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 September 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 October 31, 2000, there were outstanding 16,704,368 shares of common
stock, par value $.001, and 94,526 shares of Series B preferred stock, par value
$.001 (which are convertible into approximately an additional 3,049,409 shares
of common stock), of the registrant.
1
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
---------------------
<TABLE>
<CAPTION>
LIFECELL CORPORATION
BALANCE SHEETS
(unaudited)
September 30, December 31,
2000 1999
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ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 802,000 $ 4,737,000
Short-term investments 315,000 315,000
Accounts and other receivables, net 4,843,000 2,557,000
Inventories 4,462,000 3,202,000
Prepayments and other 314,000 160,000
------------- -------------
Total current assets 10,736,000 10,971,000
Fixed assets, net 10,208,000 6,548,000
Other assets, net 685,000 564,000
------------- -------------
Total assets $21,629,000 $18,083,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,914,000 $ 741,000
Accrued liabilities 3,434,000 4,896,000
Notes payable 2,844,000 2,792,000
Current maturities of long-term debt 1,005,000 -
------------- -------------
Total current liabilities 12,197,000 8,429,000
Deferred revenue 836,000 405,000
Long term debt, net of current maturities 2,648,000 -
Other long term liabilities 62,000 -
------------- -------------
Total liabilities 15,743,000 8,834,000
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Commitments and Contingencies (Note 6)
Stockholders' Equity:
Series B preferred stock, $.001 par value, 182,205 shares authorized,
94,526 and 118,016 issued and outstanding, respectively
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,
14,204,368 and 12,899,643 shares issued and outstanding, respectively 14,000 13,000
Warrants outstanding to purchase 3,118,736 and 3,466,399 shares of
common stock, respectively 862,000 888,000
Additional paid-in capital 64,791,000 62,726,000
Accumulated deficit (59,781,000) (54,378,000)
------------- -------------
Total stockholders' equity 5,886,000 9,249,000
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Total liabilities and stockholders' equity $ 21,629,000 $ 18,083,000
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</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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<TABLE>
<CAPTION>
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Revenues:
Product revenues $ 5,919,000 $ 3,220,000 $15,744,000 $ 8,494,000
Research grant revenues 316,000 126,000 1,169,000 702,000
------------ ------------ ------------ ------------
Total net revenues 6,235,000 3,346,000 16,913,000 9,196,000
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of goods sold 1,693,000 886,000 4,793,000 2,457,000
Research and development 901,000 857,000 3,419,000 2,798,000
General and administrative 1,673,000 1,059,000 4,516,000 3,364,000
Selling and marketing 3,411,000 1,614,000 8,702,000 4,841,000
Relocation costs - 528,000 - 1,760,000
------------ ------------ ------------ ------------
Total costs and expenses 7,678,000 4,944,000 21,430,000 15,220,000
------------ ------------ ------------ ------------
Loss From Operations (1,443,000) (1,598,000) (4,517,000) (6,024,000)
Interest and other income (expense), net (206,000) 77,000 (437,000) 318,000
------------ ------------ ------------ ------------
Net Loss (1,649,000) (1,521,000) (4,954,000) (5,706,000)
Preferred Stock Dividends (142,000) (178,000) (449,000) (531,000)
------------ ------------ ------------ ------------
Net Loss Applicable to Common Stockholders $(1,791,000) $(1,699,000) $(5,403,000) $(6,237,000)
============ ============ ============ ============
Loss Per Common Share - Basic and Diluted $ (0.13) $ (0.14) $ (0.39) $ (0.53)
============ ============ ============ ============
Shares Used in Computing Loss Per
Common Share - Basic and Diluted 14,192,000 11,886,000 13,825,000 11,797,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
<TABLE>
<CAPTION>
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Nine months ended
September 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(4,954,000) $(5,706,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 765,000 295,000
Loss on asset disposals - 335,000
Provision for bad debt 25,000 -
Accretion of debt discount 52,000 -
Change in assets and liabilities:
Increase in accounts and other receivables (2,311,000) (849,000)
Increase in inventories (1,260,000) (1,072,000)
Increase in prepayments and other (205,000) (119,000)
Increase in accounts payable
and accrued liabilities 2,751,000 293,000
Increase in deferred revenues 431,000 430,000
Increase in other liabilities 62,000 -
------------ ------------
Net cash used in operating activities (4,644,000) (6,393,000)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (4,420,000) (1,735,000)
Addition to patents (75,000) (76,000)
Sales of short-term investments - 4,001,000
(Purchases) sales of long-term investments - (309,000)
------------ ------------
Net cash provided by (used in)
