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 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: 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 - 10,343,342 SHARES
OUTSTANDING AT NOVEMBER 7, 2000
1
<PAGE>
LIFE MEDICAL SCIENCES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations (unaudited) for the three and 3
nine-month periods ended September 30, 1999 and 2000
Condensed Balance Sheets as of December 31, 1999 4
and September 30, 2000 (unaudited)
Condensed Statements of Cash Flows (unaudited) for the 5
nine-month periods ended September 30, 1999 and 2000
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 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
(In thousands, (In thousands,
except per share data) except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ------------------
1999 2000 1999 2000
------ ------- ------ -------
<S> <C> <C> <C> <C>
Revenue
Product sales $ 24 $ $1,072 $ 59
Royalties 19 9 36 31
------ ------- ------ -------
Revenue 43 9 1,108 90
Cost of goods sold 7 379 4
------ ------- ------ -------
Gross profit 36 9 729 86
Operating expenses:
Research and development 226 16 647 203
Sales and marketing 65 323 21
General and administrative 275 140 1,115 613
------ ------- ------ -------
Operating expenses 566 156 2,085 837
------ ------- ------ -------
(Loss) from operations (530) (147) (1,356) (751)
Interest income 5 1 14 12
Interest expense (1) (2) (1)
Net(loss) before extraordinary item (526) (146) (1,344) (740)
Extraordinary items 5 432 5
------ ------- ------ -------
Net(loss)/income (526) (141) (912) (735)
====== ======= ====== =======
Net (loss) per share - basic and diluted $(0.06) $ (0.01) $(0.11) $ (0.07)
====== ======= ====== =======
Weighted average shares outstanding 9,428 10,279 8,473 10,096
</TABLE>
3
<PAGE>
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 724 $ 7
Inventory (less reserve $186 and $24) -- --
Prepaid expenses and advances 19 9
-------- --------
Total current assets 743 16
Furniture and equipment-at cost (less depreciation of $121 and $48) 55 18
Other assets
-------- --------
TOTAL $ 798 $ 34
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,084 $ 997
Accrued expenses 95 95
Capital lease obligation 9 10
Other liabilities 253 159
-------- --------
Total current liabilities 1,441 1,261
Capital lease obligation 9 4
Deferred royalty income 339 308
-------- --------
Total liabilities 1,789 1,573
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized - 5,000;
none issued
Common stock, $.001 par value; shares authorized - 43,750;
issued and outstanding - 9,470 and 10,279 10 10
Additional paid-in capital 35,387 35,574
Accumulated deficit (36,388) (37,123)
-------- --------
Total stockholders' equity (991) (1,539)
-------- --------
TOTAL $ 798 $ 34
======== ========
</TABLE>
4
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 2000
----------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) before extraordinary item $ (1,344) $ (740)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Extraordinary item 432 5
Loss on sale of equipment 12
Depreciation 24 21
Deferred royalty income (35) (31)
Fair value of options issued as compensation 169 77
Changes in operating assets and liabilities:
Decrease in inventory 107 --
(Increase) in accounts receivable 109 --
Decrease in prepaid expenses and advances 33 10
Decrease in other assets 47 --
(Decrease) in accounts payable and accrued liabilities (546) (87)
Increase/(decrease) in other liabilities 16 (94)
---------- -------
Net cash (used in) operating activities (988) (827)
---------- -------
Cash flows from investing activities:
Purchase of equipment (16) --
Proceeds from sale of equipment 4
---------- -------
Net cash from (used in) investing activities (16) 4
---------- -------
Cash flows from financing activities:
Proceeds from private placement 750 --
Proceeds from exercise of stock option,including paid in capital -- 110
Payments on capitalized lease (5) (4)
---------- -------
Net cash provided by financing activities 745 106
---------- -------
Net Increase/(decrease) in cash and cash equivalents (259) (717)
Cash and cash equivalents at beginning of period 485 724
---------- -------
Cash and cash equivalents at end of period $ 226 $ 7
========== =======
</TABLE>
5
<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 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, 1999 included in the Company's annual report on Form 10-K filed
with the Securities and Exchange Commission.
B) EXTRAORDINARY ITEM
Net loss figures for the nine months ended September 30, 2000
and 1999 include extraordinary gains of $5,000 and $432,000,
respectively, attributable to gains on forgiveness of amounts owed to
suppliers by the transfer of title of certain equipment that had
previously been charged to operating expenses.
C) NET (LOSS) PER SHARE
Basic and diluted net (loss) per share is computed using the
weighted average number of shares outstanding during each period, which
excludes outstanding options and warrants since their inclusion would
reduce the loss per share.
6
<PAGE>
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. In response to its seriously deteriorated financial
condition, the Company has suspended all product development activities and,
effective July 31, 2000, terminated the majority of its remaining employees. In
the event additional funding is secured, 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. Product development had been focused on preventing or
reducing post-operative adhesions subsequent to a broad range of surgical
procedures. In February 2000, the Company completed 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. In conjunction with its strategic focus on the
development of medical products based on its bioresorbable polymer technology,
the Company discontinued, effective February 29, 2000, the manufacturing and
sale of the CLINICEL(R) silicone gel-filled cushions.
