<PAGE> 1
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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-19890
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 April 30, 1998, there were outstanding 11,159,303 shares of Common
Stock, par value $.001, and 120,922 of Series B Preferred Stock, par value
$.001 (which are convertible into approximately an additional 3,900,709 shares
of Common Stock), of the registrant.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LIFECELL CORPORATION
BALANCE SHEETS
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
A S S E T S
CURRENT ASSETS
Cash and cash equivalents $ 14,432,737 $ 20,781,026
Short-term investments 4,001,627 -
Accounts and other receivables, net 1,355,747 1,095,904
Inventories 942,002 936,398
Prepayments and other 58,965 98,226
------------- -------------
Total current assets 20,791,078 22,911,554
FURNITURE AND EQUIPMENT, net 970,698 864,058
INTANGIBLE ASSETS, net 237,759 379,986
------------- -------------
$ 21,999,535 $ 24,155,598
============= =============
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Accounts payable $ 658,454 $ 780,393
Accrued liabilities 1,522,703 1,556,083
Deferred revenues 40,650 59,519
------------- -------------
Total current liabilities 2,221,807 2,395,995
DEFERRED CREDIT 1,500,000 1,500,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series B preferred stock, $.001 par value,
182,205 shares authorized, 121,299 and
125,441 issued and outstanding,
respectively 121 125
Undesignated preferred stock, $.001 par value,
1,817,795 shares authorized, none issued
and outstanding - -
Common stock, $.001 par value, 25,000,000
shares authorized, 11,147,143 and
11,012,906 shares issued and outstanding,
respectively 11,147 11,013
Warrants outstanding to purchase 3,143,478 and
3,163,478 shares of Common Stock,
respectively 299,480 299,480
Additional paid-in capital 56,360,714 56,360,465
Accumulated deficit (38,393,734) (36,411,480)
------------- -------------
Total stockholders' equity 18,277,728 20,259,603
------------- -------------
Total liabilities and stockholders'
equity $ 21,999,535 $ 24,155,598
============= =============
The accompanying notes are an integral part of these financial statements.
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LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
------------------------------
1998 1997
------------- -------------
REVENUES
Product sales $ 1,815,114 $ 820,969
Research funded by others 142,350 289,676
------------- -------------
Total revenues 1,957,464 1,110,645
------------- -------------
COSTS AND EXPENSES
Cost of goods sold 842,281 489,638
Research and development 745,900 568,105
General and administrative 1,010,566 797,371
Selling and marketing 1,415,946 1,035,905
------------- -------------
Total costs and expenses 4,014,693 2,891,019
------------- -------------
LOSS FROM OPERATIONS (2,057,229) (1,780,374)
------------- -------------
Interest income and other, net 254,840 130,738
------------- -------------
NET LOSS $ (1,802,389) $ (1,649,636)
============= =============
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.18) $ (0.41)
============= =============
SHARES USED IN COMPUTING
LOSS PER COMMON SHARE - BASIC AND DILUTED 11,139,095 5,062,164
============= =============
The accompanying notes are an integral part of these financial statements.
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LIFECELL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
------------------------------
1998 1997
------------- -------------
REVENUES
Product sales $ 1,815,114 $ 820,969
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,802,389) $ (1,649,636)
Adjustments to reconcile net loss to
net cash used in operating activities-
Depreciation and amortization 72,885 44,395
Change in assets and liabilities-
(Increase) decrease in accounts and
other receivables (259,843) (212,999)
(Increase) decrease in inventories (5,604) 122,743
(Increase) decrease in prepayments
and other 216,785 (82,908)
Increase (decrease) in accounts
payable and accrued liabilities (155,320) 411,440
Increase (decrease) in deferred
revenues and deferred credit (18,870) (102,284)
------------- -------------
Total adjustments (149,967) 180,387
------------- -------------
Net cash used in operating activities (1,952,356) (1,469,249)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (176,182) (248,455)
Intangible assets (38,640) (16,090)
Short-term investments (4,001,627) -
------------- -------------
Net cash used in investing activities (4,216,449) (264,545)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
warrants 381 135,305
Proceeds from issuance of notes payable - 65,369
Dividends paid (179,865) (68,293)
Payments of notes payable - (14,053)
------------- -------------
Net cash provided (used) by
financing activities (179,484) 118,328
------------- -------------
Net Decrease in Cash and Cash Equivalents (6,348,289) (1,615,466)
Cash and Cash Equivalents at Beginning of
Period 20,781,026 10,748,250
------------- -------------
Cash and Cash Equivalents at End of Period $ 14,432,737 $ 9,132,784
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ - $ 434
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
a bioengineering 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, AlloDermr acellular dermal graft,
during 1994. 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 Annual
Report on Form 10-K/A for the year ended December 31, 1997.
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. Inventories
Inventories consist of products in various stages produced for sale and
include the costs of raw materials, labor and overhead. A summary of
inventories is as follows:
March 31, December 31,
1998 1997
------------- -------------
Raw materials used in production $ 489,337 $ 428,406
Work-in-process 237,435 228,071
Finished goods 215,230 279,921
------------- -------------
Total inventories $ 942,002 $ 936,398
============= =============
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 annual rate of $6.00 per share. 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.
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.
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During the first quarter of 1998, the Company accrued dividends on the Series
B Preferred Stock of $179,865, payable in cash. Such dividend is payable on
May 15, 1998.
5. Loss Per Share
Loss per Common share has been computed by dividing net loss, which has been
increased for imputed and stated dividends on outstanding Preferred Stock, by
the weighted average number of shares of Common Stock outstanding during each
period. In all applicable years, all Common Stock equivalents, including the
Series B Preferred Stock, were antidilutive and, accordingly, were not
included in the computation.