investing activities (4,495,000) 1,881,000
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of stock and warrants 1,896,000 942,000
Proceeds from issuance of notes payable 3,653,000 -
Cash dividends paid (345,000) (353,000)
------------ ------------
Net cash provided by financing activities 5,204,000 589,000
------------ ------------
Net Decrease in Cash and Cash Equivalents (3,935,000) (3,923,000)
Cash and Cash Equivalents at Beginning of Period 4,737,000 8,025,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 802,000 $ 4,102,000
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 461,000 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<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 note 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 and notes thereto 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:
September 30, December 31,
2000 1999
-------------- -------------
Raw materials . . . . . . . . . . . . . . . . . . $ 1,329,000 $ 1,081,000
Work-in-process . . . . . . . . . . . . . . . . . 1,835,000 1,215,000
Finished goods. . . . . . . . . . . . . . . . . . 1,298,000 906,000
-------------- -------------
Total inventories . . . . . . . . . . . . . . . . $ 4,462,000 $ 3,202,000
============== =============
3. Deferred Revenue
In February 2000, the Company entered into a co-promotion agreement with Obagi
Medical Products, Inc. relating to the marketing and distribution of the
Company's Cymetra(TM) product. Pursuant to the terms of the agreement, Obagi
Medical Products Inc. agreed to make a $600,000 payment in exchange for product
marketing rights. The payment, which was received in September 2000, has been
recorded as deferred revenue and is being recognized over the five-year term 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 and in February 2000, the Company borrowed $2.5 million under
the term loan. The revolving loan requires monthly interest payments based on
an annual interest rate of prime rate plus 3% which approximated 12.5% during
the third quarter of 2000. The term loan bears interest at an annual rate of
14.2%. Interest only is payable monthly through and including September 1,
2000. Thereafter, the term loan 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
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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 loan is
repayable in equal monthly installments of principal and interest of $18,100,
commencing January 1, 2001 and continuing through and including September 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 that 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 they 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 on the Series B
Preferred Stock of $162,000 which were paid in cash on May 15, 2000. During the
second quarter of 2000, the Company accrued dividends on the Series B Preferred
Stock of $145,000. Such dividends were paid through the issuance of 1,437
shares of Series B Preferred Stock and $2,000 in cash in lieu of fractional
shares. During the third quarter of 2000, the Company accrued dividends on
Series B Preferred Stock of $142,000. Such dividends are payable on November
15, 2000.
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 was brought 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 complaint alleged 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 alleged that the defendants, including the Company, 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 the Company, from doing business in
California was denied in June 2000. In that month, a new complaint, with
substantially similar allegations about profiting from the storing, processing
and distribution of human tissue, but without the class action allegations was
filed in Los Angeles County. The plaintiff seeks injunctive relief,
disgorgement of illegal profits, restitution, statutory penalties, fines and
attorney's fees. LifeCell has not yet been served with the new complaint. The
Company believes that the claims against it in the new complaint are without
merit and intends to vigorously defend against such action.
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 alleged that the Company and Obagi, its marketing
agent, disseminated false advertisements with respect to the marketing of the
Company's Cymetra product that misleadingly compared it to and unlawfully
disparaged the bovine collagen products of Inamed Corporation and its
subsidiaries. On September 25, 2000, the Company entered into a settlement
agreement with Inamed Corporation. Under the settlement agreement, the Company
and Obagi agreed to discontinue certain comparative marketing and promotion
statements on the use of Cymetra for the reconstruction of soft tissue deficits.
The Company and Obagi also agreed to jointly make settlement payments to Inamed
Corporation totaling $300,000 over an eighteen-month period. The Company
recorded a charge of $150,000 in the third quarter of 2000, representing its
share of the settlement. The settlement allows the Company and Obagi to revise
the marketing and promotional statements for Cymetra commencing in January 2001,
as additional scientific data on the use of Cymetra is accumulated.