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 had been developing bioresorbable adhesion barrier films for the
prevention or reduction of post-operative surgical adhesions in cardio-vascular
surgery (REPEL-CVTM), gynecological and general surgical procedures (REPELTM),
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 (RESOLVETM) 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>
RESULTS OF OPERATIONS
Revenue for the three and nine month periods ended September 30, 2000
of $9,000 and $90,000, respectively, primarily consists of the sales of CLINICEL
products and royalties from the product sales of the Sure-Closure System(TM).
These revenue figures compare to $43,000 and $1,108,000 for the three and nine
month periods ended September 30, 1999, respectively, which, consists primarily
of $24,000 and $1,072,000, respectively, of sales of CLINICEL products and
$19,000 and $36,000, respectively in royalties from the product sales of the
Sure-Closure System(TM) . The reduction in revenue for the three months and nine
months ended September 30, 2000 compared to prior year is primarily attributed
to the discontinuation of the manufacturing and sale of the CLINICEL products.
Effective February 29, 2000, the Company relinquished the licensing rights to
the Clinicel technology and will no longer earn revenues from this product line.
Cost of goods sold of $4,000 for the nine month period ended September
30, 2000, reflects costs to package and ship CLINICEL to the Company's consumer
and trade customers; there were no similar costs incurred during the three month
period ended September 30, 2000. Cost of goods sold was $7,000 and $379,000 for
the comparable periods ended September 30, 1999. The reduction in the cost of
goods sold is directly related to the discontinuation of the manufacturing and
sale of the CLINICEL products.
The Company incurred research and development expenses of $16,000 and
$203,000 for the three and nine month periods ended September 30, 2000,
respectively, compared to $226,000 and $647,000 for the comparable prior year
periods. The reduction in expenditures compared to the prior year is primarily
attributed to reduced spending on the development of bioresorbable adhesion
prevention products and reduced spending for clinical trials. Research and
development spending in 2000 has been primarily to conduct the pilot clinical
trial for REPEL-CV(TM) , the first product to receive an IDE from the FDA for
clinical testing to determine safety for use as an anti-adhesion barrier in
cardiovascular surgery. Further spending on product development and clinical
trials was suspended during the latest three month period.
Sales and marketing expenses of $21,000 for the nine month period ended
September 30, 2000 were exclusively associated with CLINICEL and consist
primarily of promotional costs, selling expenses and contract customer service
expense. There were no such expenses in the three month period ended September
30, 2000. The comparable prior year for the three and nine month periods costs
were $65,000 and $323,000.
General and administrative expenses of $140,000 and $613,000 for the
three and nine month periods ended September 30, 2000, respectively, compared to
$275,000 and $1,115,000 for the comparable prior year periods, consisted
primarily of management compensation, legal fees for patent protection on the
Company's products, and other general and administrative costs. The reductions
in spending are primarily attributable to lower headcount as well as reduced
legal fees, consulting fees and general cost control.
Interest income was $1,000 and $12,000 for the three and nine month
periods ending September 30, 2000, respectively, and $5,000 and $14,000 for the
comparable prior year periods. The variations in interest income between
comparable periods are directly attributable to fluctuations in the cash and
cash equivalents balances and in interest rates.
Interest expense represents interest on capital leases for certain
office equipment.
The Company recorded extraordinary gains of $5,000 and $432,000 during
the nine month periods ended September 30, 2000 and 1999, respectively,
attributable to gains on the forgiveness of amounts owed to suppliers by the
transfer of title of certain equipment that had previously been charged to
operating expenses.
The Company's net loss was $141,000 and $735,000 for the three and nine
months ended September 30, 2000, respectively, compared to $526,000 and $912,000
for the comparable prior year periods. The comparisons to the prior year periods
are somewhat distorted by the impact of the extraordinary gains explained above.
The Company expects to incur losses in future periods.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7,000 and $724,000 at September 30,
2000 and December 31, 1999, respectively.
At September 30, 2000, the Company had a working capital deficit of
$1,245,000. The current cash and cash equivalents balance as of September 30,
2000 will not be sufficient to meet the Company's cash requirements through the
remainder of 2000. The Company has suspended all product development activities
and, effective July 31, 2000, terminated the majority of its staff. The Company
must 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 is
pursuing such additional funding through collaborative arrangements with
strategic partners, licensing arrangements for certain of its proposed products
and additional equity or debt financing. Any additional financings will 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. If the Company is unable
to raise the necessary funds in the immediate future, the Company could be
forced to cease operations.
9
<PAGE>
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
10
<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: November 7, 2000 /s/ ROBERT P. HICKEY
---------------------------------
ROBERT P. HICKEY
CHAIRMAN, PRESIDENT, CEO AND CFO
11
<PAGE>
EXHIBIT INDEX
27. Financial Data Schedule
12
