FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 2002
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: 01-19890
LIFECELL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0172936
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE MILLENNIUM WAY 08876
BRANCHBURG, NEW JERSEY (zip code)
(Address of principal executive office)
(908) 947-1100
(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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 1, 2002, there were outstanding 21,306,995 shares of common
stock, par value $.001, and 71,278 shares of Series B preferred stock, par value
$.001 (which are convertible into approximately an additional 2,691,240 shares
of common stock), of the registrant.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
LIFECELL CORPORATION
BALANCE SHEETS
(unaudited)
September 30, December 31,
2002 2001
--------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,114,000 $ 4,650,000
Short-term investments 250,000 250,000
Accounts and other receivables, net 3,826,000 3,799,000
Inventories 5,781,000 4,691,000
Prepayments and other 341,000 319,000
--------------- --------------
Total current assets 15,312,000 13,709,000
Fixed assets, net 7,645,000 8,728,000
Other assets, net 619,000 694,000
--------------- --------------
Total assets $ 23,576,000 $ 23,131,000
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,034,000 $ 792,000
Accrued liabilities 3,085,000 2,732,000
Current maturities of long-term debt 674,000 1,334,000
--------------- --------------
Total current liabilities 4,793,000 4,858,000
Deferred revenue 407,000 572,000
Long-term debt, net of current maturities 526,000 863,000
Other long-term liabilities 87,000 70,000
--------------- --------------
Total liabilities 5,813,000 6,363,000
--------------- --------------
Commitments and contingencies
Temporary equity:
Common stock, subject to redemption, $.001 par value, shares
issued and outstanding 460,636 in 2002 and 2001 1,935,000 1,935,000
--------------- --------------
Stockholders' equity:
Series B preferred stock, $.001 par value, 182,205 shares authorized;
shares issued and outstanding 74,278 in 2002 and 101,726 in 2001
(liquidation preference at September 30, 2002 of $7,428,000) -- --
Undesignated preferred stock, $.001 par value, 1,817,795 shares
authorized; none issued and outstanding -- --
Common stock, $.001 par value, 48,000,000 shares authorized;
shares issued and outstanding 20,846,359 in 2002 and
19,851,868 in 2001 21,000 20,000
Warrants to purchase shares of common stock;
2,284,211 outstanding in 2002 and 2001 4,002,000 4,002,000
Additional paid-in capital 76,581,000 76,581,000
Accumulated deficit (64,776,000) (65,770,000)
--------------- --------------
Total stockholders' equity 15,828,000 14,833,000
--------------- --------------
Total liabilities and stockholders' equity $ 23,576,000 $ 23,131,000
=============== ==============
The accompanying notes are an integral part of these financial statements.
2
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- -----------------------------------
2002 2001 2002 2001
---------------- ---------------- ---------------- -----------------
Revenues:
Product revenues $ 8,711,000 $ 6,454,000 $ 24,071,000 $ 19,889,000
Research grant revenues 391,000 200,000 1,084,000 987,000
---------------- ---------------- ---------------- -----------------
Total revenues 9,102,000 6,654,000 25,155,000 20,876,000
---------------- ---------------- ---------------- -----------------
Costs and expenses:
Cost of products sold 2,642,000 1,949,000 7,551,000 6,802,000
Research and development 1,295,000 998,000 3,594,000 3,287,000
General and administrative 1,293,000 937,000 3,490,000 3,277,000
Selling and marketing 3,401,000 2,847,000 9,555,000 9,185,000
---------------- ---------------- ---------------- -----------------
Total costs and expenses 8,631,000 6,731,000 24,190,000 22,551,000
---------------- ---------------- ---------------- -----------------
Income (loss) from operations 471,000 (77,000) 965,000 (1,675,000)
Interest and other expense, net (29,000) (122,000) (121,000) (497,000)
---------------- ---------------- ---------------- -----------------
Income (loss) before income taxes 442,000 (199,000) 844,000 (2,172,000)
Income tax (provision) benefit (98,000) - 150,000 -
---------------- ---------------- ---------------- -----------------
Net income (loss) 344,000 (199,000) 994,000 (2,172,000)
Preferred stock dividends - (150,000) - (440,000)
---------------- ---------------- ---------------- -----------------
Net income (loss) applicable to
common stockholders $ 344,000 $ (349,000) $ 994,000 $ (2,612,000)
================ ================ ================ =================
Net income (loss) per common share:
Basic $ 0.02 $ (0.02) $ 0.05 $ (0.15)
================ ================ ================ =================
Diluted $ 0.01 $ (0.02) $ 0.04 $ (0.15)
================ ================ ================ =================
Shares used in computing net income
(loss) per common share:
