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 JUNE 30, 2003
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). YES NO X
--- ---
As of July 21, 2003, there were outstanding 21,350,268 shares of common stock,
par value $.001, and 73,119 shares of Series B preferred stock, par value $.001
(which are convertible into approximately an additional 2,649,248 shares of
common stock), of the registrant.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
LIFECELL CORPORATION
BALANCE SHEETS
(unaudited)
June 30, December 31,
2003 2002
------------- --------------
ASSETS
Current assets
Cash and cash equivalents $ 4,459,000 $ 5,202,000
Short-term investments 256,000 256,000
Receivables, less allowance for doubtful accounts of
$93,000 and $40,000 in 2003 and 2002 4,581,000 4,332,000
Inventories 7,744,000 6,367,000
Prepayments and other 261,000 257,000
------------- --------------
Total current assets 17,301,000 16,414,000
Fixed assets, net 7,847,000 7,091,000
Other assets, net 586,000 611,000
------------- --------------
Total assets $ 25,734,000 $ 24,116,000
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,931,000 $ 1,438,000
Accrued liabilities 3,040,000 3,173,000
Current maturities of long-term debt 631,000 337,000
------------- --------------
Total current liabilities 5,602,000 4,948,000
Deferred revenue 241,000 351,000
------------- --------------
Long-term debt 590,000 526,000
------------- --------------
Other liabilities 162,000 94,000
------------- --------------
Commitments and contingencies
Temporary equity
Common stock, subject to redemption, $.001 par value, 0 and 113,836
shares issued and outstanding in 2003 and 2002 -- 478,000
Stockholders' equity
Series B preferred stock, $.001 par value, 182,205 shares authorized;
73,121 and 74,278 shares issued and outstanding in 2003 and 2002
(liquidation preference at March 31, 2003 of $7,312,000) -- --
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;
21,348,914 and 21,193,159 shares issued and outstanding in
2003 and 2002 21,000 21,000
Warrants to purchase shares of common stock;
2,284,211 outstanding in 2003 and 2002 4,002,000 4,002,000
Additional paid-in capital 78,515,000 78,037,000
Accumulated deficit (63,399,000) (64,341,000)
------------- --------------
Total stockholders' equity 19,139,000 17,719,000
------------- --------------
Total liabilities and stockholders' equity $ 25,734,000 $ 24,116,000
============= ==============
The accompanying notes are an integral part of these financial statements.
2
LIFECELL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues:
Product revenues $ 9,143,000 $ 8,050,000 $17,728,000 $15,360,000
Research grant revenues 537,000 344,000 947,000 693,000
------------ ------------ ------------ ------------
Total revenues 9,680,000 8,394,000 18,675,000 16,053,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of products sold 2,820,000 2,513,000 5,360,000 4,909,000
Research and development 1,224,000 1,177,000 2,483,000 2,299,000
General and administrative 1,457,000 1,153,000 2,778,000 2,197,000
Selling and marketing 3,704,000 3,296,000 7,201,000 6,154,000
------------ ------------ ------------ ------------
Total costs and expenses 9,205,000 8,139,000 17,822,000 15,559,000
------------ ------------ ------------ ------------
Income from operations 475,000 255,000 853,000 494,000
Interest and other expense, net (20,000) (41,000) (34,000) (92,000)
------------ ------------ ------------ ------------
Income before income taxes 455,000 214,000 819,000 402,000
Income tax benefit (provision) (75,000) - 123,000 248,000
------------ ------------ ------------ ------------
Net income $ 380,000 $ 214,000 $ 942,000 $ 650,000
============ ============ ============ ============
Net income per common share:
Basic $ 0.02 $ 0.01 $ 0.04 $ 0.03
============ ============ ============ ============
Diluted $ 0.01 $ 0.01 $ 0.04 $ 0.03
============ ============ ============ ============
Shares used in computing net income
per common share:
Basic 21,336,052 21,303,746 21,312,758 21,042,030
============ ============ ============ ============
Diluted 25,467,406 24,841,869 25,076,893 24,957,507
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
3
LIFECELL CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended June 30,
--------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income $ 942,000 $ 650,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 842,000 992,000
Provision for bad debt (56,000) -
Deferred revenues (110,000) (110,000)
Deferred rent expense 68,000 12,000
Increase (decrease) in cash from working capital:
Receivables (193,000) (315,000)
Inventories (1,377,000) (1,167,000)
Prepayments and other (4,000) 157,000
Accounts payable and accrued liabilities 360,000 878,000
------------ ------------
Net cash provided by operating activities 472,000 1,097,000
------------ ------------
Cash flows from investing activities:
Capital expenditures (1,573,000) (203,000)
------------ ------------
Net cash used in investing activities (1,573,000) (203,000)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,451,000 -
Principal payments on long-term debt (1,093,000) (623,000)
------------ ------------
Net cash provided by (used in) financing activities 358,000 (623,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents (743,000) 271,000
Cash and cash equivalents at beginning of period 5,202,000 4,650,000
------------ ------------
Cash and cash equivalents at end of period $ 4,459,000 $ 4,921,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 41,000 $ 84,000
============ ============
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, 2002.
