FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number: 01-19890
LIFECELL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0172936
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE MILLENNIUM WAY 08876
BRANCHBURG, NEW JERSEY (zip code)
(Address of principal executive office)
(908) 947-1100
(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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 25, 2000, there were outstanding 14,184,468 shares of common stock,
par value $.001, and 93,089 of Series B preferred stock, par value $.001 (which
are convertible into approximately an additional 3,002,120 shares of common
stock), of the registrant.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
---------------------
LIFECELL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,218,885 $ 4,736,877
Short-term investments 315,244 315,244
Accounts and other receivables, net 4,881,182 2,557,337
Inventories 3,843,257 3,202,271
Prepayments and other 296,451 159,664
--------------- -------------
Total current assets 10,555,019 10,971,393
Fixed assets, net 9,669,263 6,547,863
Other assets, net 663,789 564,175
--------------- -------------
Total assets $ 20,888,071 $ 18,083,431
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,057,214 $ 741,375
Accrued liabilities 3,007,204 4,896,090
Notes payable 2,827,049 2,792,459
Current maturities of long-term debt 467,173
--------------- -------------
Total current liabilities 9,358,640 8,429,924
Deferred revenue 896,152 405,126
Long term debt, net of current maturities 3,186,029
--------------- -------------
Total liabilities 13,440,821 8,835,050
--------------- -------------
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Series B preferred stock, $.001 par value, 182,205 shares authorized,
93,089 and 118,016 issued and outstanding, respectively 93 118
Undesignated preferred stock, $.001 par value, 1,817,795 shares
Authorized, none issued and outstanding
Common stock, $.001 par value, 48,000,000 shares authorized
14,183,468 and 12,899,643 shares issued and outstanding respectively 14,183 12,900
Warrants outstanding to purchase 3,086,367 and 3,466,399 shares of 862,349 887,812
common stock, respectively
Additional paid-in capital 64,560,959 62,725,551
Accumulated deficit (57,990,334) (54,378,000)
--------------- -------------
Total stockholders' equity 7,447,250 9,248,381
--------------- -------------
Total liabilities and stockholders' equity $ 20,888,071 $ 18,083,431
=============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Revenues:
Product sales $ 5,386,687 $2, 955,061 $ 9,825,170 $ 5,274,134
Research funded by others 475,532 289,988 853,465 576,752
------------ ------------ ------------ ------------
Total net revenues 5,862,219 3,245,049 10,678,635 5,850,886
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of goods sold 1,911,550 764,045 3,100,351 1,571,039
Research and development 1,299,205 879,054 2,518,232 1,941,122
General and administrative 1,627,480 998,010 2,843,465 2,305,154
Selling and marketing 3,013,316 1,583,879 5,290,902 3,227,519
Relocation costs 1,231,660 1,231,660
------------ ------------ ------------ ------------
Total costs and expenses 7,851,551 5,456,648 13,752,950 10,276,494
------------ ------------ ------------ ------------
Loss From Operations (1,989,332) (2,211,599) (3,074,315) (4,425,608)
Interest and other income (expense), net (159,727) 110,965 (230,806) 240,530
------------ ------------ ------------ ------------
Net Loss (2,149,059) (2,100,634) (3,305,121) (4,185,078)
Preferred Stock Dividends (145,077) (177,149) (307,213) (352,629)
------------ ------------ ------------ ------------
Net Loss Applicable to Common Stockholders $(2,294,136) $(2,277,783) $(3,612,334) $(4,537,707)
============ ============ ============ ============
Loss Per Common Share - Basic and Diluted $ (0.16) $ (0.19) $ (0.26) $ (0.39)
============ ============ ============ ============
Shares Used in Computing Loss Per
Common Share - Basic and Diluted 14,021,629 11,849,716 13,639,714 11,752,102
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
LIFECELL CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(3,305,121) $(4,185,078)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 551,397 191,368
Loss on asset disposals 334,874
Provision for bad debt 31,962
Accretion of debt discount 23,060
Change in assets and liabilities:
Increase in accounts and other receivables (2,355,808) (695,312)
Increase in inventories (640,986) (745,650)
