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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________
Commission file number 0-20580
LIFE MEDICAL SCIENCES, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C>
DELAWARE 14-1745197
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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379 THORNALL STREET, EDISON, NJ 08837
(Address of principal executive offices)
(Zip Code)
(908) 494-0444
(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 - 7,914,820 SHARES OUTSTANDING AT MAY 13, 1997
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LIFE MEDICAL SCIENCES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations (unaudited) for the 1
three month periods ended March 31, 1996 and 1997
Balance Sheets as of December 31, 1996 2
and March 31, 1997 (unaudited)
Statements of Cash Flows (unaudited) for the 3
three month periods ended March 31, 1996 and 1997
Notes to Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 8
Exhibit Index 9
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
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<CAPTION>
Three months ended
March 31,
----------------------------
1996 1997
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<S> <C> <C>
Royalty income $ 62,205 $ 9,139
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Operating expenses:
Research and development expenses 541,285 1,132,712
General and administrative expenses 421,416 857,676
----------- -----------
Operating expenses 962,701 1,990,388
----------- -----------
(Loss) from operations (900,496) (1,981,249)
Interest income 37,610 167,440
Interest expense (736) (999)
=========== ===========
Net (loss) $ (863,622) $(1,814,808)
=========== ===========
Net (loss) per share $ (0.16) $ (0.23)
=========== ===========
Weighted average shares outstanding 5,446,386 7,914,820
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1
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LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
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<CAPTION>
(unaudited)
December 31, March 31,
------------- --------------
1996 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,235,976 $ 7,995,012
Short-term investments 3,041,993 4,776,175
Other current assets 311,330 358,796
------------ ------------
Total current assets 14,589,299 13,129,983
Furniture and equipment-at cost (less accumulated
depreciation of $59,830 and $71,605) 182,349 179,730
Deposits 29,190 29,190
============ ============
TOTAL $ 14,800,838 $ 13,338,903
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligation $ 6,798 $ 6,968
Accounts payable 111,265 145,648
Accrued expenses 349,447 282,599
------------ ------------
Total current liabilities 467,510 435,215
Capital lease obligation 34,128 32,321
Deferred royalty income 504,877 495,738
------------ ------------
Total liabilities 1,006,515 963,274
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 - 7,914,820 and 7,914,820 7,915 7,915
Additional paid-in capital 33,951,059 34,347,173
Accumulated deficit (20,164,651) (21,979,459)
------------ ------------
Total stockholders' equity 13,794,323 12,375,629
============ ============
TOTAL $ 14,800,838 $ 13,338,903
============ ============
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2
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LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
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<CAPTION>
Three months ended
March 31,
------------------------------
1996 1997
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (863,622) $ (1,814,808)
Adjustments to reconcile net (loss) to net cash provided
by (used in) operations:
Depreciation 7,022 11,775
Deferred royalty income (44,215) (9,139)
Fair value of options issued as compensation 412,252
Changes in operating assets and liabilities:
(Increase) in other assets and deposits (184,464) (47,466)
Increase (decrease) in accounts payable and accrued expenses 331,512 (32,465)
----------- -----------
Net cash (used in) operating activities (753,767) (1,479,851)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (3,662) (9,156)
Purchase of investment securities (1,734,182)
----------- -----------
Net cash (used in) investing activities (3,662) (1,743,338)
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Cash flows from financing activities:
Payments on capitalized lease (579) (1,637)
Proceeds from issuance of common stock upon exercise of options 163,119
Deferred offering expenses of common stock to be issued (229,281)
Cost of registration of common stock previously issued (16,138)
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Net cash (used in) financing activities (66,741) (17,775)
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Net (decrease) in cash and cash equivalents (824,170) (3,240,964)
Cash and cash equivalents at beginning of period 3,827,530 11,235,976
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Cash and cash equivalents at end of period $ 3,003,360 $ 7,995,012
=========== ============
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3
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LIFE MEDICAL SCIENCES, INC.
NOTES TO 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, 1996
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. Outstanding
options and warrants have not been considered since their effect would
be antidilutive.