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:
June 30, December 31,
2003 2002
---------- ------------
Tissue and materials . . . . . . . . $3,422,000 $ 2,940,000
Tissue products in-process . . . . . 1,951,000 1,446,000
Finished tissue products . . . . . . 2,371,000 1,981,000
---------- ------------
Total inventories. . . . . . . . $7,744,000 $ 6,367,000
========== ============
3. FINANCING ARRANGEMENTS AND LONG-TERM DEBT
In January 2003, the Company secured a $4 million credit facility through a
financial institution consisting of a $2 million revolving line of credit and an
equipment line for up to an additional $2 million. The credit facility is
collateralized by the Company's accounts receivable, inventory, intellectual
property, intangible and fixed assets. The agreement contains certain financial
covenants and a subjective acceleration clause. The revolving line of credit
bears interest at the bank prime rate plus 0.75% and is available through
January 2004. The equipment term note bears interest at the bank prime rate plus
1.5%. In January 2003, the Company received proceeds of $880,000 under the
equipment line portion of the credit facility and used these proceeds to repay
the debt and accrued interest outstanding at December 31, 2002. In March 2003,
the Company received additional proceeds of $571,000 under the equipment line
portion of the credit facility to finance capital expenditures. Advances under
the equipment line were only available through March 31, 2003 and, accordingly,
the unused portion of the equipment line has expired.
Long-term borrowings at June 30, 2003 had the following scheduled maturities:
2003 $ 315,000
2004 631,000
2005 227,000
2006 48,000
----------
Total $1,221,000
==========
5
4. INCOME TAXES
In January 2003, the Company realized $235,000 through the sale and transfer of
$3.0 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 realized has been reflected as
an income tax benefit in the statement of operations.
The Company has provided a full valuation allowance against its net deferred tax
assets due to its lack of historical profitability. However, the second quarter
of 2003 was the Company's seventh consecutive profitable quarter and once the
Company achieves cumulative profitability over a three-year period, it will
assess whether to recognize some or all of these deferred tax assets. The
reversal of all or a portion of the valuation allowance would lead to a
significant tax benefit being recorded.
5. CAPITAL STOCK, OPTIONS AND WARRANTS
Common stock, subject to redemption
In July 2003, the Company received notification that the investor holding the
common stock subject to redemption sold the remainder of all such shares and
accordingly, the redemption rights terminated. As a result, such shares have
been reclassified to common stock as of June 30, 2003.
Options
In May 2003, the Company's shareholders approved an amendment to the Company's
2000 Stock Option Plan (the "2000 Plan") increasing the number of shares
reserved for issuance under the 2000 Plan by 2,000,000 shares, from 1,500,000 to
3,500,000.
In May 2003, the Company's shareholders approved the LifeCell Corporation 2003
Non-Employee Director Stock Option Plan (the "2003 Directors Plan"). Under the
2003 Directors Plan, options may be granted to purchase up to 750,000 shares of
the Company's common stock through March 2013. Options granted will vest on the
first anniversary and will have a maximum term of ten years. The 2003 Directors
Plan is intended to replace the Second Amended and Restated 1993 Non-Employee
Director Stock Option Plan, which terminates in July 2003.