Increase in prepayments and other (175,785) (31,803)
Increase in accounts payable and accrued liabilities 439,286 1,165,689
Increase in notes payable 34,590
Increase in deferred revenues 491,026
------------ ------------
Net cash used in operating activities (4,906,379) (3,965,912)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (3,669,712) (1,406,790)
Addition to patents (63,696) (53,801)
Sales of short-term investments 4,000,745
------------ ------------
Net cash provided by (used in) investing activities (3,733,408) 2,540,154
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of stock and warrants 1,811,200 1,285,982
Proceeds from issuance of notes payable 3,653,202
Cash dividends paid (342,607) (352,628)
------------ ------------
Net cash provided by financing activities 5,121,795 933,354
------------ ------------
Net Decrease in Cash and Cash Equivalents (3,517,992) (492,404)
Cash and Cash Equivalents at Beginning of Period 4,736,877 8,025,415
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,218,885 $ 7,533,011
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 309,952
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange 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 for the year
ended December 31, 1999.
The unaudited financial statements reflect all adjustments (consisting only
of normal recurring adjustments) considered necessary by management for a fair
presentation of financial position, results of operations and cash flows for the
periods presented. The financial results for interim periods are not
necessarily indicative of the results to be expected for the full year or future
interim periods.
2. INVENTORIES
Inventories consist of the following:
June 30, December 31,
2000 1999
------------- -------------
Raw materials . . . . . . . . . . . . . $ 1,535,001 $ 1,081,449
Work-in-process . . . . . . . . . . . . . 1,225,447 1,214,619
Finished goods . . . . . . . . . .. . . . 1,082,809 906,203
------------- -------------
Total inventories . . . . . . . . . . $ 3,843,257 $ 3,202,271
============= =============
3. DEFERRED REVENUE
In February 2000, the Company entered into a co-promotion agreement which
provides for the Company to receive a $600,000 payment for the licenses and
rights set forth in the agreement. The payment has been recorded as deferred
revenue and is being recognized over the five-year life of the agreement.
4. NOTES PAYABLE
In December 1999, the Company entered into a loan and security agreement
with a financial institution that provides for a revolving loan of $3 million
and a term loan of $2.5 million. In December 1999, the Company borrowed $3
million on the revolving loan, which is outstanding as of June 30, 2000. In
February 2000, the Company borrowed $2.5 million under the term loan. The term
loan bears an interest rate of 14.21%. Interest only is payable monthly
commencing April 1, 2000 and continuing through and including September 1, 2000.
Thereafter, the note is repayable in equal monthly installments of principal and
interest of $99,700, commencing October 1, 2000 and continuing through and
including March 1, 2003. This credit facility is secured by the Company's
accounts receivable, inventory, intellectual property, intangibles and fixed
assets and is guaranteed by the New Jersey Economic Development Authority.
5
<PAGE>
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
In June 2000, the Company entered into a term loan agreement with the New
Jersey Economic Development Authority to borrow $500,000. The loan bears an
interest rate of 6.5%. Interest only is payable monthly commencing on July 1,
2000 and continuing through and including December 1, 2000. Thereafter, the
note is repayable in equal monthly installments of principal and interest of
$18,100, commencing January 1, 2001 and continuing through and including June 1,
2003. The loan is secured by the Company's accounts receivable, inventory and
fixed assets.
In June 2000, the Company entered into a term loan agreement with a
financial institution to borrow $653,000. The loan bears an interest rate of 9%
and is repayable in ten equal annual installments of principal and interest of
$105,800 commencing August 1, 2001 and continuing through and including August
1, 2010. This loan is secured by payments which the Company is entitled to
receive through a New Jersey Business Employment Incentive Grant. Such payments
have been assigned to the lender and will be used to satisfy the Company's
obligations under the loan agreement as the are received.
