximately
$1.7 million for 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.
Interest income and other, net increased 478% to approximately $320,000
during the nine months ended September 30, 1997 compared to approximately
$55,000 for 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, external funding of research activities and
interest on investments. LifeCell has historically funded research and
development activities for products other than AlloDerm primarily with
external funds from its corporate alliance with Medtronic and government
grants. In April 1996, LifeCell was awarded a $613,000 contract from the U.S.
Navy related to the development of ThromboSol. 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 of approximately $1.1 million from the U.S. Army to
support the development of vascular graft and other products.
In 1994, LifeCell entered into an agreement 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 certain costs
<PAGE> 11
of the research and development of LifeCell's proprietary tissue processing
technology in the field of heart valves. Through September 30, 1997, LifeCell
has recognized approximately $1.9 million in revenues for development
funding, excluding the initial license fee, for this program. The budgeted
funding for the remainder of 1997 is approximately $27,000, which represents
one-half of the expected research cost.
LifeCell expects to incur substantial expenses in connection with its efforts to
expand sales and marketing of AlloDerm, develop expanded uses for AlloDerm,
conduct the Company's product development programs (including costs of clinical
studies), prepare and make any required regulatory filings, introduce products,
participate in technical seminars and support ongoing administrative and
research and development activities and may incur substantial expenses in
connection with defending the lawsuit relating to the Integra Patents. The
Company currently intends to fund these activities from its existing cash
resources, sales of products, and research and development funding received from
others. In October 1997, the Company filed a registration statement with the
Securities and Exchange Commission in connection with a proposed public offering
of 4,500,000 shares of its Common Stock, of which 4,000,000 shares will be
issued and sold by LifeCell and 500,000 shares will be sold by certain selling
stockholders of the Company. If successfully completed, the Company expects the
proceeds of the offering to fund additional sales and marketing, research and
development and other activities. There can be no assurance that the offering
will be completed successfully. While the Company believes that its existing
available funds, together with the net proceeds to the Company of the proposed
offering, will be sufficient to meet its present operating and capital
requirements for the next 24 months, there can be no assurance that such sources
of funds will be sufficient to meet these future expenses. If adequate funds are
not available, the Company expects it will be required to delay, scale back or
eliminate one or more of its product development programs. 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 1998 and 1999, as
well as the extent to which the Company may decide 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, if at all.
LifeCell has had losses since inception and therefore has not been subject to
federal income taxes. As of December 31, 1996, LifeCell had net operating
loss (NOL) and research and development tax credit carryforwards for income
tax purposes of approximately $26.1 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. The sale of Common Stock in the
proposed offering is expected to result in an ownership change for federal
income tax purposes. The company estimates that the amount of NOL
carryforwards and the credits available to offset taxable income subsequent
to the proposed offering will be approximately $4.0 million per year on a
cumulative basis. Accordingly, if LifeCell generates taxable income in any
year in excess of its then cumulative limitation, the Company may be required
to pay federal income taxes even though it has unexpired NOL carryforwards.
On November 4, 1997, Integra and MIT filed a lawsuit against the Company
alleging that the use of AlloDerm infringes the Integra Patents. Although the
Company denies the allegations of patent infringement, there can be no assurance
as to the outcome of this matter or as to the effect, if any, that the outcome
may have on the Company's business, financial condition or results of
operations.
<PAGE> 12
Special Note Regarding 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.
<PAGE> 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
On November 4, 1997, Integra and MIT filed a lawsuit in the United States
District Court for the District of Massachusetts, alleging that the Company
infringes two patents licensed by MIT to Integra (the "Integra Patents"). The
lawsuit seeks injunctive relief, an accounting of revenues, enhanced monetary
damages and attorneys' fees. On November 14, 1997, LifeCell responded to the
complaint denying the infringement claims and asserting certain affirmative
defenses and counterclaims. The Company has received an opinion from its patent
counsel to the effect that the intended uses of AlloDerm do not infringe the
Integra Patents. This opinion represents only the reasoned professional judgment
of the Company's patent counsel and is not binding on any court or third party.
Patent litigation involves complex legal and factual questions. As a result, the
outcome of such litigation is inherently unpredictable, and there can be no
assurance that the result of this proceeding will be favorable to the Company or
that it will not have a material adverse effect on the Company's business,
operating results or financial condition. If it is determined that the Company
is infringing the Integra Patents, the court could issue an injunction
prohibiting the Company from making, using or selling its AlloDerm product for
some or all of its intended uses. Such injunction could also extend to the
Company's other potential products under development. In addition, the court
could assess significant damages and attorneys' fees against the Company, which
would have a material adverse effect on the Company's business, operating
results and financial condition and otherwise affect the ability of the Company
to continue as a viable enterprise. In addition, an adverse determination in
this proceeding could require the Company to seek licenses from Integra, which
may not be available on reasonable terms, if at all. Regardless of the outcome,
defending such claims could involve significant costs and diversion of
management resources, which could have a material adverse effect on the
Company's business, operating results or financial condition.
The Company from time to time may be subject to various claims in the ordinary
course of its operations. The Company maintains insurance coverage for events
and in amounts that it deems appropriate.
Item 2. Changes in Securities.
During the three months ended September 30, 1997, the Company issued a total
of 53,343 shares of Common Stock for an aggregate consideration of $199,001
to various stockholders of the Company pursuant to the exercise of certain
stock purchase warrants and employee stock options. 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 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
3.1 Restated Certificate of Incorporation, as amended.
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-2, Registration No. 333-37123,
filed with the Commission on October 3, 1997).
10.1 Agreement dated July 1, 1997, between LifeCell Corporation and
Paul M. Frison. (incorporated by reference to Exhibit 10.20 to
the Company's Registration Statement on Form S-2, Registration
No. 333-37123, filed with the Commission on October 3, 1997).
10.2 Agreement dated July 1, 1997, between LifeCell Corporation and
Stephen A. Livesey. (incorporated by reference to Exhibit 10.21
to the Company's Registration Statement on Form S-2,
Registration No. 333-37123, filed with the Commission on
October 3, 1997).
27.1* Financial Data Schedule
-----------
* Previously filed.
b. Reports on Form 8-K
None
<PAGE> 14
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: November 17, 1997 By: /s/ Paul M. Frison
-----------------------
Paul M. Frison
President and Chief
Executive Officer
Date: November 17, 1997 By: /s/ J. Donald Payne
----------------------
J. Donald Payne
Vice President, Chief
Financial Officer and
Secretary
