<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
---------------------
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 0-20580
LIFE MEDICAL SCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 14-1745197
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
214 CARNEGIE CENTER, PRINCETON, NJ 08540
(Address of principal executive offices)
(Zip Code)
(609) 452 - 0707
(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[ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $.001 PAR VALUE - 7,450,320 SHARES OUTSTANDING AT MAY 13,1996
<PAGE>
LIFE MEDICAL SCIENCES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations (unaudited) for the 1
three month periods ended March 31, 1995 and 1996
Condensed Balance Sheets (unaudited) as of December 31, 2
1995 and March 31, 1996
Condensed Statements of Cash Flows (unaudited) for the 3
three month periods ended March 31, 1995 and 1996
Notes to Condensed Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
PART II - OTHER INFORMATION
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 8
Exhibit Index 9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
March 31,
-------------------------------
1995 1996
-------------------------------
<S> <C> <C>
Royalty income $ 112,365 $ 62,205
------------------------------------
Operating expenses:
Research and development expenses 371,290 541,285
General and administrative expenses 282,535 421,416
------------------------------------
Operating expenses 653,825 962,701
------------------------------------
(Loss) from operations (541,460) (900,496)
Interest income 28,449 37,610
Interest expense (736)
------------------------------------
Net (loss) $ (513,011) ($ 863,622)
====================================
Net (loss) per share $ (0.12) $ (0.16)
====================================
Weighted average shares outstanding 4,308,695 5,446,386
</TABLE>
1
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LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
---------------------------------------------------
1995 1996
---------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,827,530 $ 3,003,360
Deferred offering expenses 229,281
Other current assets 19,559 219,001
-------------- -------------
Total current assets 3,847,089 3,451,642
Furniture and equipment-at cost (less accumulated
depreciation of $41,957 and $48,979) 96,570 93,210
Deposits 21,322 6,344
-------------- -------------
TOTAL $ 3,964,981 $ 3,551,196
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligation $ 2,468 $ 2,573
Accounts payable 40,675 302,131
Accrued expenses 147,398 232,132
-------------- -------------
Total current liabilities 190,541 536,836
Capital lease obligation 15,160 14,476
Deferred royalty income 643,622 599,407
Other liabilities 14,678
-------------- -------------
Total liabilities 864,001 1,150,719
Stockholders' equity:
Preferred stock, .01 par value; shares authorized - 5,000,000;
none issued
Common stock, .001 par value; shares authorized -
23,750,000; issued and outstanding - 5,422,320 and 5,450,320 5,422 5,450
Additional paid-in capital 19,429,815 19,592,906
Accumulated deficit (16,334,257) (17,197,879)
-------------- -------------
Total stockholders' equity 3,100,980 2,400,477
-------------- -------------
TOTAL $ 3,964,981 $ 3,551,196
============== =============
</TABLE>
2
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------------
1995 1996
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (513,011) $ (863,622)
Adjustments to reconcile net (loss) to net cash provided
by (used in) operations:
Depreciation 6,074 7,022
Deferred royalty income (44,215)
Changes in operating assets and liabilities:
Decrease in accounts receivable 43,380
Decrease in receivable (MedChem) 1,000,000
Decrease (increase) in other assets and deposits 88,222 (184,464)
Increase in accounts payable and accrued expenses 8,136 331,512
----------- -----------
Net cash provided by (used in) operating activities 632,801 (753,767)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (15,738) (3,662)
----------- -----------
Net cash (used in) investing activities (15,738) (3,662)
----------- -----------
Cash flows from financing activities:
Payments on capitalized lease (579)
Proceeds from issuance of common stock upon exercise of options 163,119
Deferred offering expenses of common stock to be issued (229,281)
----------- -----------
Net cash (used in) financing activities (66,741)
----------- -----------
Net increase (decrease) in cash and cash equivalents 617,063 (824,170)
Cash and cash equivalents at beginning of period 1,979,615 3,827,530
----------- -----------
Cash and cash equivalents at end of period $ 2,596,678 $3,003,360
=========== ===========
</TABLE>
3
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A) BASIS OF PRESENTATION
The accompanying condensed financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but in the opinion of management, contain all adjustments
(which consist of only normal recurring adjustments) necessary for a fair
presentation of such financial information. Results of operations for
interim periods are not necessarily indicative of those to be achieved for
full fiscal years. These condensed financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 1995 included in the Company's annual report on Form 10-K
filed with the Securities and Exchange Commission.