5. DIVIDENDS ON SERIES B PREFERRED STOCK
The Series B Preferred Stock bears cumulative dividends, payable quarterly,
through November 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.
During the first quarter of 2000, the Company accrued dividends of $162,135
and paid cash dividends of $176,553 on the Series B Preferred Stock. During the
second quarter of 2000, the Company accrued dividends of $145,077 and paid cash
dividends of $166,054 on the Series B Preferred Stock.
6. COMMITMENTS AND CONTINGENCIES
Litigation
----------
On May 4, 2000, a Complaint was filed in the Superior Court of California,
San Bernardino County, Central District, captioned Ann Regner et. al., on behalf
of themselves and others similarly situated, v. Inland Eye & Tissue Bank of
Redlands, et al. The Complaint is styled as a class action on behalf of all
close family members of those deceased persons whose tissues were collected,
processed, stored or distributed in California. The defendants, 19 of whom are
named, are the class of all licensed tissue banks in California as well as other
companies, including LifeCell, which store, process, or distribute human tissue
as part of their business. The Complaint alleges that tissue banks routinely
fail to obtain proper informed consent from family members when soliciting the
donation of human tissue for transplant. The Complaint also alleges that the
defendants, including LifeCell, make profits from the storing, processing and
distribution of human tissue in contravention of California law. Plaintiffs'
application for a preliminary injunction seeking to enjoin the defendants,
including LifeCell, from doing business in California was denied in June 2000.
LifeCell does not believe the claims are meritorious, is vigorously defending
such action, and has filed a motion to dismiss the Complaint. LifeCell's
insurance carrier has agreed to defend all claims against the Company other than
punitive damages.
On June 7, 2000, a Complaint was filed in the United States District Court,
District of New Jersey, entitled Inamed Corporation, McGhan Medical Corporation
and Collagen Aesthetics, Inc. vs. LifeCell Corporation and Obagi Medical
Products Inc. The Complaint alleges that LifeCell and Obagi, its marketing
agent, have disseminated false advertisements with respect to the marketing of
LifeCell's Cymetra product that misleadingly compares it to and unlawfully
disparages the bovine collagen products of Inamed and its subsidiaries. The
plaintiffs are seeking injunctive relief to prohibit what they allege to be such
unlawful advertising, as well as unspecified damages. Plaintiffs' motion for a
preliminary injunction was recently granted by the court prohibiting use of the
current advertisements. The Court's order has not yet been entered, but the
Company intends to seek reconsideration, or appeal any such order.
6
<PAGE>
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Litigation is subject to many uncertainties and management is unable to
predict the outcome of the pending actions. It is possible that the results of
operations or liquidity and capital resources of the Company could be adversely
affected by the ultimate outcome of the pending litigation or as a result of the
costs of contesting such actions. We are unable to estimate the ultimate
potential liability, if any, that may result from the pending litigation and,
accordingly, no provision for any liability (except for accrued legal costs) has
been made in the financial statements.
7. LOSS PER COMMON SHARE
Loss per Common share has been computed by dividing net loss, increased by
stated dividends on Series B Preferred Stock, by the weighted average number of
shares of Common Stock outstanding during each period. In all periods, Common
Stock equivalents, including the Series B Preferred Stock, were antidilutive
and, accordingly, were not included in the computation.
8. YEAR 2000 STOCK OPTION PLAN
In June 2000, the stockholders of the Company approved the Year 2000 Stock
Option Plan (the "2000 Plan"). The 2000 Plan provides for grants of incentive
stock options and non-qualified stock options. An aggregate of 1,500,000 shares
of Common stock are authorized for issuance under the 2000 Plan, which amount is
subject to adjustment in the event of certain changes in the Company's
capitalization, a merger, or a similar transaction. Such shares may be treasury
shares or newly issued shares or a combination of both.
9. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
10. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). The bulletin draws on existing accounting rules and provides specific
guidance on how those accounting rules should be applied, and specifically
addresses revenue recognition for non-refundable technology access fees in the
biotechnology industry. SAB 101 is effective in the fourth quarter of fiscal
years beginning after December 15, 1999. The Company has evaluated SAB 101 and
believes that it will not have a material impact on its results of operations,
financial position or cash flows.
7
<PAGE>
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 included
in Part I. "Financial Information". Certain statements contained in this report
other than historical facts are "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. 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
from anticipated results. These factors include, but are not limited to, the
demand for the Company's products and services, development of expanded uses for
the Company's products, development of additional products and programs, the
Company's ability to satisfy regulatory requirements, economic and competitive
conditions, competitive products and technologies, uncertainty of patent
protection, the outcome of pending litigation, access to borrowed or equity
capital on favorable terms, and other risks detailed in the Company's Annual
Report of Form 10-K for the year ended December 31, 1999 and other reports filed
with the Securities and Exchange Commission.
GENERAL AND BACKGROUND
LifeCell Corporation is engaged in developing and marketing biologic
solutions for the repair, replacement and preservation of human tissue. Our
core preservation technology produces an acellular tissue matrix, which retains
the essential biochemical and structural components necessary for normal tissue
regeneration. We currently market three products based on this technology:
AlloDerm for the plastic reconstructive, burn and dental markets; Cymetra a
micronized version of AlloDerm for the plastic reconstructive and dermatology
markets; and Repliform for the urogynecology market. Our product development
programs include a small diameter vascular grafts as an alternative to
autografted blood vessels, orthopedic applications of our acellular tissue
matrix, and ThromboSolTM a formulation for extended storage of platelets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Total revenues for the three months ended June 30, 2000 increased 81% to
$5.9 million compared to $3.2 million for the same period in 1999. The increase
was primarily attributable to a 82% increase in product sales to $5.4 million in
the current period as compared to $3.0 million in the prior year. The increase
in product sales is largely due to the launch of Cymetra , our product for
non-surgical soft tissue repair, and continued growth for Repliform . During
June 2000 we initiated the full commercial launch of Cymetra through our
marketing alliance with Obagi Medical Products. As previously announced, we
initiated the full commercial launch of Repliform through our marketing partner
Boston Scientific Corporation in January of this year. Cymetra and Repliform
product sales contributed approximately $1.0 million and $1.4 million,
respectively, in the quarter. Total revenue was further impacted by a 64%
increase in funded research grant revenues which increased to $476,000 from
$290,000 during the same period in 1999. This increase is primarily due to an
increased level of funding available to the Company for research activities as
compared to the same period of 1999.
Cost of goods sold for the three months ended June 30, 2000 was $1.9
million resulting in a product gross margin of 65%, compared to cost of goods
sold of $764,000 and product gross margin of 74% for the same period of 1999.
The decrease in gross margin was principally attributable to increased costs
associated with the scale-up of Cymetra production in our New Jersey facility
in the quarter. The Company expects product gross margin to improve from the
current quarter level in the remaining quarters of 2000.
Total research and development expenses increased 48% to $1.3 million for
the three months ended June 30, 2000 compared to $879,000 for the same period of
1999. The increased expenses are due primarily to higher expenditures for
Cymetra product development and technology transfer to commercial production
and increased spending on orthopedic program research, which is funded through a
research grant.
8
<PAGE>
General and Administrative expenses increased 63% to $1.6 million for the
three months ended June 30, 2000 compared to $1.0 million for the same period of
1999. The increase was principally due to a combination of increased
professional fees and higher salary costs during the quarter relating to the
hiring of management personnel during the second half of 1999.
Selling and marketing expenses increased 90% to $3.0 million for the three
months ended June 30, 2000 compared to $1.6 million for the same period last
year. The increase was primarily attributable to the hiring of domestic sales
and marketing personnel during the second half of 1999, the expansion of
domestic marketing activities and the agency fees associated with the sales and
marketing agreements with Boston Scientific and Obagi Medical.