Basic 21,306,995 19,528,666 21,131,323 17,659,461
================ ================ ================ =================
Diluted 24,230,967 19,528,666 24,750,515 17,659,461
================ ================ ================ =================
The accompanying notes are an integral part of these financial statements
3
LIFECELL CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
----------------------------------
2002 2001
---------------- ----------------
Cash flows from operating activities:
Net income (loss) $ 994,000 $ (2,172,000)
Adjustments to reconcile net income to net cash generated from (used in)
operating activities:
Depreciation and amortization 1,597,000 1,255,000
Provision for bad debt - 26,000
Accretion of debt discount - 138,000
Change in assets and liabilities:
(Increase) decrease in accounts and other receivables (27,000) 817,000
(Increase) decrease in inventories (1,090,000) 383,000
(Increase) in prepayments and other (22,000) (199,000)
Increase (decrease) in accounts payable and accrued liabilities 595,000 (1,848,000)
(Decrease) in deferred revenues (165,000) (166,000)
Increase (decrease) in other liabilities 18,000 (19,000)
---------------- ----------------
Net cash generated from (used in) operating activities 1,900,000 (1,785,000)
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (439,000) (319,000)
Addition to patents - (99,000)
---------------- ----------------
Net cash used in investing activities (439,000) (418,000)
---------------- ----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants - 5,915,000
Payments under notes payable - (2,997,000)
Principal payments on long-term debt (997,000) (871,000)
Cash dividends paid - (3,000)
---------------- ----------------
Net cash used in financing activities (997,000) 2,044,000
Net increase (decrease) in cash and cash equivalents 464,000 (159,000)
Cash and cash equivalents at beginning of period 4,650,000 5,220,000
---------------- ----------------
Cash and cash equivalents at end of period $ 5,114,000 $ 5,061,000
================ ================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 170,000 $ 592,000
================ ================
Supplemental disclosure of non-cash financing activities:
Series B preferred stock issued as payment of dividends $ - $ 430,000
================ ================
The accompanying notes are an integral part of these financial statements.
4
LIFECELL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in the annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations. This
financial information should be read in conjunction with the financial
statements and notes thereto included within the Company's Annual Report on Form
10-K for the year ended December 31, 2001.
The unaudited financial statements reflect all adjustments (consisting only of
normal recurring adjustments) considered necessary by management for a fair
presentation of financial position, results of operations and cash flows for the
periods presented. The financial results for interim periods are not
necessarily indicative of the results to be expected for the full year or future
interim periods.
2. INVENTORIES
Inventories consist of the following:
September 30, December 31,
2002 2001
-------------- -------------
Tissue and materials . . . . . . . . . . . $ 2,373,000 $ 1,314,000
Tissue products in-process . . . . . . . . 1,750,000 1,307,000
Finished tissue products . . . . . . . . . 1,658,000 2,070,000
-------------- -------------
Total inventories. . . . . . . . . . . . $ 5,781,000 $ 4,691,000
============== =============
3. COMMITMENTS AND CONTINGENCIES
Litigation
- ----------
The Company is a party to litigation in the Superior Court of California, Los
Angeles County, Central District, captioned Regner, et al., on behalf of
themselves and others similarly situated, v. Inland Eye & Tissue Bank of
Redlands, et al. The complaint alleges among other things, defendants,
including the Company, make profits from the storing, processing, and
distribution of human tissue in contravention of California law. The Company is
also a party to litigation in the Superior Court of California, Los Angeles
County, Central District, captioned Thacker, et al., on behalf of themselves and
others similarly situated, v. Inland Eye & Tissue Bank of Redlands, et al. This
complaint contains similar allegations to the Regner complaint, and the two
cases have been combined. These actions are not denominated class actions and
do not involve tort theories. Both actions were brought under a statute that
allows individuals to sue on behalf of the people of California for unfair
business practices, with the court having the power to award injunctive relief
and disgorgement of all profits from the alleged illegal practices. The
plaintiffs have agreed to dismiss all claims against the Company, while the
Company promises not to sue plaintiffs for malicious prosecution. A court order
embodying this settlement, consented to by all parties of the suit, is currently
before the Court, but has not yet been signed.
