<PAGE> 1
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, 1999
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
379 THORNALL STREET, EDISON, NEW JERSEY 08837
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(732) 494-0444
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check 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 - 7,922,559 SHARES
OUTSTANDING AT APRIL 21, 1998
<PAGE> 2
LIFE MEDICAL SCIENCES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations (unaudited) for the 3
three-month periods ended March 31, 1998 and 1999
Condensed Balance Sheets as of December 31, 1998 4
and March 31, 1999 (unaudited)
Condensed Statements of Cash Flows (unaudited) for the 5
three-month periods ended March 31, 1998 and 1999
Notes to Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II - OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
<S> <C> <C>
1998 1999
------- -------
Revenue
Product sales $ $ 803
Royalties 13 13
------- -------
Revenue 13 816
Cost of goods sold 283
------- -------
Gross profit 13 533
Operating expenses:
Research and development 1,217 191
Sales and marketing 175 134
General and administrative 379 364
------- -------
Operating expenses 1,771 689
------- -------
(Loss) from operations (1,758) (156)
Other income/(expense)
Interest income 96 3
Interest expense (1) (1)
Other income 432
------- -------
Net (loss)/Income (1,663) 278
======= =======
Net (loss)/Income per share - basic and diluted $ (0.21) $ 0.04
======= =======
Weighted average shares outstanding 7,923 7,923
</TABLE>
3
<PAGE> 4
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------- ---------
1998 1999
-------- --------
ASSETS (unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 485 $ 631
Short-term investments
Inventory 264 204
Accounts receivable 120 55
Prepaid expenses and advances 33 2
-------- --------
Total current assets 902 892
Furniture and equipment-at cost (less depreciation of $91 and $99) 85 77
Other assets 47 47
-------- --------
TOTAL $ 1,034 $ 1,016
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligation $ 8 $ 8
Accounts payable and accrued expenses 1,701 1,351
Other liabilities 199 210
-------- --------
Total current liabilities 1,908 1,569
Capital lease obligation 18 16
Deferred royalty income 386 373
-------- --------
Total liabilities 2,312 1,958
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized - 5,000;
none issued
Common stock, $.001 par value; shares authorized - 23,750;
issued and outstanding - 7,923 and 7,923 8 8
Additional paid-in capital 34,147 34,205
Accumulated deficit (35,433) (35,155)
-------- --------
Total stockholders' equity (1,278) (942)
-------- --------
TOTAL $ 1,034 $ 1,016
======== ========
</TABLE>
4
<PAGE> 5
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1998 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)/income $(1,663) $ 278
Adjustments to reconcile net (loss)/income to
net cash (used in)/provided by operating activities:
Depreciation 9 8
Deferred royalty income (13) (13)
Fair value of options issued as compensation 58
Changes in operating assets and liabilities:
Decrease in inventory 60
Decrease in accounts receivable 65
Decrease in prepaid expenses and advances 31
(Increase) in other assets (473)
Increase/(decrease) in accounts payable and accrued expenses 66 (350)
Increase in other liabilities 11
------- -------
Net cash (used in) operating activities (2,074) 148
------- -------
Cash flows from investing activities:
Purchase of investment securities (1,576)
Proceeds from maturity of investment securities 2,029
------- -------
Net cash provided by investing activities 453
------- -------
Cash flows from financing activities:
Payments on capitalized lease (1) (2)
------- -------
Net cash (used in) financing activities (1) (2)
------- -------
Net (Decrease)/increase in cash and cash equivalents (1,622) 146
Cash and cash equivalents at beginning of period 2,733 485
------- -------
Cash and cash equivalents at end of period $ 1,111 $ 631
======= =======
</TABLE>
5
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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 have been presented
on an ongoing concern basis and do not include any adjustments that might
be necessary if the company is unable to continue as a going concern. These
condensed financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1998
included in the Company's annual report on Form 10-K filed with the
Securities and Exchange Commission.