Interest and other income (expense), net decreased $271,000 for the three
months ended June 30, 2000 compared to same period of 1999. The decrease was
due to a combination of a decline in cash available for investment and interest
costs associated with an increase in revolving and long-term debt financing.
The net loss for the three months ended June 30, 2000 of $2.1 million was
approximately equal to the net loss for the same period of 1999. The second
quarter loss in the prior year included a $1.2 million non-recurring charge
associated with the Company's relocation to New Jersey, which was completed in
June of this year
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Total revenues for the six months ended June 30, 2000 increased 82% to
$10.7 million compared to $5.9 million for the same period of 1999. The
increase was primarily attributable to a 86% increase in product sales to
approximately $9.8 million in the current period as compared to $5.3 million in
the prior year. The increase in product sales is largely due to the launch of
two new products, Repliform and Cymetra . As previously discussed above, we
initiated the full commercial launch of Repliform in January of this year and
the full commercial launch of Cymetra in June. Repliform and Cymetra product
sales contributed approximately $2.5 million and $1.2 million, respectively, in
the first six months of 2000. Total revenue was further impacted by a 48%
increase in funded research grant revenues of $853,000 from $577,000 in the same
period in 1999. This increase is primarily due to an increased level of funding
available to the Company for research activities as compared to the same period
of 1999.
Cost of goods sold for the six months ended June 30, 2000 was $3.1 million
resulting in a product gross margin of 68%, compared to cost of goods sold of
$1.6 million and product gross margin of 70% for the same period of 1999. The
decrease in gross margin was principally attributable to increased costs
incurred in the second quarter of this year associated with the scale-up of
Cymetra production in our New Jersey facility.
Total research and development expenses increased 30% to $2.5 million for
the six months ended June 30, 2000 compared to $1.9 million for the same period
of 1999. The increased expenses are due primarily to higher expenditures for
Cymetra product development and technology transfer to commercial production
and increased spending on orthopedic program research, which is funded through a
research grant.
General and Administrative expenses increased 23% to $2.8 million for the
six months ended June 30, 2000 compared to $2.3 million for the same period of
1999. The increase was principally due to a combination of increased
professional fees and higher salary costs relating to the hiring of management
personnel during the second half of 1999.
Selling and marketing expenses increased 64% to $5.3 million for the six
months ended June 30, 2000 compared to $3.2 million for the same period last
year. The increase was primarily attributable to the hiring of domestic sales
and marketing personnel during the second half of 1999, the expansion of
domestic marketing activities, including the commercial launch of two new
products, and the agency fees associated with the sales and marketing agreements
with Boston Scientific and Obagi Medical.
9
<PAGE>
Interest and other income (expense), net decreased $471,000 for the six
months ended June 30, 2000 compared to same period of 1999. The decrease was
due to a combination of a decline in cash available for investment and interest
costs associated with an increase in revolving and long-term debt financing.
The net loss for the six months ended June 30, 2000 decreased 21% to $3.3
million compared to $4.2 million for the same period in 1999. The net loss in
the prior year included a $1.2 million non-recurring charge associated with the
Company's relocation to New Jersey, which was completed in June of this year
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash and cash equivalents and
short-term investments of approximately $1.5 million compared to $5.1 million at
December 31, 1999. The decrease resulted principally from cash required to fund
the operating loss for the six months ended June 30, 2000, an increase in
accounts receivable and inventories and capital expenditures partly offset by
cash provided by debt financing and stock option and warrant exercises. Working
capital decreased to $1.2 million at June 30, 2000 from $2.5 million at December
31, 1999. The decrease resulted principally from the decrease in cash and
increases in accounts receivable, inventories, accounts payable and accrued
expenses and current maturities of long-term debt.