In June 2002, a complaint was filed in the Superior Court of California, Los
Angeles County, Central District, captioned Joan Savitt, individually and on
behalf of others similarly situated, v. Doheny Eye & Tissue Bank, et al. The
complaint alleges among other things, the Company, by engaging in the storing,
processing and distribution of human tissue, violates the public policy and laws
of the state of California in various ways. The Company has not yet answered
the complaint. The Company believes that the claims against it in this
complaint are without merit and intends to vigorously defend against such
action.
5
From time to time the Company is party to various legal proceedings incident to
operating a company of its size which are not deemed to be material to its
business operations or financial condition. The Company maintains insurance
coverage for events and in amounts that it deems appropriate. There can be no
assurance that the level of insurance maintained will be sufficient to cover any
claims incurred by the Company or that the type of claims will be covered by the
terms of insurance coverage.
4. INCOME TAXES
The Company has not recorded a federal provision for income taxes in the three
months and nine months ended September 30, 2002, as it expects to utilize net
operating loss and other tax credit carryforwards to offset its taxable income.
In July 2002, the State of New Jersey enacted tax legislation which limits the
ability to utilize state tax loss carryforwards to offset taxable income in 2002
and 2003. The legislation is retroactive to January 1, 2002, and accordingly,
the Company recorded a provision for state income taxes in the third quarter of
2002 for net income earned for the nine months ended September 30, 2002.
In March 2002, the Company realized $248,000 through the sale and transfer of
$3.2 million of state tax net operating losses. The sale and transfer was made
through the Technology Business Tax Certificate Program sponsored by the New
Jersey Economic Development Authority. The amount was recorded when realized
and has been reflected as an income tax benefit in the statement of operations.
The Company has applied to the Technology Business Tax Certificate Program in
2002, but has not yet received notification of approval.
5. NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the three-month and nine-month periods ended September 30, 2002 and
2001:
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
--------------- ---------------- --------------- ----------------
Net income (loss) applicable to
common stockholders $ 344,000 $ (349,000) 994,000 (2,263,000)
=============== ================ =============== ================
Weighted average common shares
outstanding 21,306,995 19,528,666 21,131,323 17,659,461
--------------- ---------------- --------------- ----------------
Denominator for basic net income (loss)
per share 21,306,995 19,528,666 21,131,323 17,659,461
--------------- ---------------- --------------- ----------------
Effect of dilutive securities:
Series B preferred stock assuming
conversion 2,691,240 - 2,866,914 -
Warrants 206,506 - 564,476 -
Common stock options 10,905 - 172,481 -
Assumed deemed dividend on
common stock subject to redemption 15,321 - 15,321 -
--------------- ---------------- --------------- ----------------
Denominator for diluted net income (loss)
per share 24,230,967 19,528,666 24,750,515 17,659,461
--------------- ---------------- --------------- ----------------
Basic net income (loss) per share $ 0.02 $ (0.02) $ 0.05 $ (0.15)
=============== ================ =============== ================
--------------- ---------------- --------------- ----------------
Diluted net income (loss) per share $ 0.01 $ (0.02) $ 0.04 $ (0.15)
=============== ================ =============== ================
6
The calculation of net income per share for the three months ended September 30,
2002 excludes potentially dilutive common stock equivalents consisting of
outstanding options to purchase 2,926,644 shares of common stock and warrants to
purchase 334,211 shares of common stock because their inclusion would be
antidilutive. The calculation of net income per share for the nine months ended
September 30, 2002 excludes potentially dilutive common stock equivalents
consisting of outstanding options to purchase 2,133,019 shares of common stock
and warrants to purchase 334,211 shares of common stock because their inclusion
would be antidilutive. The calculation of net income per share for the three
months and nine months ended September 30, 2001 excludes potentially dilutive
common stock equivalents consisting of Series B preferred stock which is
convertible into 3,541,798 shares of common stock, outstanding options to
purchase 2,717,669 shares of common stock, warrants to purchase 5,477,939 shares
of common stock and the potential issuance of 592,246 shares assuming a deemed
dividend on common stock subject to redemption because their inclusion would be
antidilutive.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
---------------
The following discussion of our operations and financial condition should be
read in conjunction with the Financial Statements and Notes included in Part I.