B) OTHER INCOME
The Company recorded other income of $432,000 for the
three-month period ended March 31, 1999. This other income is
attributable to reduction of debt in exchange for certain equipment,
the cost of which had previously been charged to research and
development expense
C) NET (LOSS)/INCOME PER SHARE
The net (loss) /income per share is computed using the
weighted average number of shares outstanding during each period, which
excludes outstanding options and warrants.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Life Medical Sciences, Inc. is a biomaterials company engaged in the
development and commercialization of innovative and cost-effective medical
devices for therapeutic applications. The Company is focused on the advancement
and expansion of product development programs based on its proprietary
bioresorbable polymer technology. The Company intends to apply its platform
technology to the development of multiple products that address unmet
therapeutic needs or offer improved, cost-effective alternatives to current
methods of treatment. Products currently under development focus on preventing
or reducing post-operative adhesions subsequent to a broad range of surgical
procedures and are in various stages of clinical trials and pre-clinical
studies. In January 1999, the Company initiated a pilot clinical trial for its
REPEL-CV(TM) bioresorbable adhesion barrier film, the first surgical device
approved by the FDA for human evaluation in tHE prevention of adhesions after
open-heart surgical procedures. The Company has also developed a line of novel
silicone gel-filled cushions intended for the prevention and management of
hypertrophic and keloid scars. The Company launched this line under the
CLINICEL(TM) name in April 1998 through a consumer media campaign, expanded
distribution through drug storeS, supermarket pharmacies and mass merchandise
store pharmacies and achieved cumulative sales through March 31, 1999 of
$2,518,000.
The Company's bioresorbable polymer technology is based on a
proprietary group of polymers. The Company believes that these polymers display
desirable properties, which enable them to be tailored to a wide variety of
applications. These properties include bioresorbability, flexibility, strength
and biocompatibility. Potential applications for products derived from these
polymers are in medical areas such as the prevention of post-operative
adhesions, sutures, stents, implantable device coatings and drug delivery. The
Company is currently developing bioresorbable adhesion barrier films for the
prevention or reduction of post-operative surgical adhesions in cardio-vascular
surgery (REPEL-CV(TM)), gynecologicAL and general surgical procedures
(REPEL(TM)), as well as in bioresorbable adhesion barrier coatings (viscous
solutions) for tHE prevention or reduction of post-operative surgical adhesions
in gynecological and general abdominal surgical procedures (RESOLVE(TM)) and
orthopedic and spinal surgical procedures (RELIEVE(TM)).
Certain statements in this Report on Form 10-Q (the "Report") under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" 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 and the
ability of the company to raise capital. 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. When used
in the Report, statements that are not statements of material facts may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "anticipates", "plans", "intends", "expects" and similar expressions are
intended to identify such forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
7
<PAGE> 8
RESULTS OF OPERATIONS
The Company launched a direct-to-consumer advertising campaign in
conjunction with the introduction of CLINICEL in April 1998 and achieved sales
of $1,715,000 during 1998. During the quarter ended March 31, 1999, the Company
achieved record quarterly CLINICEL(TM) sales of $803,000. Revenue from royalties
on sales of the Sure-Closure System was $13,000 fOR both periods.
Cost of goods sold of $283,000 for the three-months ended March 31,
1999 reflects the cost to produce, package and ship CLINICEL to the Company's
consumer and trade customers. These were no comparable expenses for the prior
year.
The Company incurred research and development expenses of $1,217,000
and $191,000 for the three-month periods ended March 31, 1998 and 1999,
respectively. The reduction in expenditures compared to the prior year is
primarily attributed to reduced spending on the manufacturing development of
bioresorbable adhesion prevention products and reduced spending for pre-clinical
studies and clinical trials.
Sales and marketing expenses of $134,000 for the three-months ended
March 31, 1999 were exclusively associated with CLINICEL. The major elements of
this expense were selling expense, promotional costs and contract telemarketing
expense. Expenses of $175,000 for the three-months ended March 31, 1998 were for
the pre-introduction marketing costs for CLINICEL.