The Company's operating activities used cash of $4.9 million for the
six-month period ended June 30, 2000 to fund its operating loss and increases in
inventories and accounts receivable for the period. The increase in inventories
and accounts receivable are primarily associated with the launch of Cymetra
during June 2000. Additionally, accounts receivable includes a one-time payment
of $600,000 due from one of the Company's co-marketing partners.
For the six months ended June 30, 2000, the Company's investing activities
used cash of approximately $3.7 million for the purchase of capital equipment
and leasehold improvements relating to the completion of the New Jersey
facility.
The Company's financing activities provided $5.1 million for the six month
period ended June 30, 2000, primarily from the long-term debt proceeds of $3.7
million and $1.8 million in proceeds from the exercise of stock options and
warrants, partially offset by dividends paid. At June 30, 2000 the Company had
an aggregate of approximately $6.6 million outstanding under its borrowing
arrangements, which includes $3.0 outstanding under a revolving loan facility.
The term loans require aggregate principal payments over the next 12 months of
approximately $467,000. The Company currently has no additional borrowing
availability through its existing credit facilities.
LifeCell expects to incur substantial expenses in connection with its
efforts to expand sales and marketing of its current products, develop expanded
uses for such products, continue the Company's product development programs
(including costs of clinical studies), prepare and make any required regulatory
filings, introduce products 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 existing cash
reserves together with anticipated cash flows from product sales and research
funded by others will be sufficient to meet its present operating requirements,
there can be no assurance that such sources of funds will be sufficient to fund
its future expenses associated with product development programs. From time to
time the Company may seek additional funding through equity or debt financing.
However, there can be no assurance that the Company will be able to obtain any
such additional financing on acceptable terms, if at all. If adequate funds are
not available, the Company may 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 as well as the extent to which the Company
may decide to expand its product development efforts.
It is possible that our results of operations or liquidity and capital
resources could be adversely affected by the ultimate outcome of pending
litigation or as a result of the cost of contesting such legal actions. For a
discussion of these matters see Note 6 of "Notes to Financial Statements" and
Part II., Item 1"Legal Proceedings".
10
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------------
None.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
------------------
On May 4, 2000, a Complaint was filed in the Superior Court of California,
San Bernardino County, Central District, captioned Ann Regner et. al., on behalf
of themselves and others similarly situated, v. Inland Eye & Tissue Bank of
Redlands, et al. The Complaint is styled as a class action on behalf of all
close family members of those deceased persons whose tissues were collected,
processed, stored or distributed in California. The defendants, 19 of whom are
named, are the class of all licensed tissue banks in California as well as other
companies, including LifeCell, which store, process, or distribute human tissue
as part of their business. The Complaint alleges that tissue banks routinely
fail to obtain proper informed consent from family members when soliciting the
donation of human tissue for transplant. The Complaint also alleges that the
defendants, including LifeCell, make profits from the storing, processing and
distribution of human tissue in contravention of California law. Plaintiffs'
application for a preliminary injunction seeking to enjoin the defendants,
including LifeCell, from doing business in California was recently denied.
LifeCell does not believe the claims are meritorious, is vigorously defending
such action, and has filed a motion to dismiss the Complaint. LifeCell's
insurance carrier has agreed to defend all claims against the Company other than
punitive damages.
On June 7, 2000, a Complaint was filed in the United States District Court,
District of New Jersey, entitled Inamed Corporation, McGhan Medical Corporation
and Collagen Aesthetics, Inc. vs. LifeCell Corporation and Obagi Medical
Products Inc. The Complaint alleges that LifeCell and Obagi, its marketing
agent, have disseminated false advertisements with respect to the marketing of
LifeCell's Cymetra product that misleadingly compares it to and unlawfully
disparages the bovine collagen products of Inamed and its subsidiaries. The
plaintiffs are seeking injunctive relief to prohibit what they allege to be such
unlawful advertising, as well as unspecified damages. A hearing on plaintiffs'
motion for a preliminary injunction was recently held and the motion is under
consideration. Plaintiffs' motion for a preliminary injunction was recently
granted by the court prohibiting use of the current advertisements. The Court's
order has not yet been entered, but the Company intends to seek reconsideration,
or appeal any such order.