"Financial Information".
This report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements typically are identified by use of terms such as
"may," "will," "should," "plan," "expect," "anticipate," "estimate," "believe"
and similar words, although some forward-looking statements are expressed
differently. Forward-looking statements represent our management's judgment
regarding future events. Although we believe that the expectations reflected in
such forward-looking statements are reasonable, we can give no assurance that
such expectations will prove to be correct. All statements other than
statements of historical fact included in this report regarding our financial
position, business strategy, products, products under development, markets,
budgets, plans, or objectives for future operations are forward-looking
statements. We cannot guarantee the accuracy of the forward-looking statements,
and you should be aware that our actual results could differ materially from
those contained in the forward-looking statements due to a number of factors,
including the statements under "Risk Factors" and "Critical Accounting Policies"
detailed in our Annual Report on form 10-K for the year ended December 31, 2001
and other reports filed with the Securities and Exchange Commission.
GENERAL AND BACKGROUND
We develop and market biologically based solutions for the repair and
replacement of damaged or inadequate human tissue in numerous different clinical
applications. Our core tissue matrix technology removes cells from the tissue
and preserves the tissue without damaging the essential biochemical and
structural components necessary for normal tissue regeneration. We currently
market four proprietary human tissue based products: AlloDerm(R) for plastic
reconstructive and burn procedures through our direct sales force and for
periodontal procedures through BioHorizons, Inc.; Cymetra(R), a version of
AlloDerm in particulate form for the correction of soft tissue defects, through
our direct sales force and a co-promotion agreement with OMP, Inc.;
Repliform(TM), a version of AlloDerm for urology and gynecology procedures,
through a marketing and distribution agreement with Boston Scientific
Corporation; and Graft Jacket(TM), an acellular periostium replacement graft
through a distribution agreement with Wright Medical Group, Inc. We are also
the exclusive marketing agent for the SmartPReP(TM) Platelet Concentration
System in the United States to ear, nose and throat (ENT), plastic
reconstructive and general surgeons in hospitals. Sales of Graft Jacket
commenced during the third quarter 2002 and SmartPReP sales will commence during
the fourth quarter of 2002. Our development programs include the potential
application of our tissue matrix technology to vascular, nerve and orthopedic
tissue repair; investigation of human tissues as carriers for therapeutics;
Thrombosol(TM), a formulation for extended storage of platelets and technologies
to enhance the storage of red blood cells for transfusion
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Total revenues for the three months ended September 30, 2002 increased 37% to
$9.1 million compared to $6.7 million for the same period in 2001. The increase
was primarily attributable to a 35% increase in product revenues to $8.7 million
in the current period compared to $6.5 million in the prior year. The increase
in product revenues was largely due to increased demand for our AlloDerm
products. AlloDerm revenues increased 54% to $4.7 million in the three months
7
ended September 30, 2002 compared to $3.1 million in the same period in 2001.