6
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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 the settlement with
Inamed Corporation and 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. Relocation Costs
In June 1999, the Company commenced relocation of its operations from Texas to
New Jersey and at June 30, 1999, had approximately 18 employees operating from
temporary offices in New Jersey. The original target completion date for the
relocation was December 31, 1999. All administrative functions including
accounting, customer service, information services, regulatory, marketing and
research and development functions were moved to New Jersey prior to December
31, 1999. The Company commenced processing operations in New Jersey during the
first quarter of 2000. A small manufacturing and quality assurance / control
group remained in Texas through June 2000.
Relocation costs charged to operations for the year ended December 31, 1999,
included the cost of non-relocating employee benefits, asset abandonment and
lease termination costs related to the Company's Texas facility, as well as the
cost of relocating key employees to New Jersey. In order to induce
non-relocating employees to continue their employment during the relocation
process, employees were offered a retention bonus, which was only payable, if
they stayed with the Company until various targeted dates during 1999. If the
employee resigned prior to such date, they forfeited their retention bonus.
Such bonus payments were expensed at the time that they were paid. During the
fourth quarter of 1999, because all remaining employees had continued employment
through their targeted termination date, the continuing employment condition was
waived and the Company recorded a bonus accrual of approximately $174,000 due to
these employees as of December 31, 1999. Such amounts were paid out in 2000.
Additional retention bonuses of approximately $60,000 paid in 2000 were expensed
when incurred. In June 1999, the Company recorded a charge of approximately
$335,000 representing the net book value of assets that were abandoned in the
second quarter of 1999 when the Company vacated its administrative offices
located in Texas. The Company occupied rented office and manufacturing space in
Texas pursuant to a lease that extended through January 2001. During the fourth
quarter of 1999, the Company recorded a charge of approximately $617,000
representing rent and other facility related expenses related to the termination
of the Texas lease. No charge was recorded prior to the fourth quarter of 1999,
because the Company had not committed to a specific course of action for exiting
the lease of the Texas facility and accordingly, such costs were not
quantifiable. The costs of relocating key employees to New Jersey were
approximately $1.4 million in 1999 and consisted of home sale and purchase
assistance, moving expense, travel and temporary housing. The Company also
incurred approximately $78,000 of non-employee related moving costs.
7
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At December 31, 1999, accrued relocation costs were approximately $1.1 million
consisting of approximately $617,000 for lease termination costs, approximately
$288,000 for home sale assistance and moving costs and approximately $174,000
for retention payments payable to non-relocating employees. At September 30,
2000, approximately $170,000 of accrued relocation costs remained related to the
rent and other facility costs to be incurred through January 2001.
During the nine months ended September 30, 1999, the Company incurred
approximately $1.8 million of relocation costs consisting principally of
$345,000 of non-relocating employee benefits, $335,000 of asset abandonment
costs related to the Company's Texas facility, and $1.1 million of relocating
key employees to New Jersey. During the nine months ended September 30, 2000,
the Company incurred approximately $60,000 of additional retention bonus and
$80,000 of additional relocation costs, which were included in cost of goods
sold and general and administrative expenses, respectively.
10. Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
11. 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.
12. Subsequent Event
On October 31, 2000, the Company completed a private placement of 2,500,000
shares of its common stock with selected accredited investors at a price of
$4.00 per share. The net proceeds of the private placement were approximately
$9.1 million after deducting placement agent fees and offering costs. In
connection with the private placement, the Company issued warrants to the
placement agents to acquire 250,000 shares of the its common stock. The
warrants are exercisable at an exercise price of $5.00 per share and expire on
the fifth anniversary of the date of grant.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
---------------
The following discussion of our operations and financial condition 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. Forward-looking statements typically
are identified by use of terms such as "may," "will," "should," "plan,"
"expect," "anticipate," "estimate" and similar words, although some
forward-looking statements are expressed differently. While these statements
reflect our beliefs as of the date of this report, and are based on assumptions
that we believe are reasonable, 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: we have a history of operating losses
and we may continue to incur losses; we may need additional capital to market
our current products and to develop and commercialize new products and it is
uncertain whether such capital will be available; if the FDA imposes medical
device or other regulations that affect our products, the costs of developing,
manufacturing and marketing our products will be increased; we are highly
dependent upon our independent agents to generate our revenues; and other risks
detailed in our Annual Report of Form 10-K for the year ended December 31, 1999
and other recent registration statements and reports filed with the Securities
and Exchange Commission.