B) NET (LOSS) PER SHARE
The net loss per share is computed using the weighted average number
of common shares outstanding during each period, as modified in accordance
with certain rules of the Securities and Exchange Commission. Outstanding
options and warrants have not been considered since their effect would be
antidilutive.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Life Medical Sciences, Inc. (the "Company") is a biotechnology company
engaged in the development and commercialization of innovative and cost-
effective medical products for therapeutic applications. The Company's proposed
products are derived from its two proprietary platform technologies: (i) its in-
situ (occurring on or at a body site) tissue culturing technology, and (ii) its
polymer technology. Products currently under development focus on wound
healing, stimulating hair regrowth, improving the success rate of autologous fat
transplantation and preventing or reducing post-operative surgical adhesions.
Since its inception, the Company has been engaged primarily in research and
development of its technologies, commercialization of the Sure-Closure/TM/
System ("Sure-Closure") and organizational activities. In September 1993, the
Company began selling the Sure-Closure products. The Company built and
supported a direct sales organization of 24 sales representatives calling on
surgeons. To date, all revenues have been derived from sales of the Sure-
Closure products or royalties thereon. In July 1994, the Company sold its Sure-
Closure product line for initial payments aggregating $4 million plus a 10%
royalty on net sales through June 2004. Following the sale of the Sure-Closure
System, sales ceased and sales and marketing expenses were eliminated.
RESULTS OF OPERATIONS
The Company earned revenues from royalties on product sales of Sure-Closure
of $62,205 and $112,365 for the three months ended March 31, 1996 and 1995,
respectively. The royalty income recognized during the three month period ended
March 31, 1996, represents royalties from Sure-Closure product sales of the
fourth quarter of 1995.
The Company incurred research and development expenses of $541,285 and
$371,290 for the three months ended March 31, 1996 and 1995, respectively. The
increase in the three month period ended March 31, 1996 compared to March 31,
1995 is due to increased expenditures on the Company's in-situ tissue culturing
technology and products derived therefrom, polymer technology and products
derived therefrom and other products. Research and development expenses are
expected to continue to increase in future quarters as the Company continues to
develop its in-situ tissue culturing technology products and polymer technology
products and expand clinical trials for these and other products.
General and administrative expenses, which consist of compensation for
management, professional fees, investor relations expenses and materials,
consulting expenses and travel expenses, were $421,416 and $282,535 for the
three months ended March 31, 1996 and 1995, respectively. The increase is
attributable to salaries and related expenses associated with additional
management and increased expenses in connection with the investor relation
effort as the Company increased its scale of operations. General and
administrative expenses are expected to continue to increase in future quarters
as the Company continues to increase its scale of operations.
Interest income was $37,610 and $28,449 for the three months ended March
31, 1996 and 1995. The increase for the three months period ended March 31, 1996
is primarily attributable to an increased cash balance.
Interest expense of $736 for the three months ended March 31, 1996 was from
a capital lease entered into to acquire office equipment. There was no interest
expense for the corresponding quarter of 1995.
5
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The Company's net loss was $863,622 and $513,011 for the three months
ended March 31, 1996 and 1995, respectively. This increase is due primarily to
the increased scale of operations. The Company expects to incur additional
losses in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $3,003,360 and $3,827,530 at
March 31, 1996 and December 31, 1995, respectively. The decrease in cash
results from expenditures made for funding the Company's operations, deferred
expenses in connection with the Company's public offering as described below,
and offset by funds received from the exercise of stock options.