The following table illustrates the effect on net income and earnings per share
if the company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income, as reported $ 380,000 $ 214,000 $ 942,000 $ 650,000
Less: Total stock-based compensation
expense determined under fair
value based method for all awards,
net of related tax effects (264,000) (318,000) (556,000) (651,000)
---------- ---------- ---------- ----------
Net Income, Pro forma $ 116,000 $(104,000) $ 386,000 $ (1,000)
========== ========== ========== ==========
Income per common share - basic
As reported $ 0.02 $ 0.01 $ 0.04 $ 0.03
========== ========== ========== ==========
Pro forma $ 0.01 $ 0.00 $ 0.02 $ 0.00
========== ========== ========== ==========
Income per common share - diluted
As reported $ 0.01 $ 0.01 $ 0.04 $ 0.03
========== ========== ========== ==========
Pro forma $ 0.00 $ 0.00 $ 0.02 $ 0.00
========== ========== ========== ==========
6
6. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income
per share:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income applicable to
common stockholders $ 380,000 $ 214,000 $ 942,000 $ 650,000
=========== =========== =========== ===========
Weighted average common shares
outstanding 21,336,052 21,303,746 21,312,758 21,042,030
----------- ----------- ----------- -----------
Denominator for basic net income
per share 21,336,052 21,303,746 21,312,758 21,042,030
----------- ----------- ----------- -----------
Effect of dilutive securities:
Series B preferred stock assuming
conversion 2,662,183 2,694,489 2,685,477 2,956,207
Warrants 913,536 627,010 731,818 697,245
Common stock options 555,635 216,624 346,840 262,025
----------- ----------- ----------- -----------
Denominator for diluted net income
per share 25,467,406 24,841,869 25,076,893 24,957,507
----------- ----------- ----------- -----------
Basic net income per share $ 0.02 $ 0.01 $ 0.04 $ 0.03
=========== =========== =========== ===========
----------- ----------- ----------- -----------
Diluted net income per share $ 0.01 $ 0.01 $ 0.04 $ 0.03
=========== =========== =========== ===========
The calculation of net income per share for the quarters ended June 30, 2003 and
2002 excludes potentially dilutive common stock equivalents of 1,961,761 in 2003
and 2,415,480 in 2002. The calculation of net income per share for the six
months ended June 30, 2003 and 2002 excludes potentially dilutive common stock
equivalents of 2,065,761 in 2003 and 2,415,480 in 2002. These common stock
equivalents, which consisted of outstanding warrants and common stock options,
were not included in the calculation of the net income per share because their
inclusion would be antidilutive.
7. COMMITMENTS AND CONTINGENCIES
Litigation
- ----------
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 alleged 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.
In June 2003, the plaintiff and the Company entered into a mutual release and
dismissal of the complaint.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
- -------------
The following discussion of our results of operations and financial condition
should be read in conjunction with the Financial Statements and Notes included
in Part I. "Financial Information". In the following discussions, most
percentages and dollar amounts have been rounded to aid the presentation. As a
result, all such figures are approximations.
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 and clinical trials,
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, 2002
and other reports filed with the Securities and Exchange Commission.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and all other documents filed by the Company or with respect to its
securities with the Securities and Exchange Commission are available free of
charge through our website at www.lifecell.com.
OVERVIEW
We develop and market biological products for the repair and replacement of
damaged or inadequate human tissue in numerous different clinical applications.
Our patented tissue processing methods produce a unique matrix - a complete
three-dimensional structure that contains proteins, growth factors and vascular
channels - that provides a complete template for the regeneration of normal
human tissue. We currently market a broad range of products: AlloDerm(R)
acellular tissue matrix for skin grafting for burn and cancer patients as well
as reconstructive surgical procedures and periodontal surgery; Repliform(R), an
acellular tissue matrix for urologic and gynecologic procedures; Cymetra(R), a
version of AlloDerm in particulate form for non-surgical correction of soft
tissue defects; and Graft Jacket(TM), an acellular tissue matrix for orthopedic
applications. We also distribute cryopreserved allograft skin for use as a
temporary dressing in the treatment of burns and we are the exclusive marketing
agent for the SmartPReP(TM) Platelet Concentration System in the United States
to ear, nose and throat, plastic reconstructive and general surgeons in
hospitals. Our development programs include the potential application of our
tissue matrix technology to vascular, nerve and orthopedic tissues;
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 JUNE 30, 2003 AND 2002
Total revenues for the three months ended June 30, 2003 increased 15% to $9.7
million compared to $8.4 million for the same period in 2002. The increase was
primarily attributable to a 14% increase in product revenues to $9.1 million in
the current period as compared to $8.1 million in the prior year. The increase
in product revenues was largely due to increased demand for AlloDerm. AlloDerm
revenues increased 33% to $5.5 million in the three months ended June 30, 2003
compared to $4.1 million in the same period in 2002. Repliform revenues
decreased slightly to $2.3 million in the three months ended June 30, 2003
compared to $2.5 million for the same period in 2002. Other product revenue,
which includes Cymetra, cryopreserved allograft skin and Graft Jacket, decreased
5%, contributing $1.4 million in the second quarter of 2003 compared to $1.5
million for the same period in 2002. The decrease was primarily due to lower
Cymetra revenues, partially offset by higher demand for Graft Jacket. We expect
Cymetra revenues for the balance of the year to be below 2002 levels.