General and Background
We develop and market biologic solutions for the repair, replacement and
preservation of human tissue. Our core technology removes all cells from the
tissue and preserves the tissue without damaging the essential biochemical and
structural components necessary for normal tissue regeneration. We currently
market three products based on this technology: AlloDerm(R) for the plastic
reconstructive, burn and dental markets; Cymetra(TM), a version of AlloDerm for
the plastic reconstructive and dermatology markets; and Repliform(TM), a version
of Alloderm for the urology and gynecology markets. Our product development
programs include small diameter blood vessel grafts produced by us as an
alternative to blood vessel grafts taken from the patient, orthopedic
applications of our technology, and formulations for the extended storage of
human blood cells, including additive solutions for red blood cells and
ThromboSolTM for platelets.
Results of Operations
Three Months Ended September 30, 2000 and 1999
Total revenues for the three months ended September 30, 2000 increased 86% to
$6.2 million compared to $3.3 million for the same period in 1999. The increase
was primarily attributable to a 84% increase in product revenues to $5.9 million
in the current period as compared to $3.2 million in the prior year. The
increase in product revenues was largely due to the launch of Cymetra, our
product for non-surgical soft tissue repair, and continued growth for Repliform
our product for the urology and gynecology markets. As previously announced, we
initiated the full commercial launch of Cymetra through our marketing partner
Obagi Medical Products, Inc. in June of this year and Repliform through our
marketing partner Boston Scientific Corporation in January of this year. Cymetra
and Repliform product sales contributed approximately $1.8 million and $1.5
million, respectively, in the quarter. Total revenue was further impacted by a
151% increase in research grant revenues, which increased to $316,000 in this
quarter from $126,000 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 three months ended September 30, 2000 was $1.7
million, or 28.6% of product revenues, compared to cost of goods sold of
$886,000, or 27.5% of product revenues for the same period in 1999. The
increase in costs as a percentage of revenues was principally attributable to
increased costs associated with the expansion of our tissue processing capacity
in our new facility.
Total research and development expenses increased 5% to $901,000 for the three
months ended September 30, 2000 compared to $857,000 for the same period of
1999. The increase was due primarily to higher expenditures for continuing
Cymetra product development and increased spending on orthopedic program
research, which is funded through a research grant.
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General and administrative expenses increased 58% to $1.7 million for the three
months ended September 30, 2000 compared to $1.1 million for the same period of
1999. The increase in the quarter was principally due to a combination of
increased professional fees, higher salary costs relating to the hiring of
management personnel during the second half of 1999 and $253,000 of settlement
costs and legal fees associated with the settlement of the lawsuit with Inamed
Corporation.
During the three months ended September 30, 1999, we incurred approximately
$528,000 of relocation costs consisting principally of $235,000 of
non-relocating employee benefits and $293,000 for relocating key employees to
New Jersey. These costs related to the relocation of our operations from Texas
to New Jersey. The relocation was completed in June 2000, with no additional
costs recognized during the three months ended September 30, 2000.
Selling and marketing expenses increased 111% to $3.4 million for the three
months ended September 30, 2000, compared to $1.6 million for the same period
last year. The increase was primarily attributable to increased payroll and
promotion expenses related to the expansion of selling and marketing activities
and the agency fees associated with the sales and marketing agreements with
Boston Scientific Corporation and Obagi Medical Products, Inc.
Interest and other income (expense), net decreased $283,000 for the three months
ended September 30, 2000 compared to same period of 1999. The net decrease was
due a $63,000 decline in interest income resulting from lower cash balances
available for investment and a $220,000 increase in interest expense resulting
from an increase in revolving and long-term debt.
The net loss for the three months ended September 30, 2000 increased 8% to $1.6
million compared to $1.5 million for the same period of 1999. As discussed
above, the third quarter loss in the prior year included a $528,000 charge
associated with our relocation to New Jersey.