C) OPTIONS
The Company applies APB Opinion 25 and related
Interpretations in accounting for its options to employees. Although no
compensation cost has been recognized for its stock option grants to
employees, the Company has included stock based compensation costs
associated with options granted under consulting agreements, in
research and development expenses and general and administrative
expenses of $81,123 and $331,129, respectively.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Life Medical Sciences, Inc. (the "Company") is 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
bioresorbable 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-ClosureTM
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 calling on surgeons. 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 and marketing expenses were eliminated. To date, all
revenue has been derived from sales of the Sure-Closure products or royalties
thereon.
Certain statements in this Form10-Q (the "Report") under this Item and
elsewhere constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without limitation,
statements regarding future cash requirements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: delays in product development;
problems or delays with clinical trials; failure to receive or delays in
receiving regulatory approval; lack of enforceability of patents and proprietary
rights; lack of reimbursement; general economic and business conditions;
industry capacity; industry trends; demographic changes; competition; material
costs and availability; the loss of any significant customers; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; changes in, or the failure to comply with,
government regulations; and other factors referenced in this Report.
RESULTS OF OPERATIONS
The Company earned revenues from royalties on product sales of
Sure-Closure of $9,139 and $62,205 for the three months ended March 31, 1997 and
1996, respectively. The royalty income recognized during the three month period
ended March 31, 1997, represents royalties from Sure-Closure product sales of
the fourth quarter of 1996.
The Company incurred research and development expenses of $1,132,712
and $541,285 for the three months ended March 31, 1997 and 1996, respectively.
The increase in the three month period ended March 31, 1997 compared to March
31, 1996 is due to increased spending for the preclinical and clinical studies
of the bioresorbable polymer adhesion prevention products, and the clinical
studies of the in-situ tissue culturing technology products; and increased
expenditures supporting the management of the research and development function.
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 bioresorbable 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 $857,676 and $421,416 for the
three months ended March 31, 1997 and 1996, respectively. The increase is
attributable to salaries and related expenses
5
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associated with additional management. Additionally, a non-cash expense for
stock based compensation costs of $331,129 was recorded during the three months
ended March 31, 1997. There was no such expense during the corresponding period
of 1996. 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 $167,440 and $37,610 for the three months ended
March 31, 1997 and 1996, respectively. The increase for the three months period
ended March 31, 1997 is primarily attributable to an increased cash balance.
Interest expense of $999 and $736 for the three months ended March 31,
1997 and 1996, respectively, was from a capital lease entered into to acquire
office equipment.
The Company's net loss was $1,814,808 and $863,622 for the three months
ended March 31, 1997 and 1996, 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, cash equivalents and short term investments of
$12,771,187 and 14,277,969 at March 31, 1997 and December 31, 1996,
respectively. The decrease in cash from December 31, 1996 to March 31, 1997
results from expenditures made for funding the Company's operations which
primarily consists of continued clinical trials, research and development costs,
and commercialization of our product portfolio.
Although the Company believes that the available cash will be
sufficient to meet its cash requirements for approximately the next 18 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
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
7
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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.
LIFE MEDICAL SCIENCES, INC.
(REGISTRANT)
DATE: MAY 13, 1997 /S/ DONALD W. FALLON
---------------------
DONALD W. FALLON
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
(Duly Authorized Officer & Principal
Financial Officer)
8
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EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- --------
27 Financial Data Schedule
9
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED
FROM THE FORM 10Q FOR THE PERIOD ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,995,012
<SECURITIES> 4,776,175
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,129,983
<PP&E> 251,335
<DEPRECIATION> 71,605
<TOTAL-ASSETS> 13,338,903
<CURRENT-LIABILITIES> 435,215
<BONDS> 0
0
0
<COMMON> 7,915
<OTHER-SE> 12,367,714
<TOTAL-LIABILITY-AND-EQUITY> 13,338,903
<SALES> 0
<TOTAL-REVENUES> 9,139
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,990,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 999
<INCOME-PRETAX> (1,814,808)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,814,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,814,808)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> 0
</TABLE>