8
For the three months ended June 30, 2003, our sales and marketing agents and
distributors generated 38% of our total product revenue. Boston Scientific
Corporation is our exclusive worldwide sales and marketing representative for
Repliform for use in the urologic and gynecologic 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 June 30,
2003, sales of our products through Boston Scientific Corporation and OMP
represented 25% and 4%, respectively, of our total product revenues compared to
31% and 9%, respectively, for the same period in 2002. 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. No
other individual distributor generated more than 5% of our total product
revenues in the three months ended June 30, 2003 or 2002.
Total revenues were also favorably impacted by a 56% increase in research grant
revenues, which totaled $537,000 in 2003 compared to $344,000 in 2002. This
increase was primarily due to an increase in research spending on projects
funded by approved research grants, since research grant revenues are recognized
as qualified expenses are incurred. During the second quarter of 2003, we were
awarded a research grant from the National Institute of Health totaling
$100,000. As of June 30, 2003, $3.0 million of approved research grant funding
was available to fund future research and development expenses through 2004.
Cost of products sold for the three months ended June 30, 2003 was $2.8 million,
or 31% of product revenues, compared to cost of products sold of $2.5 million,
or 31% of product revenue for the same period in 2002.
Total research and development expenses remained unchanged at $1.2 million in
the three months ended June 30, 2003 and 2002.
General and administrative expenses increased 26% to $1.5 million in the three
months ended June 30, 2003 compared to $1.2 million in the same period in 2002.
The increase was primarily attributable to an increase in professional fees and
payroll and related expenses.
Selling and marketing expenses increased 12% to $3.7 million for the three
months ended June 30, 2003 compared to $3.3 million in the same period in 2002.
The increase in 2003 was primarily attributable to higher selling expense
associated with the increase in product revenues and an increase in marketing
expenses.
Interest and other income (expense), net decreased $21,000 in the three months
ended June 30, 2003 compared to 2002. The net decrease was due to a $31,000
decrease in interest expense resulting from a decrease in debt outstanding,
partially offset by a $10,000 decline in interest income resulting from lower
average interest rates during the period.
We intend to utilize net operating loss carryforwards to offset our estimated
federal tax liability and as a result, have only provided for the federal
alternative minimum tax. We were unable to utilize net operating loss
carryforwards to offset our state tax liability in 2003 because the State of New
Jersey enacted tax legislation in July 2002 suspending the use of loss
carryforwards to offset taxable income in 2002 and 2003. We have provided a full
valuation allowance against our net deferred tax assets due to our lack of
historical profitability. However, the second quarter of 2003 was our seventh
consecutive profitable quarter and once we achieve cumulative profitability over
a three-year period, we will assess whether to recognize some or all of our
deferred tax assets. The reversal of all or a portion of the valuation allowance
would lead to a significant tax benefit being recorded.
Net income for the three months ended June 30, 2003 was $380,000, representing a
78% improvement from the $214,000 net income for the same period in 2002. The
improvement in net income in 2003 was principally due to the positive
contribution from higher product revenues, partially offset by increased
operating expenses. Basic and diluted net income per common share in the three
months ended June 30, 2003 were $0.02 and $0.01 per share, respectively,
compared to $0.01 per share basic and diluted net income in the same period in
2002.
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Total revenues for the six months ended June 30, 2003 increased 16% to $18.7
million compared to $16.1 million for the same period in 2002. The increase was
primarily attributable to a 15% increase in product revenues to $17.7 million in
the current period as compared to $15.4 million in the prior year. The increase
in product revenues was largely due to increased demand for AlloDerm. AlloDerm
revenues increased 30% to $10.2 million in the six months ended June 30, 2003
compared to $7.9 million in the same period in 2002. Repliform revenues
decreased slightly to $4.7 million in the six months ended June 30, 2003
compared to $4.8 million for the same period in 2002. Other product revenue
including Cymetra, cryopreserved allograft skin and Graft Jacket increased 5%,
contributing $2.8 million in the first six months of 2003 compared to $2.7
million for the same period in 2002. Cymetra revenue declined in the six months
9
ended June 30, 2003 compared to the same period in 2002 and we expect Cymetra
revenues for the balance of the year to be below 2002 levels.