General and administrative expenses of $364,000 for the three-month
period ending March 31, 1999 consisted primarily of management compensation,
legal fees for patent protection on the Company's products, business-related
insurance and other general and administrative costs. General and administrative
expenses were $379,000 for the three-month period ending March 31, 1998.
Interest income was $96,000 and $3,000 for the three-month periods
ending March 31, 1998 and 1999, respectively. The reduction in interest income
is directly attributable to lower balances of cash and cash equivalents.
Interest expense of $1,000 for both of the periods ending March 31,
1998 and 1999 represents interest on capital leases for certain office
equipment.
The Company recorded other income of $432,000 for the three-month
period ended March 31, 1999. This other income is attributable to reduction of
debt in exchange for certain equipment, the cost of which had previously been
charged to research and development expense. There was no comparable income in
the prior year.
The Company's net income was $278,000 for the three-month period ending
March 31, 1999. There was a net loss of $1,663,000 for the comparable prior year
period. The difference in these two results is primarily attributable to the
reduction of research and development expense, gross profit on CLINICEL sales
and the reduction of debt described above. The Company expects to incur losses
in future periods.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $485,000 and $631,000 as of December 31,
1998 and March 31, 1999. The increase in cash and cash equivalents is attributed
primarily to reductions in trade receivables associated with CLINICEL sales.
At March 31, 1999, the Company had a working capital deficit of
$677,000. The current cash and cash equivalents balance as of March 31, 1999 may
not be sufficient to meet its cash requirements through the remainder of 1999.
The Company will be required to raise substantial additional funds to continue
the clinical development and commercialization of its proposed products and to
fund the growth that is expected to occur if any of its current and proposed
products are approved for marketing. There can be no assurance that such
arrangements or financings will be available as needed or on terms acceptable to
the Company. The Company plans to seek such additional funding through
collaborative arrangements with strategic partners, licensing arrangements for
certain of its proposed products and additional public or private financings,
including equity financings. The Company continues to be in discussion with
venture and private investors regarding a private placement of new equity in
amounts sufficient to support near term operations and with its advisors
regarding other public financing vehicles. Any additional financings may be
dilutive to existing stockholders. The Company is also pursuing other
initiatives, including state tax benefit transfers and licensing/marketing
agreements intended to improve its financial condition. The company has reduced
spending on certain programs as a means of preserving its cash resources and is
currently in discussions with third parties regarding the licensing of certain
technologies which it might otherwise seek to commercialize itself.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company uses a number of computer programs across its operations.
The Company has not completed its assessment of the year 2000 issue but believes
that costs of addressing this issue will not have a material adverse impact on
the Company's financial position.
The Company uses a number of third party vendors to support its
operations. The Company has not completed its assessment of the year 2000 issue
with these third parties. If these parties are unable to address this issue in a
timely manner, and the Company is unable to instead conduct operations with
other third party vendors that have addressed this issue, it could result in a
material financial risk to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
10
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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: 4/30/99 /S/ DREW KARAZIN
-------------------------------------------
DREW KARAZIN
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(Duly Authorized Officer & Principal
Financial Officer)
DATE: 4/30/99 /S/ ROBERT P. HICKEY
-------------------------------------------
ROBERT P. HICKEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
11
<PAGE> 12
EXHIBIT INDEX
27 Financial Data Schedule
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 631
<SECURITIES> 0
<RECEIVABLES> 85
<ALLOWANCES> 30
<INVENTORY> 204
<CURRENT-ASSETS> 892
<PP&E> 176
<DEPRECIATION> 99
<TOTAL-ASSETS> 1016
<CURRENT-LIABILITIES> 1569
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> (950)
<TOTAL-LIABILITY-AND-EQUITY> 1016
<SALES> 803
<TOTAL-REVENUES> 816
<CGS> 283
<TOTAL-COSTS> 283
<OTHER-EXPENSES> 689
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 278
<INCOME-TAX> 0
<INCOME-CONTINUING> 278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