In May 1996, the Company completed a public offering of 2,000,000 shares of
common stock and received net proceeds of approximately $11.6 million after
deducting underwriting discounts and commissions and offering expenses. The
Company intends to use the proceeds from the offering to fund continued clinical
trials, research and development and for general corporate purposes.
Although the Company believes that the net proceeds from the offering,
together with available cash, will be sufficient to meet its cash requirements
for approximately the next 24 months, there can be no assurance that the Company
will not require additional financing during that time or that financing will be
available on acceptable terms or at all. The Company will be required, however,
to raise substantial additional funds to continue the clinical development and
commercialization of its products and to fund the growth that is expected to
occur if any of its products are approved for marketing. The Company plans to
seek such additional funding through collaborative arrangements with strategic
partners, licensing arrangements for certain of its products and additional
public or private financings, including equity financings. Any additional
equity financings may be dilutive to stockholders. There can be no assurance
that such arrangements or financings will be available as needed or on terms
acceptable to the Company. Insufficient funds may require the Company to delay,
scale back or eliminate some or all of its research and development programs and
manufacturing and marketing efforts or require it to license to third parties
certain products or technologies that the Company would otherwise seek to
commercialize itself.
6
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
(a) John T. Spitznagel, who served as President and CEO and a Director
from January 9, 1996, resigned effective February 28, 1996 to join an
international pharmaceutical company in a senior executive position
with world-wide responsibilities. Dr. Herbert Moskowitz, the
Company's Chairman, has been serving as interim President and CEO
since Mr. Spitznagel's resignation. The Company has been actively
seeking to employ a new President and CEO with senior level executive
experience in the areas of biotechnology and the commercialization of
pharmaceutical products.
(b) The Company's Registration Statement pertaining to its offering of two
million shares of common stock, was declared effective by the
Securities and Exchange Commission on May 3, 1996. The net proceeds of
the offering were approximately $11.6 million after deducting
estimated underwriting discounts and commissions and offering
expenses. The Company intends to use the proceeds from the offering to
fund continued clinical trials, research and development and for
general corporate purposes.
Additionally, the Company's Common Stock , Class A and Class B
Warrants have been approved for listing on the Nasdaq National Market.
The securities were previously traded on the Nasdaq Small Cap Market.
The trading symbols will remain the same. The Company's Units, which
were sold in its Initial Public Offering and consist of one share of
Common Stock, one Class A Warrant and one Class B Warrant, will
continue to trade on the Nasdaq Small Cap Market until all the Units
are separated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
March 31, 1996.
7
<PAGE>
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.
LIFE MEDICAL SCIENCES, INC.
(REGISTRANT)
DATE: MAY 14, 1996 /S/ DONALD W. FALLON
--------------------------------
DONALD W. FALLON
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(Duly Authorized Officer & Principal
Financial Officer)
8
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- -------
27 Financial Data Schedule
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER OF 1996 FORM 10-Q AND 1995 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 3003360 3827530
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3451642 3847089
<PP&E> 142189 138527
<DEPRECIATION> 48979 41957
<TOTAL-ASSETS> 3551196 3964981
<CURRENT-LIABILITIES> 536836 190541
<BONDS> 0 0
0 0
0 0
<COMMON> 5450 5422
<OTHER-SE> 2395027 3095558
<TOTAL-LIABILITY-AND-EQUITY> 3551196 3964981
<SALES> 0 0
<TOTAL-REVENUES> 62205 245488
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 962701 3225493
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 736 504
<INCOME-PRETAX> (863622) (2797296)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (863622) (2797296)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (863622) (2797296)
<EPS-PRIMARY> (.16) (.58)
<EPS-DILUTED> 0 0
</TABLE>