For the six months ended June 30, 2003, our sales and marketing agents and
distributors generated 39% of our total product revenue. During the six months
ended June 30, 2003, sales of our products through Boston Scientific Corporation
and OMP represented 26% and 4%, respectively, of our total product revenues
compared to 31% and 9%, respectively, for the same period in 2002. No other
individual distributor generated more than 5% of our total product revenues in
the six months ended June 30, 2003 or 2002.
Total revenues were also favorably impacted by a 37% increase in research grant
revenues, which totaled $947,000 in 2003 compared to $693,000 in 2002. This
increase was primarily due to an increase in research spending on projects
funded by approved research grants, since research grant revenues are recognized
as qualified expenses are incurred.
Cost of products sold for the six months ended June 30, 2003 was $5.4 million,
or 30% of product revenues, compared to cost of products sold of $4.9 million,
or 32% of product revenue for the same period in 2002. The cost of products sold
decreased as a percentage of product revenues due to efficiencies realized in
our processing operation, as a result of volume increases and process
improvements.
Total research and development expenses increased 8% to $2.5 million in the six
months ended June 30, 2003 compared to $2.3 million for the same period in 2002.
The increase was primarily associated with higher spending on research focused
on the potential application of our tissue matrix technology to vascular tissue,
which is funded through a grant from the Department of Defense, and increased
spending on other product development projects.
General and administrative expenses increased 26% to $2.8 million in the six
months ended June 30, 2003 compared to $2.2 million in the same period in 2002.
The increase was primarily attributable to an increase in professional fees and
payroll and related expenses.
Selling and marketing expenses increased 17% to $7.2 million for the six months
ended June 30, 2003 compared to $6.2 million in the same period in 2002. The
increase in 2003 was primarily attributable to higher selling expense associated
with the increase in product revenues and an increase in marketing expenses.
Interest and other income (expense), net decreased $58,000 in the six months
ended June 30, 2003 compared to 2002. The net decrease was due to a $75,000
decrease in interest expense resulting from a decrease in debt outstanding,
partially offset by a $17,000 decline in interest income resulting from lower
average interest rates during the period.
In the six months ended June 30, 2003, we recorded a net tax benefit of $123,000
consisting of a provision for federal alternative minimum tax and state income
taxes of $112,000, offset by proceeds of $235,000 from the sale of state net
operating losses. The sale was made through the Technology Business Tax
Certificate Program sponsored by the New Jersey Economic Development Authority.
No federal provision for income taxes has been recorded as we intend to utilize
net operating loss carryforwards to offset our estimated federal tax liability.
We were unable to utilize net operating loss carryforwards to offset our state
tax liability in 2003 because the State of New Jersey enacted tax legislation in
July 2002 suspending the use of loss carryforwards to offset taxable income in
2002 and 2003. We have provided a full valuation allowance against our net
deferred tax assets due to our lack of historical profitability. However, the
second quarter of 2003 was our seventh consecutive profitable quarter and once
we achieve cumulative profitability over a three-year period, we will assess
whether to recognize some or all of our deferred tax assets. The reversal of all
or a portion of the valuation allowance would lead to a significant tax benefit
being recorded.
Net income for the six months ended June 30, 2003 was $942,000, representing a
45% improvement from the $650,000 net income for the same period in 2002. The
improvement in net income in 2003 was principally due to the positive
contribution from higher product revenues, partially offset by increased
operating expenses. Basic and diluted net income per common share in the six
months ended June 30, 2003 were both $0.04 per share, respectively, compared to
$0.03 per share basic and diluted net income in the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2003, we had cash and cash equivalents and short-term investments
of $4.7 million compared to $5.5 million at December 31, 2002. Working capital
increased to $11.7 million at June 30, 2003 from $11.5 million at December 31,
2002. The increase resulted principally from increases in inventory and
receivables, partially offset by a decrease in cash and an increase in the
current maturities of long term debt. Inventory increased as a result of an
increase in the receipts of tissue from our organ procurement organizations and
tissue banks and an increase in stock
10
levels of AlloDerm to meet the increase in demand. Accounts receivable increased
as a result of the increased sales activity.
Our operating activities generated net cash of $472,000 for the six months ended
June 30, 2002 compared to $1,097,000 for the same period in 2002. Although net
income increased in the first six months of 2003 compared to the same period in
2002, net cash provided by operating activities decreased due to lower non-cash
charges and higher cash used to fund the net increase in working capital.