The increase was primarily attributable to expanded clinical application of the
Company's AlloDerm products to new markets. Repliform revenues increased 13% to
$2.6 million in the third quarter of 2002 compared to $2.3 million in the third
quarter of 2001. Cymetra revenues contributed $1.0 million in the third quarter
of 2002 and 2001. Revenues in the quarter ended September 30, 2001 were
negatively impacted by the Company's inability to ship products to its customers
for several days following the tragic events of September 11, 2001.
Boston Scientific Corporation is our exclusive worldwide sales and marketing
representative for Repliform for use in the urology and gynecology markets and
OMP, Inc. is our exclusive sales and marketing representative for Cymetra for
office-based dermatologists and plastic surgeons. During the three months ended
September 30, 2002, sales of our products through Boston Scientific and OMP
represented 29% and 8%, respectively, of our total product revenues compared to
35% and 11%, respectively, for the same period in 2001. Both Boston Scientific
and OMP are paid agency fees based on the amount of product revenues they
generate for us. Such fees are recorded as selling and marketing expenses.
Cost of products sold for the three months ended September 30, 2002 was $2.6
million, or 30% of product revenues, compared to cost of products sold of $1.9
million, or 30% of product revenues for the same period in 2001.
Total research and development expenses of $1.3 million for the three months
ended September 30, 2002 were up from $1.0 million for the same period in 2001
primarily due to increased spending on certain funded research programs focused
on the potential application of our tissue matrix technology to vascular and
orthopedic tissue. Research grant revenues totaled $391,000 for the three months
ended September 30, 2002, up from $200,000 for the same period in 2001. The
increase was due to higher spending on certain research programs that are funded
by government grants.
General and administrative expenses increased to $1.3 million for the three
months ended September 30, 2002 compared to $937,000 in the same period in 2001.
The increase in the third quarter of 2002 was primarily attributable to
increased recruiting and investor relations expenses.
Selling and marketing expenses increased 19% to $3.4 million for the three
months ended September 30, 2002 compared to $2.8 million in the same period in
2001. The increase in the third quarter of 2002 was primarily attributable to
higher selling expense related to the 35% increase in product revenues.
Interest and other income (expense), net decreased $93,000 for the three months
ended September 30, 2002 compared to 2001. The net decrease was due to a
$113,000 decrease in interest expense resulting from a decrease in debt
outstanding, partially offset by a $20,000 decline in interest income resulting
from lower average interest rates during the period.
In July 2002, the State of New Jersey enacted tax legislation that limits the
ability to utilize state tax loss carryforwards to offset taxable income in 2002
and 2003. The legislation is retroactive to January 1, 2002, and accordingly,
the $98,000 provision for taxes recorded in the third quarter of 2002 relates to
net income earned for the nine months ended September 30, 2002. In 2001, we
utilized state tax loss carryforwards to offset taxable income. We have not
recorded a federal provision for income taxes in the three months ended
September 30, 2002, as we expect to utilize net operating loss and other tax
credit carryforwards to offset taxable income.
Net income for the three months ended September 30, 2002 totaled $344,000, a
$543,000 improvement from the $199,000 loss for the same period in 2001. The
improvement in net income in 2002 was principally due to higher product
revenues. Basic net income per common share increased to $0.02 and diluted net
income per common share increased to $0.01 in the three months ended September
30, 2002, compared to $0.02 per share net loss in the same period in 2001. The
net loss per common share in the same period in 2001 included $0.01 per share
attributable to dividends on preferred stock, which no longer accrue.
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Total revenues for the nine months ended September 30, 2002 increased 20% to
$25.2 million compared to $20.9 million for the same period in 2001. Product
revenues of $24.1 million were 21% above the $19.9 million reported in the first
nine months of 2001. The increase in product revenues was largely due to
increased demand for our AlloDerm products. AlloDerm revenues increased 34% to
$12.6 million in the nine months ended September 30, 2002 compared to $9.4
million in the same period in 2001. Repliform revenues increased 6% to $7.4
million in the nine months ended September 30, 2002 compared to $7.0 million for
the same period in 2001 while Cymetra revenues decreased slightly to $2.9
million in the first nine months of 2002 from $3.1 million in the first nine
months of 2001. During the nine months ended September 30, 2002, sales of our
products generated through Boston Scientific Corporation and OMP represented 31%
and 9%, respectively, of our total product revenues, compared to 35% and 9%,
respectively, for the same period in 2001.