Nine Months Ended September 30, 2000 and 1999
Total revenues for the nine months ended September 30, 2000 increased 84% to
$16.9 million compared to $9.2 million for the same period of 1999. The
increase was primarily attributable to an 85% increase in product revenues to
approximately $15.7 million in the current period as compared to $8.5 million in
the prior year. The increase in product revenues was largely due to the launch
of two new products, Cymetra and Repliform. As previously discussed, we
initiated the full commercial launch of Cymetra in June and Repliform in January
of this year. Cymetra and Repliform product sales contributed approximately
$3.0 million and $4.0 million, respectively, in the first nine months of 2000.
Total revenue was further impacted by a 67% increase in funded research grant
revenues of $1.2 million from $702,000 in the same period in 1999. This increase
was primarily due to an increase in research grant funding available as compared
to the same period of 1999.
Cost of goods sold for the nine months ended September 30, 2000 was $4.8
million, or 30.4% of product revenues, compared to cost of goods sold of $2.5
million, or 28.9% for the same period in 1999. The increase in costs as a
percentage of product revenue was principally attributable to increased costs
associated with the expansion of tissue processing capacity in our new facility
and costs incurred in the second quarter of this year related to the scale-up of
Cymetra production.
Total research and development expenses increased 22% to $3.4 million for the
nine months ended September 30, 2000 compared to $2.8 million for the same
period of 1999. The increase was 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 34% to $4.5 million for the nine
months ended September 30, 2000 compared to $3.4 million for the same period of
1999. The increase was principally due to a combination of increased
professional fees, higher salary costs relating to the hiring of management
personnel during the second half of 1999 and $355,000 of settlement costs and
legal fees associated with the settlement of the lawsuit with Inamed
Corporation.
10
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Selling and marketing expenses increased 80% to $8.7 million for the nine months
ended September 30, 2000 compared to $4.8 million for the same period last year.
The increase was primarily attributable to the hiring of additional sales and
marketing personnel during the second half of 1999, increased promotion expenses
associated with the expansion of 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 Products, Inc.
During the nine months ended September 30, 1999, we incurred approximately
$1.8 million of relocation costs consisting principally of $343,000 of
non-relocating employee benefits, $335,000 of asset abandonment costs related to
our Texas facility, and $1.1 million to relocate key employees to New Jersey.
Relocation costs for the nine months ended September 30, 2000, were
approximately $140,000, consisting of approximately $60,000 of retention bonus
and approximately $80,000 of relocation costs, which were included in cost of
goods sold and general and administrative expenses, respectively. The
relocation was completed in June 2000.
Interest and other income (expense), net decreased $755,000 for the nine months
ended September 30, 2000 compared to same period of 1999. The net decrease was
due to a $176,000 decline in interest income resulting from a lower cash balance
available for investment and a $579,000 increase in interest expense resulting
from an increase in revolving and long-term debt.
The net loss for the nine months ended September 30, 2000 decreased 13% to $5.0
million compared to $5.7 million for the same period in 1999. As discussed
above, the net loss in the prior year included a $1.8 million non-recurring
charge associated with the Company's relocation to New Jersey.
Liquidity and Capital Resources
As of September 30, 2000, we had cash and cash equivalents and short-term
investments of approximately $1.1 million compared to $5.1 million at December
31, 1999. The decrease resulted principally from cash required to fund the
operating loss for the nine months ended September 30, 2000, increases 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 negative $1.5 million at September 30, 2000 from a positive
$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. On
October 31, 2000, we completed a private placement of 2.5 million shares of our
common stock with selected accredited investors at a price of $4.00 per share.
The net proceeds of the private placement were approximately $9.1 million, after
deducting placement agent fees and offering costs.
Our operating activities used cash of $4.7 million for the nine-month period
ended September 30, 2000 to fund our operating loss for the period and increases
in inventories and accounts receivable. The increase in inventories was
primarily associated with the launch of Cymetra. The increase in accounts
receivable was related to the increase in revenues.
For the nine months ended September 30, 2000, our investing activities used cash
of approximately $4.5 million for the purchase of capital equipment and
leasehold improvements relating to the completion of the New Jersey facility.
Our financing activities provided $5.2 million for the nine month period ended
September 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.