Item 4. Submission of Matters to A Vote of Security Holders.
------------------------------------------------------------
An Annual Meeting of Stockholders was held on June 2, 2000. The directors
elected at the annual meeting were: Paul G. Thomas, Stephen A. Livesey, M.D.,
Ph.D., Michael E. Cahr, Peter D. Costantino, M.D.,FACS, James G. Foster, David
A. Thompson and K. Flynn McDonald. All directors of the Company hold office
until the next annual meeting of stockholders or until their respective
successors are duly elected and qualified or their earlier resignation or
removal.
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The matters voted upon at the Annual Meeting and the results of the voting
are set forth below:
(i) With respect to the election of Directors by the holders of Common
Stock and Series B Preferred Stock, voting together as a class, the
persons named below received the following number of votes:
Name Votes For Votes Withheld
---- ---------- --------------
Paul G. Thomas 14,293,599 163,434
Stephen A. Livesey, M.D., Ph.D. 14,293,403 163,630
Michael E. Cahr 14,293,644 163,389
Peter D, Costantino, M.D., FACS 14,228,876 228,157
James G. Foster 14,293,644 163,589
David A. Thompson 14,293,644 163,389
The additional individual listed below was elected directors by the holders
of Series B Preferred Stock, voting as a separate class. Set forth opposite
the director's name is the tabulation of votes cast.
Name Votes For Votes Withheld
---- --------- ---------------
K. Flynn McDonald 96,125 -
(ii) With respect to a proposal to approve the adoption of the LifeCell
Corporation Year 2000 Stock Option Plan, the votes cast by the
holders of Common Stock and Series B Preferred Stock voting
together as a class were; 7,111,952 voted in favor, 938,511 voted
against, and 57,554 votes abstained from voting on the proposal.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------------
a. EXHIBITS
10.1 LifeCell Corporation Year 2000 Stock Option Plan
10.2 Loan Agreement dated May 31, 2000 between LifeCell
Corporation and Public Service Millennium Economic
Development Fund L.L.C.
10.3 Loan Agreement dated June 9, 2000 between LifeCell
Corporation and The New Jersey Economic Development
Authority
27.1 Financial Data Schedule
b. REPORTS ON FORM 8-K
On July 7, 2000, the Company filed with the Commission a current
report on Form 8-K to report that a class action Complaint was filed in Superior
Court of California, San Bernardino County, captioned Ann Regner et. al. on
-----------------------
behalf of themselves and others similarly situated, vs. Inland Eye & Tissue
--------------------------------------------------------------------------------
Bank of Redlands, et. al. in which the Company is a named defendant.
-----------------------------
Additionally, the Company reported that a complaint was filed in
the United States District Court, District of New Jersey entitled Inamed
------
Corporation, McGahn Medical Corporation and Collagen Aesthetics, Inc. vs.
--------------------------------------------------------------------------------
LifeCell Corporation and Obagi Medical Products, Inc.
-----------------------------------------------------------
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIFECELL CORPORATION
Date: July 28, 2000 By: /s/ Paul G. Thomas
-----------------------
Paul G. Thomas
President and Chief
Executive Officer
Date: July 28, 2000 By: /s/ Steven T. Sobieski
---------------------------
Steven T. Sobieski
Vice President, Finance, Chief
Financial Officer and Secretary
(Principal Financial Officer)
Date: July 28, 2000 By: /s/ David B. Platt
-----------------------
David B. Platt
Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
10.1 Lifecell Corporation Year 2000 Stock Option Plan
10.2 Loan Agreement dated May 31, 2999 between Lifecell Corporation
Public Service Millennium Economic Development Fund L.L.C.
10.3 Loan Agreement dated May 31, 2999 between Lifecell Corporation
And the New Jersey Economic Development Authority
27.1 Financial Data Schedule.
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