SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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 JUNE 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 X 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 - 10,279,093 SHARES OUTSTANDING AT
AUGUST 13, 2000
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LIFE MEDICAL SCIENCES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations (unaudited) for the 3
three and six month periods ended June 30, 1999 and 2000
Condensed Balance Sheets as of December 31, 1999 4
and June 30, 2000 (unaudited)
Condensed Statements of Cash Flows (unaudited) for the 5
six month periods ended June 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 2. Changes in Securities and Use of Proceeds 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) (In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- --------------------------------
1999 2000 1999 2000
------------- -------------- --------------- --------------
Revenue
<S> <C> <C> <C> <C>
Product sales $ 246 $ 50 $ 1,048 $ 59
Royalties 4 12 17 22
------------- -------------- --------------- -----------
Revenue 250 62 1,065 81
Cost of goods sold 89 3 372 4
------------- -------------- --------------- -----------
Gross profit 161 59 693 77
Operating expenses:
Research and development 230 69 421 187
Sales and marketing 123 258 21
General and administrative 477 283 840 473
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Operating expenses 830 352 1,519 681
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(Loss) from operations (669) (293) (826) (604)
Interest income 6 4 9 11
Interest expense (1) (1) (1) (1)
Net(loss) before extraordinary item (664) (290) (818) (595)
Extraordinary item 432
------------- -------------- --------------- -----------
Net(loss)/income (664) (290) (386) (595)
============= ============== =============== ==============
Net (loss) per share - basic and diluted $ (0.08) $ (0.03) $ (0.05) $ (0.06)
============= ============== =============== ==============
Weighted average shares outstanding 8,053 10,264 7,988 10,004
</TABLE>
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LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except per share data)
DECEMBER 31, JUNE 30,
-----------------------------------------------
1999 2000
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ASSETS (unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 724 $ 93
Inventory (less reserve $186 and $24) -- --
Prepaid expenses and advances 19 10
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Total current assets 743 103
Furniture and equipment-at cost
(less depreciation of $121 and $134) 55 42
Other assets
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TOTAL $ 798 $ 145
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,084 $ 957
Accrued expenses 95 95
Capital lease obligation 9 10
Other liabilities 253 161
-------------------- --------------------
Total current liabilities 1,441 1,223
Capital lease obligation 9 4
Deferred royalty income 339 317
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Total liabilities 1,789 1,544
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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) (36,983)
-------------------- --------------------
Total stockholders' equity (991) (1,399)
-------------------- --------------------
TOTAL $ 798 $ 145
==================== ====================
</TABLE>
4
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LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
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JUNE 30,
----------------------------------------------
1999 2000
--------------------- ----------------------
Cash flows from operating activities:
<S> <C> <C>
Net (loss) before extraordinary item $ (818) $ (595)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Extraordinary item 432 --
Depreciation 16 13
Deferred royalty income (17) (22)
Fair value of options issued as compensation 154 41
Gain on sale of NQSO by employees -- 36
Changes in operating assets and liabilities:
Decrease in inventory 110 --
(Increase) in accounts receivable (12) --
Decrease in prepaid expenses and advances 33 9
Decrease in other assets 2 --
(Decrease) in accounts payable and
accrued liabilities (428) (127)
Increase/(decrease) in other liabilities 12 (92)
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Net cash (used in) operating activities (516) (737)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (16) --
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Net cash (used in) investing activities (16) --
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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 (3) (4)
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Net cash provided by financing activities 747 106
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Net Increase/(decrease) in cash and cash equivalents 215 (631)
Cash and cash equivalents at beginning of period 485 724
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Cash and cash equivalents at end of period $ 700 $ 93
===================== ======================
</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, 1999 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 six-month
period ended June 30, 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) 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
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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 has been focusing on the advancement and
expansion of product development programs based on its proprietary bioresorbable
polymer technology. Using its platform technology, the Company has been seeking
to develop 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 preclinical studies. 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 needs immediate additional financing
in order to continue its operations. See "-Liquidity and Capital Resources."