Such proceeds were partially offset by cash dividends paid on the Series B
Preferred Stock during the period. At September 30, 2000, we had an aggregate
of approximately $7.1 million outstanding under our borrowing arrangements,
including $3.0 outstanding under a revolving loan facility. The term loans
require aggregate principal payments over the next 12 months of approximately
$1,005,000. We currently have no additional borrowing availability through our
existing credit facilities.
We expect to incur additional operating losses as well as negative cash flow
from operations in the short term as we continue to expand marketing efforts
with respect to our current products and to continue our product development
programs. Our ability to increase revenues and achieve profitability and
positive cash flows from operations will depend on increased market acceptance
of our current products and our ability to commercialize products currently
under development. We expect that our current resources, including the funds
received in our private placement in October 2000, together with anticipated
product revenues and research and development grant funding will satisfy our
cash needs for at least the next twelve months. However, there can be no
assurance that such sources of funds will be sufficient to meet our needs and as
a result, we may need additional capital to operate our business sooner than
expected. We have no commitments for any future funding and there can be no
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assurance that will be able to obtain additional funding from either debt or
equity financing, bank loans, collaborative arrangements or other sources on
terms acceptable to us, or at all. If adequate funds are not available, we
expect that we will be required to delay, scale back or eliminate one or more of
our product development programs. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
significant restrictive covenants. Collaborative arrangements, if necessary to
raise additional funds, may require us to relinquish our rights to certain of
our technologies, products or marketing territories.
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".
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------------
The Company is exposed to changes in interest rates primarily from its debt
arrangements and, secondarily, from its investments in certain securities.
Although the Company's short-term investments are available for sale, the
Company generally holds such investments until maturity. The Company does not
utilize derivative instruments or other market risk sensitive instruments to
manage exposure to interest rate changes. The Company believes that a
hypothetical 100 basis point adverse move in interest rates along the entire
interest rate yield curve would not materially affect the fair value of the
Company's interest sensitive financial instruments at September 30, 2000.
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 was brought 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 complaint alleged 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 alleged that the defendants, including the Company, 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 the Company, from doing business in
California was denied in June 2000. In that month, a new complaint, with
substantially similar allegations about profiting from the storing, processing
and distribution of human tissue, but without the class action allegations was
filed in Los Angeles County. The plaintiff seeks injunctive relief,
disgorgement of illegal profits, restitution, statutory penalties, fines and
attorney's fees. We have not yet been served with the new complaint.
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 alleged that the Company and Obagi, its marketing
agent, disseminated false advertisements with respect to the marketing of the
Company's Cymetra product that misleadingly compared it to and unlawfully
disparaged the bovine collagen products of Inamed Corporation and its
subsidiaries. On September 25, 2000, the Company entered into a settlement
agreement with Inamed Corporation. Under the settlement agreement, the Company
and Obagi agreed to discontinue certain comparative marketing and promotion
statements on the use of Cymetra for the reconstruction of soft tissue deficits.
The Company and Obagi also agreed to jointly make settlement payments to Inamed
Corporation totaling $300,000 over an eighteen-month period. The settlement
allows the Company and Obagi to revise the marketing and promotional statements
for Cymetra commencing in January 2001, as additional scientific data on the use
of Cymetra is accumulated.
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Item 6. Exhibits and Reports on Form 8-K.
--------------------------------------
a. Exhibits
10.1 Form of Purchase Agreement dated September 1, 2000
between LifeCell Corporation and Certain Investors
27.1 Financial Data Schedule
b. Reports on Form 8-K
On September 6, 2000, we reported that we had entered into
purchase agreements for the private placement of 2.5 million
shares of our common stock with selected accredited investors
at a price of $4.00 per share.
On September 26, 2000, we reported that we had entered
into a settlement agreement for a previously announced lawsuit
filed by Inamed Corporation against us and our co-promotion
partner, Obagi Medical Products Inc.
On October 31, 2000, we reported that we had completed the
private placement of 2.5 million shares of our common stock
with selected accredited investors at a price of $4.00 per
share.
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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: November 13, 2000 By: /s/ Paul G. Thomas
---------------------
Paul G. Thomas
President and Chief
Executive Officer
Date: November 13, 2000 By: /s/ Steven T. Sobieski
-------------------------
Steven T. Sobieski
Vice President, Finance, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
27.1 Financial Data Schedule.
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