-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RpZWG+BOOl+LBx4SkRpe0qBWSoU0zEnc3goTDRLUzV8CgTYCQE4xqi0fPimGdhfx 7FqAdubDRLeBaNyWRrDhpw== 0000950129-97-004864.txt : 19971119 0000950129-97-004864.hdr.sgml : 19971119 ACCESSION NUMBER: 0000950129-97-004864 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19971118 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIFECELL CORP CENTRAL INDEX KEY: 0000849448 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 760172936 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-19890 FILM NUMBER: 97723278 BUSINESS ADDRESS: STREET 1: 3606 RESEARCH FOREST DR STREET 2: LIFECELL CORPORATION CITY: WOODLANDS STATE: TX ZIP: 77381 BUSINESS PHONE: 7133675368 MAIL ADDRESS: STREET 1: 3606 RESEARCH FOREST DR CITY: THE WOODLANDS STATE: TX ZIP: 77381 10-K/A 1 AMENDMENT # 2 TO FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER 0-19890 DECEMBER 31, 1996 LIFECELL CORPORATION A DELAWARE IRS EMPLOYER IDENTIFICATION CORPORATION NO. 76-0172936 3606 RESEARCH FOREST DRIVE THE WOODLANDS, TEXAS 77381 Telephone Number (281) 367-5368 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $.001 Par Value 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock (Common Stock and Series B Preferred Stock, assuming conversion of such Preferred Stock into Common Stock at the current conversion rate) held by non-affiliates of registrant as of March 26, 1997 $40,933,000 Number of shares of registrant's Common Stock outstanding as of March 26, 1997 6,754,761 DOCUMENTS INCORPORATED BY REFERENCE: Portions of registrant's proxy statement relating to the 1997 annual meeting of stockholders have been incorporated by reference into Part III hereof. 1 2 The Company hereby amends the following item of its Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 0-19890 (the Form 10-K)) as set forth below: 1. Item 8, "Exhibits, Financial Statement Schedules, and Reports on Form -8K" is hereby amended as set forth herein: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information required to be filed under this Item are presented commencing on page F-1 of this Annual Report on Form 10-K, and are incorporated herein by reference. 3 FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS
PAGE ---- AUDITED FINANCIAL STATEMENTS Report of Independent Public Accountants.................. F-2 Balance Sheets as of December 31, 1995 and 1996........... F-3 Statements of Operations for the years ended December 31, 1994, 1995 and 1996.................................... F-4 Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996....................... F-5 Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996.................................... F-7 Notes to Audited Financial Statements..................... F-8
F-1 4 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To LifeCell Corporation: We have audited the accompanying balance sheets of LifeCell Corporation (a Delaware corporation) as of December 31, 1995 and 1996, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LifeCell Corporation as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas March 26, 1997 F-2 5 LIFECELL CORPORATION BALANCE SHEETS ASSETS
DECEMBER 31, ---------------------------- 1995 1996 ------------ ------------ CURRENT ASSETS Cash and cash equivalents................................. $ 3,015,332 $ 10,748,250 Accounts and other receivables............................ 251,509 436,839 Inventories............................................... 351,502 839,821 Prepayments and other..................................... 51,838 52,780 ------------ ------------ Total current assets.............................. 3,670,181 12,077,690 FURNITURE AND EQUIPMENT, net................................ 415,563 478,098 INTANGIBLE ASSETS, net...................................... 290,295 334,227 ------------ ------------ Total assets...................................... $ 4,376,039 $ 12,890,015 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.......................................... $ 384,780 $ 514,848 Accrued liabilities....................................... 218,351 539,271 Deferred revenues......................................... 179,002 138,792 ------------ ------------ Total current liabilities......................... 782,133 1,192,911 DEFERRED CREDIT............................................. 1,500,000 1,500,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Series A preferred stock, $.001 par value, 300,000 shares authorized, 264,500 and 260,000 issued and outstanding, including accrued dividends of $70,533 and $86,667........ 