During 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," and all prior periods have been retroactively
adjusted to conform to this statement. The implementation of Statement 128
had no effect on the Company's presentation of earnings per share due to the
antidilutive nature of all of the Company's Common Stock equivalents.
Basic loss per Common share was calculated as follows:
Three Months Ended March 31,
------------------------------
1998 1997
------------- -------------
Net Loss $ (1,802,389) $ (1,649,636)
Less: Preferred dividends (179,865) (408,342)
------------- -------------
Net Loss available to common
stockholders-basic $ (1,982,254) $ (2,057,978)
============= =============
Weighted average shares outstanding-
basic 11,139,095 5,062,164
============= =============
Loss per Common Share-basic $ (0.18) $ (0.41)
============= =============
Diluted loss per Common share is the same as basic loss per share due to the
antidilutive nature of all of the Company's Common Stock equivalents.
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.
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.
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."
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General and Background
LifeCell is a bioengineering 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's development programs include
Micronized AlloDermT, heart valves, vascular grafts, nerve connective tissue
and ThromboSolT platelet storage solution.
Since inception, LifeCell 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 March 31, 1998 and 1997
The net loss for the three months ended March 31, 1998, increased 9% to
approximately $1.8 million compared to approximately $1.6 million for the same
period of 1997. The increase was principally attributable to higher costs
associated with the Company's increased marketing activities for its AlloDerm
products, increased investment in the Company's product development programs as
well as increased expenditures for the infrastructure to support these
activities. The increased investment in these activities was partially offset
by a rise in product sales as discussed further below.
Total revenues for the three months ended March 31, 1998, increased 76% to
approximately $2.0 million compared to approximately $1.1 million for the same
period of 1997. Approximately $994,000 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 1998
period. This increase was offset in part by a $147,000 decrease in revenues
from funded research and development. The research and development funding
available to the Company through grants and alliances was lower during the
three months ended March 31, 1998 as compared to the same period of 1997.
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, 1998 was approximately
$842,000 resulting in a gross margin of approximately 54%. The gross margin
for the same period of 1997 was approximately 40%. 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 1998, as well as an increase in sales of certain higher margin
AlloDerm products and the price of certain AlloDerm products.
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Research and development expenses for the three months ended March 31, 1998,
increased 31% to approximately $746,000 compared to approximately $568,000 for
the comparable period in 1997. The increase in research and development
expense was primarily attributable to the increased animal and clinical studies
for the expanding uses of AlloDerm. In addition, increased resources have been
dedicated to proprietary research projects such as Micronized AlloDermT
(AlloDerm reduced to the size necessary for needle injection).
General and administrative expenses during the three months ended March 31,
1998, increased 27% to approximately $1.0 million compared to approximately
$797,000 for the same period of 1997. The increase was principally
attributable to the reduction in value of certain of its intangible assets as
well as the costs associated with retaining a financial advisor for its
business development activities.
Selling and marketing expenses increased 37% to approximately $1.4 million
during the three months ended March 31, 1998 compared to approximately $1.0
million for the same period of 1997. 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 95% to approximately $255,000 during
the three months ended March 31, 1998 compared to approximately $131,000 for
the same period of 1997. The increase was principally attributable to higher
funds available for investment during the current period as a result of the
approximately $16.0 net proceeds received from the December 1997, public
offering of shares of Common Stock.
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 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. The Company currently intends to
fund these activities from its existing cash resources, sales of products, and
research and development funding received from others. While the Company
believes that its existing available funds will be sufficient to meet its
present operating and capital requirements through at least 1999, 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, 1997, LifeCell had net operating
loss (NOL) and research and development tax credit carryforwards for income
tax purposes of approximately $32.1 million and $395,000, 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
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its NOL and tax credit carryforwards. The sale of Common Stock in a
public offering in December 1997 resulted 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 offering
will be approximately $2.6 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.
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/A for the year ended
December 31, 1997.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
During April 1998, the Company entered into an agreement settling its pending
litigation with Integra LifeSciences Corporation and its affiliate ("Integra")
and the Massachusetts Institute of Technology ("MIT"). During November 1997,
Integra and MIT had alleged that the Company infringed two patents licensed by
MIT to Integra (the "Integra Patents"). During December 1997, the Company
filed a separate lawsuit against Integra and MIT alleging that they tortiously
interfered with certain of LifeCell's business relationships, including
relationships with investors and potential investors in LifeCell's recent
public offering. The lawsuit also alleged anticompetitive acts and business
disparagement. Under the terms of the settlement agreement, Integra and MIT
agreed not to assert the Integra Patents against current or future products
produced using LifeCell's current technology. LifeCell also obtained the
right to develop and commercialize future products using Integra's technology
through a license to certain of Integra's patents. As an additional condition
of the settlement, Integra agreed to purchase from LifeCell $500,000 in shares
of Common Stock following determination of the per-share purchase price in
accordance with the settlement agreement. LifeCell expects that the
settlement with Integra will have no material effect on the financial
condition or results of operations of the Company.
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.
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Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K
None
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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 12, 1998 By: /s/ Paul M. Frison
------------------
Paul M. Frison
President and Chief
Executive Officer
Date: May 12, 1998 By: /s/ J. Donald Payne
-------------------
J. Donald Payne
Vice President, Chief
Financial Officer and
Secretary
Date: May 12, 1998 By: /s/ Lynne P. Hohlfeld
---------------------
Lynne P. Hohlfeld
Controller, Principal
Accounting Officer
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Exhibit Index
27.1 Financial Data Schedule
Page 12
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