8
Cost of products sold for the nine months ended September 30, 2002 was $7.6
million, or 31% of product revenues, compared to cost of products sold of $6.8
million, or 34% of product revenues for the same period in 2001. The cost of
products sold as a percentage of product revenues improved due to efficiencies
realized in our processing operation as a result of volume increases and process
improvements.
Total research and development expenses of $3.6 million for the nine months
ended September 30, 2002 were up 9% from $3.3 million from the first nine months
of 2001, primarily as the result of higher spending on certain funded research
programs focused on the potential application of our technology to vascular and
orthopedic tissue. Research grant revenues were up $97,000, totaling $1.1
million for the nine months ended September 30, 2002 and $1.0 million for the
same period in 2001.
General and administrative expenses for the nine months ended September 30, 2002
were $3.5 million, up 6% from the $3.3 million for the same period of 2001. The
increase was primarily in increased investor relations and recruiting expenses.
Selling and marketing expenses increased 4% to $9.6 million for the nine months
ended September 30, 2002 compared to $9.2 million in the same period in 2001.
The increase in the first nine months of 2002 was primarily attributable to
higher selling expense related to the increase in product revenues.
Interest and other income (expense), net decreased $376,000 for the nine months
ended September 30, 2002 compared to 2001. The net decrease was due to a
$436,000 decrease in interest expense resulting from a decrease in debt
outstanding, partially offset by a $60,000 decline in interest income resulting
from lower average interest rates during the period.
In the first nine months of 2002, we recorded a $98,000 provision for state
income taxes. In 2001, we utilized state tax loss carryforwards to offset
taxable income. We have not recorded a federal provision for income taxes in
the nine months ended September 30, 2002, as we expect to utilize net operating
loss and other tax credit carryforwards to offset taxable income. Additionally,
during the first nine months of 2002, we realized $248,000 from the sale and
transfer of $3.2 million of state tax net operating losses, which was recorded
as a tax benefit in the statement of operations. The sale and transfer was made
through the Technology Business Tax Certificate Program sponsored by the New
Jersey Economic Development Authority.
Net income for the nine months ended September 30, 2002 totaled $1.0 million, a
$3.2 million improvement from the $2.2 million loss for the same period in 2001.
The improvement in net income in 2002 was principally due to higher product
revenues and the income tax benefit from the sale of the state tax net operating
losses. Basic net income per common share increased to $0.05 and diluted net
income per common share increased to $0.04 in the nine months ended September
30, 2002, compared to $0.15 per share net loss in the same period in 2001. The
net loss per common share in 2001 included $0.02 per share attributable to
dividends on preferred stock, which no longer accrue.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, we had cash and cash equivalents and short-term
investments of $5.4 million compared to $4.9 million at December 31, 2001.
Working capital increased to $10.5 million at September 30, 2002 from $8.9
million at December 31, 2001. The increase resulted principally from increases
in cash and inventory, partially offset by an increase in accounts payable and
accrued liabilities. Inventory increased as a result of higher receipts of
tissue from our organ procurement organizations and tissue banks.
Our operating activities generated net cash of $1.9 million for the nine months
ended September 30, 2002 compared to net cash used of $1.8 million for the same
period in 2001. The increase in 2002 resulted primarily from higher net income,
partly offset by an increase in inventory as discussed above. Additionally, in
the first nine months of 2001, we used $1.8 million in cash to reduce accounts
payable and accrued liabilities.
Our investing activities, which consist of purchases of capital equipment and
additions to patents, used net cash of $439,000 for the nine months ended
September 30, 2002 compared to $418,000 for the same period in 2001.