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)). These products are in
various stages of development.
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
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RESULTS OF OPERATIONS
Revenue for the three and six month periods ended June 30, 2000 of
$62,000 and $81,000, 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 $250,000 and $1,065,000 for the three and six month periods
ended June 30, 1999, respectively, which, consists primarily of $246,000 and
$1,048,000, respectively, of sales of CLINICEL products and $4,000 and $17,000,
respectively in royalties from the product sales of the Sure-Closure System(TM).
The reduction in revenue for the three months and six months ended June 30,
2000 compared to prior year is primarily attributed to the discontinuation of
the manufacturing and sale of the CLINICEL products.
Cost of goods sold of $3,000 and $4,000 for the three and six month
periods ended June 30, 2000, reflects costs to package and ship CLINICEL to the
Company's consumer and trade customers. Cost of goods sold was $89,000 and
$372,000 for the comparable periods ended June 30, 2000. 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 $69,000 and
$187,000 for the three and six month periods ended June 30, 2000, respectively,
compared to $230,000 and $421,000 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.
Sales and marketing expenses of $21,000 for the six month period ended
June 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 June 30, 2000. The
comparable prior year periods costs were $258,000 and $123,000.
General and administrative expenses of $283,000 and $473,000 for the
three and six month periods ended June 30, 2000, respectively, compared to
$477,000 and $840,000 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 $4,000 and $11,000 for the three and six month
periods ending June 30, 2000, respectively, and $6,000 and $9,000 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 other income of $432,000 for the six month period
ended June 30, 1999. This other income is attributable to a reduction in accrued
expenses in exchange for certain equipment, the cost of which had previously
been charged to research and development expense. There was no comparable other
income in the current year period ended June 30, 2000.
The Company's net loss was $290,000 and $595,000 for the three and six
months ended June 30, 2000, respectively, compared to $664,000 and $386,000 for
the comparable prior year periods. The comparisons to the prior year periods are
distorted by the impact of other income explained above. The Company expects to
incur losses in future periods.
8
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $93,000 and $724,000 at June 30, 2000 and
December 31, 1999, respectively.
At June 30, 2000, the Company had a working capital deficit of $1,120,000.
The current cash and cash equivalents balance as of June 30, 2000 will not be
sufficient to meet the Company's near term cash requirements. The Company is in
immediate need of additional funds in order to continue its operations. Although
the Company has been seeking additional financing, the Company presently has no
financing commitments, and there can be no assurance that sufficient financing
will be available within the necessary time frame. If the Company is unable to
obtain necessary immediate financing, the Company will be forced to cease its
existing operations and may be forced to declare bankruptcy.
9
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 13, 2000, in conjunction with the Company's Annual Meeting, a
referendum was approved by shareholders increasing the number of authorized
shares of common stock from 23,750,000 to 43,750,000. With 87.9% of the
outstanding shares voted, this proposition was endorsed by 69.2% of the
outstanding shares voted with 18.0% opposed and 0.7% abstained. In addition, the
slate of Directors supported by the Company was reelected with 86.7% of the
outstanding shares voted and the accounting firm of Richard A. Eisner was
reappointed as the Company's auditors with 87.1% of the outstanding shares
voted.
ITEM 5. OTHER INFORMATION
On July 27, 2000, Mr. Joel Gold tendered his resignation as a member of
the Company's Board of Directors. Mr. Gold's resignation reduces the membership
of the Board to five members; this number will be maintained with no immediate
plans to fill the vacancy.
On July 31, 2000, Dr. Eli Pines, the Company's Vice President of
Research and Development terminated his relationship with the Company in
conjunction with his relocation to California. The Company will defer recruiting
for his replacement pending resolution of its financing requirements.
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: August 13, 2000 /S/ ROBERT P. HICKEY
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ROBERT P. HICKEY
CHAIRMAN, PRESIDENT, CEO AND ACTING CFO
11
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EXHIBIT INDEX
27. Financial Data Schedule
12