Our investing activities, which consist of purchases of capital equipment, used
net cash of $1,573,000 for the six months ended June 30, 2003 compared to
$203,000 for the same period in 2002. The increase in 2003 resulted principally
from the purchase of hardware and software for a new enterprise resources
planning (ERP) system and production equipment.
Our financing activities generated $358,000 for the six-month period ended June
30, 2003 compared to $623,000 used for principal payments on long-term debt in
2002. In the first six months of 2003, we received proceeds of $1.5 million
under our credit facility. The proceeds were used to retire $863,000 of existing
debt and to fund equipment purchases. At June 30, 2003, we had an aggregate of
$1.2 million outstanding under our borrowing arrangements compared to $863,000
outstanding at December 31, 2002, and remaining availability on a revolving
credit line of $2 million until January 2004. The following table reflects a
summary of our contractual cash obligations as of June 30, 2003:
Payments Due by Period
--------------------------------------------------------------
Less than One to Four to After
Total one year three years five years five years
---------- ---------- ------------ ----------- -----------
Long-term debt (1) $1,221,000 $ 631,000 $ 590,000 $ -- $ --
Operating leases 6,660,000 833,000 1,767,000 1,839,000 2,221,000
---------- ---------- ------------ ----------- -----------
Total contractual
cash obligations $7,881,000 $1,464,000 $ 2,357,000 $ 1,839,000 $ 2,221,000
========== ========== ============ =========== ===========
(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, committed research and development grant funding and remaining
availability under our credit facility will be sufficient to finance our planned
operations, research and development programs and fixed asset requirements in
the foreseeable future. However, we may seek additional funding to increase our
working capital or to meet the needs of our long term strategic plan. There can
be no assurance that we will be able to obtain additional funding from either
debt or equity financing, collaborative arrangements or other sources on terms
acceptable to us, or at all. 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.
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 June 30, 2003.
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Item 4. Controls and Procedures.
-------------------------
Within 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 4. Submission of Matters to A Vote of Security Holders.
----------------------------------------------------
An Annual Meeting of Stockholders was held on May 31, 2003. The directors
elected at the annual meeting were: Paul G. Thomas, Michael E. Cahr, David
Fitzgerald, James G. Foster and Jonathan Silverstein. All directors of the
Company hold office until the next annual meeting of stockholders or until their
respective successors are duly elected and qualified or their earlier
resignation or removal.
The matters voted upon at the Annual Meeting and the results of the voting are
set forth below:
(i) With respect to the election of Directors by the holders of Common
Stock and Series B Preferred Stock, voting together as a class, the
persons named below received the following number of votes:
Name Votes For Votes Withheld
-------------------- ---------- --------------
Paul G. Thomas 15,265,701 814,073
Michael E. Cahr 15,363,865 705,909
David Fitzgerald 15,368,865 700,909
James G. Foster 15,531,965 537,809
Jonathan Silverstein 15,514,476 555,298
(ii) With respect to a proposal to approve an amendment to LifeCell's 2000
Stock Option Plan to increase the number of shares of common stock of
LifeCell reserved thereunder from 1,500,000 to 3,500,000, the votes
cast by the holders of common stock and series B preferred stock
voting together as a class were; 5,817,964 voted in favor, 1,235,376
voted against, and 61,500 votes abstained from voting on the proposal.
(iii) With respect to a proposal to approve LifeCell's 2003 Director Stock
Option Plan, the votes cast by the holders of common stock and series
B preferred stock voting together as a class were; 5,963,993 voted in
favor, 1,081,647 voted against, and 69,200 votes abstained from voting
on the proposal.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------------
a. EXHIBITS
99.1 Certifications of the Registrant's Chief Executive
Officer, Paul G. Thomas, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of the Registrant's Chief Financial
Officer, Steven T. Sobieski, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
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99.3 Certification of the Registrant's Chief Executive
Officer, Paul G. Thomas, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.4 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
On April 24, 2003, the Company issued a press release regarding
results for the three months ended March 31, 2003.
On July 22, 2003, the Company issued a press release regarding
results for the three months and six months ended June 30, 2003.
13
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: July 23, 2003 By: /s/ Paul G. Thomas
-------------------
Paul G. Thomas
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: July 23, 2003 By: /s/ Steven T. Sobieski
-------------------
Steven T. Sobieski
Vice President, Finance
Chief Financial Officer and Secretary
(Principal Financial Officer)
Date: July 23, 2003 By: /s/ Bradly C. Tyler
-------------------
Bradly C. Tyler
Controller
(Principal Accounting Officer)
14