9
Our financing activities used $997,000 for the nine-month period ended September
30, 2002 for principal payments on long-term debt. At September 30, 2002, we
had an aggregate of $1.2 million outstanding under our borrowing arrangements
compared to $2.6 million outstanding at September 30, 2001. The following table
reflects a summary of our contractual cash obligations as of September 30, 2002:
Payments Due by Period
----------------------------------------------------------------------------
Less than one
Total year 1 to 3 years 4 to 5 years After 5 years
-------------- ------------- ------------- -------------- --------------
Long-term debt(1) $ 1,200,000 $ 674,000 $ 118,000 $ 142,000 $ 266,000
Operating leases 6,036,000 833,000 1,722,000 1,777,000 1,704,000
-------------- ------------- ------------- -------------- --------------
Total contractual
cash obligations $ 7,236,000 $ 1,507,000 $ 1,840,000 $ 1,919,000 $ 1,970,000
============== ============= ============= ============== ==============
(1) Under our debt agreements, the maturity of our outstanding debt could be
accelerated if we do not maintain certain covenants.
We believe that our current cash resources together with anticipated product
revenues and committed research and development grant funding will be sufficient
to finance our planned operations, research and development programs and fixed
asset requirements in the foreseeable future. However, there can be no
assurance that such sources of funds will be sufficient to meet our long-term
needs and as a result, we may need additional funding. Currently we have no
additional borrowing availability through our existing credit facilities or
commitments for any future funding. There can be no assurance that we will be
able to obtain additional funding from either debt or equity financing, bank
loans, collaborative arrangements or other sources on terms acceptable to us, or
at all. If adequate funds are not available, we expect that we will be required
to delay, scale back or eliminate one or more of our research and development
programs. Any additional equity financing may be dilutive to stockholders, and
debt financing, if available, may involve significant restrictive covenants.
Collaborative arrangements, if necessary to raise additional funds, may require
us to relinquish our rights to certain of our technologies, products or
marketing territories.
At September 30, 2002, there were 460,636 shares of common stock outstanding
that are subject to redemption by us under certain conditions. These shares
were issued to one investor in a private placement in November 1999. Pursuant
to the terms of the purchase agreement, if we do not maintain a listing on or
quotation of our shares of common stock on a U.S. stock exchange or market
system we will be required to redeem such shares at $4.20 per share or $1.9
million in the aggregate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
We are exposed to changes in interest rates primarily from our debt arrangements
and, secondarily, from our investments in certain securities. Although our
short-term investments are available for sale, we generally hold such
investments until maturity. We do not utilize derivative instruments or other
market risk sensitive instruments to manage exposure to interest rate changes.
We believe that a hypothetical 100 basis point adverse move in interest rates
along the entire interest rate yield curve would not materially affect the fair
value of our interest sensitive financial instruments at September 30, 2002.
10
Item 4 Controls and Procedures
- ----------------------------------
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to us required to be included in our
periodic SEC filings. There have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
-------------------------------------
a. Exhibits
99.1 Certification of the Registrant's Chief Executive
Officer, Paul G. Thomas, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of the Registrant's Chief Financial
Officer, Steven T. Sobieski, pursuant to Section 906 f
the Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K
none
11
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.
LIFECELL CORPORATION
Date: November 11, 2002 By: /s/ Paul Thomas
--------------------------------
Paul G. Thomas
Chairman of the Board
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 11, 2002 By: /s/ Steven Sobieski
--------------------------------
Steven T. Sobieski
Vice President, Finance
Chief Financial Officer and Secretary
(Principal Financial Officer)
Date: November 11, 2002 By: /s/ Bradly Tyler
--------------------------------
Bradly C. Tyler
Controller
(Principal Accounting Officer)
12
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul G. Thomas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LifeCell Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002
/s/ Paul G. Thomas
- ---------------------
Paul G. Thomas
Chairman of the Board
President and Chief Executive Officer
13
I, Steven T. Sobieski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LifeCell Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002
/s/ Steven T. Sobieski
- -------------------------------------
Steven T. Sobieski
Vice President, Finance
Chief Financial Officer and Secretary
14