5,496,793 5,291,473 Series B preferred stock, $.001 par value, 182,205 shares authorized, none and 124,157 issued and outstanding and accrued dividends of none and 1,426 shares................ -- 126 Undesignated preferred stock, $.001 par value, 1,517,795 shares authorized, none issued and outstanding............ -- -- Common stock, $.001 par value, 12,500,000 and 25,000,000 shares authorized, respectively, 4,403,658 and 4,899,944 shares issued and outstanding, respectively............... 4,404 4,900 Warrants outstanding to purchase 574,066 and 3,378,264 shares of Common Stock, respectively...................... 226,560 423,218 Additional paid-in capital.................................. 21,160,808 33,788,321 Unearned portion of restricted stock compensation & warrants.................................................. (19,906) -- Accumulated deficit......................................... (24,774,753) (29,310,934) ------------ ------------ Total stockholders' equity........................ 2,093,906 10,197,104 ------------ ------------ Total liabilities and stockholders' equity........ $ 4,376,039 $ 12,890,015 ============ ============
The accompanying notes are an integral part of these financial statements. F-3 6 LIFECELL CORPORATION STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------- 1994 1995 1996 ----------- ----------- ----------- REVENUES Product sales...................................... $ 93,940 $ 742,238 $ 2,012,205 Corporate alliance................................. 358,331 825,221 546,461 Grants and contracts............................... 364,344 239,116 386,904 ----------- ----------- ----------- Total revenues............................. 816,615 1,806,575 2,945,570 ----------- ----------- ----------- COSTS AND EXPENSES Cost of goods sold................................. 515,500 925,174 1,281,353 Funded research and development.................... 722,675 1,064,337 933,365 Proprietary research and development............... 1,363,176 1,105,427 654,821 General and administrative......................... 1,381,470 1,422,588 1,911,254 Selling and marketing.............................. 727,615 1,475,296 2,389,573 ----------- ----------- ----------- Total costs and expenses................... 4,710,436 5,992,822 7,170,366 ----------- ----------- ----------- LOSS FROM OPERATIONS................................. (3,893,821) (4,186,247) (4,224,796) ----------- ----------- ----------- Interest income.................................... 167,300 280,843 135,082 ----------- ----------- ----------- NET LOSS............................................. $(3,726,521) $(3,905,404) $(4,089,714) =========== =========== =========== Loss per share before effect of preferred dividends, accretion of preferred stock and warrant exercises.......................................... $ (0.87) $ (0.91) $ (0.90) Effect of preferred dividends, accretion of preferred stock and warrant exercises........................ $ (0.03) $ (0.19) $ (0.24) ----------- ----------- ----------- LOSS PER COMMON SHARE................................ $ (0.90) $ (1.10) $ (1.14) =========== =========== =========== SHARES USED IN COMPUTING LOSS PER COMMON SHARE....................................... 4,294,179 4,313,366 4,542,519 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 7 LIFECELL CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY
SERIES A SERIES B CLASS I PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK -------------------- ---------------- ------------------ -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- ---------- ------- ------ --------- ------ ---------- ------- Balance at December 31, 1993........ -- $ -- -- $ -- 1,473,359 $1,473 2,803,812 $ 2,804 Class I common converted to common.......................... -- -- -- -- 2,803,812 2,804 (2,803,812) (2,804) Purchase of common stock.......... -- -- -- -- -- -- -- -- Issuance for cash ($7.77 per share).......................... -- -- -- -- 20,421 21 -- -- Issuance of Series A preferred stock and warrants for cash..... 264,500 4,877,995 -- -- -- -- -- -- Warrant issued to purchase common stock........................... -- -- -- -- -- -- -- -- Earned portion of restricted stock........................... -- -- -- -- -- -- -- -- Earned portion of warrants........ -- -- -- -- -- -- -- -- Dividends accrued on preferred stock........................... -- 333,246 -- -- -- -- -- -- Accretion of preferred stock...... -- 68,668 -- -- -- -- -- -- Expiration of warrants............ -- -- -- -- -- -- -- -- Net Loss.......................... -- -- -- -- -- -- -- -- ------- ---------- ------- ---- --------- ------ ---------- ------- Balance at December 31, 1994........ 264,500 $5,279,909 -- $ -- 4,297,592 $4,298 -- $ -- Warrant issued to purchase common stock........................... -- -- -- -- -- -- -- -- Stock options exercised........... -- -- -- -- 1,000 1 -- -- Warrants exercised................ -- -- -- -- 1,250 1 -- -- Issuance of common stock as dividends on Series A Preferred stock........................... -- (317,400) -- -- 103,816 104 -- -- Earned portion of restricted stock........................... -- -- -- -- -- -- -- -- Earned portion of warrants........ -- -- -- -- -- -- -- -- Dividends accrued on preferred stock........................... -- 190,947 -- -- -- -- -- -- Accretion of preferred stock...... -- 343,337 -- -- -- -- -- -- Net Loss.......................... -- -- -- -- -- -- -- -- ------- ---------- ------- ---- --------- ------ ---------- ------- Balance at December 31, 1995........ 264,500 $5,496,793 -- $ -- 4,403,658 $4,404 -- $ -- Stock options exercised........... -- -- -- -- 6,062 6 -- -- Warrants exercised................ -- -- -- -- 339,066 339 -- -- Expiration of warrants............ -- -- -- -- -- -- -- -- Conversion of preferred stock..... (4,500) (90,000) -- -- 30,104 30 -- -- Issuance of common stock as dividends on Series A Preferred stock........................... -- (415,920) -- -- 121,054 121 -- -- Earned portion of restricted stock........................... -- -- -- -- -- -- -- -- Issuance of stock options for services........................ -- -- -- -- -- -- -- -- Issuance of Series B preferred stock and common stock warrants for cash........................ -- -- 124,157 124 -- -- -- -- Dividends accrued on preferred stock........................... -- 300,600 -- 2 -- -- -- -- Net Loss.......................... -- -- -- -- -- -- -- -- ------- ---------- ------- ---- --------- ------ ---------- ------- Balance at December 31, 1996........ 260,000 $5,291,473 124,157 $126 4,899,944 $4,900 -- $ -- ======= ========== ======= ==== ========= ====== ========== =======
(Continued) The accompanying notes are an integral part of these financial statements. F-5 8 LIFECELL CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
UNEARNED WARRANTS TO PORTION OF PURCHASE RESTRICTED COMMON STOCK STOCK ADDITIONAL TOTAL --------------------- COMPENSATION PAID IN TREASURY ACCUMULATED STOCKHOLDERS' SHARES AMOUNT AND WARRANTS CAPITAL STOCK DEFICIT EQUITY --------- --------- ------------ ----------- --------- ------------ ------------- Balance at December 31, 1993...... 165,933 $ 116,260 $(529,942) $21,073,701 $ -- $(16,618,635) $ 4,045,661 Class I common converted to common........................ -- -- -- -- -- -- -- Purchase of common stock........ -- -- -- -- (307,755) -- (307,755) Issuance for cash ($7.77 per share)........................ -- -- -- 174,341 307,755 -- 482,117 Issuance of Series A preferred stock and warrants for cash... 264,500 105,800 -- -- -- -- 4,983,795 Warrant issued to purchase common stock.................. 90,816 5,000 -- -- -- -- 5,000 Earned portion of restricted stock......................... -- -- 238,872 -- -- -- 238,872 Earned portion of warrants...... -- -- 21,958 -- -- -- 21,958 Dividends accrued on preferred stock......................... -- -- -- -- -- (333,246) -- Accretion of preferred stock.... -- -- -- (68,668) -- -- -- Expiration of warrants.......... (5,933) -- -- -- -- -- -- Net Loss........................ -- -- -- -- -- (3,726,521) (3,726,521) --------- --------- --------- ----------- --------- ------------ ----------- Balance at December 31, 1994...... 515,316 $ 227,060 $(269,112) $21,179,374 $ -- $(20,678,402) $ 5,743,127 Warrant issued to purchase common stock.................. 60,000 -- -- -- -- -- -- Stock options exercised......... -- -- -- 2,999 -- -- 3,000 Warrants exercised.............. (1,250) (500) -- 4,574 -- -- 4,075 Issuance of common stock as dividends on Series A Preferred stock............... -- -- -- 317,198 -- -- (98) Earned portion of restricted stock......................... -- -- 238,872 -- -- -- 238,872 Earned portion of warrants...... -- -- 10,334 -- -- -- 10,334 Dividends accrued on preferred stock......................... -- -- -- -- -- (190,947) -- Accretion of preferred stock.... -- -- -- (343,337) -- -- -- Net Loss........................ -- -- -- -- -- (3,905,404) (3,905,404) --------- --------- --------- ----------- --------- ------------ ----------- Balance at December 31, 1995...... 574,066 $ 226,560 $ (19,906) $21,160,808 $ -- $(24,774,753) $ 2,093,906 Stock options exercised......... -- -- -- 17,274 -- -- 17,280 Warrants exercised.............. (339,066) (104,300) -- 1,155,617 -- -- 1,051,656 Expiration of warrants.......... (15,000) (6,000) -- 6,000 -- -- -- Conversion of preferred stock... -- -- -- 89,970 -- -- -- Issuance of common stock as dividends on Series A Preferred stock............... -- -- -- 409,700 -- -- (6,099) Earned portion of restricted stock......................... -- -- 19,906 -- -- -- 19,906 Issuance of stock options for services...................... -- -- -- 150,000 -- -- 150,000 Issuance of Series B preferred stock and common stock warrants for cash.......................... 3,158,264 306,958 -- 10,653,087 -- -- 10,960,169 Dividends accrued on preferred stock......................... -- -- -- 145,865 -- (446,467) -- Net Loss........................ -- -- -- -- -- (4,089,714) (4,089,714) --------- --------- --------- ----------- --------- ------------ ----------- Balance at December 31, 1996...... 3,378,264 $ 423,218 $ -- $33,788,321 $ -- $(29,310,934) $10,197,104 ========= ========= ========= =========== ========= ============ ===========
The accompanying notes are an integral part of these financial statements. F-6 9 LIFECELL CORPORATION STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- 1994 1995 1996 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss............................................. $(3,726,521) $(3,905,404) $(4,089,714) Adjustments to reconcile net loss to net cash used in operating activities -- Depreciation and amortization..................... 107,351 138,518 229,237 Stock and warrant compensation expense............ 260,830 249,206 169,906 Change in assets and liabilities -- (Increase) in accounts and other receivables...... (67,237) (87,014) (185,330) (Increase) in inventories......................... (54,834) (243,720) (488,319) (Increase) decrease in prepayments and other...... (8,580) 11,347 (942) Increase in accounts payable and accrued liabilities..................................... 270,219 118,494 450,988 Increase (decrease) in deferred revenues and credit.......................................... 1,769,640 (90,638) (40,210) ----------- ----------- ----------- Total adjustments............................ 2,277,389 96,193 135,330 ----------- ----------- ----------- Net cash used in operating activities........ (1,449,132) (3,809,211) (3,954,384) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures................................. (90,509) (190,199) (278,673) Intangible assets.................................... (34,012) (24,354) (57,032) Short-term investments............................... (2,138,313) 5,154,824 -- ----------- ----------- ----------- Net cash provided by (used in) investing activities................................. (2,262,834) 4,940,271 (335,705) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of stock and warrants......... 5,163,157 6,977 12,029,105 Proceeds from issuance of notes payable.............. -- -- 370,000 Dividends paid....................................... -- -- (6,098) Payments of notes payable............................ -- -- (370,000) ----------- ----------- ----------- Net cash provided by financing activities................................. 5,163,157 6,977 12,023,007 ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 1,451,191 1,138,037 7,732,918 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......... 426,104 1,877,295 3,015,332 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR.............................................. $ 1,877,295 $ 3,015,332 $10,748,250 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest............... $ -- $ -- $ 13,766 SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: During 1995 and 1996, the Company issued common stock as payment for dividends in the amount of $317,400 and $415,920, respectively.
The accompanying notes are an integral part of these financial statements. F-7 10 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. ORGANIZATION: LifeCell Corporation, a Delaware corporation (LifeCell or the Company), is engaged in the research, development and commercialization of transplantable tissue and transfusable blood products. The Company was incorporated on January 6, 1992 for the purpose of merging with its predecessor entity, which was formed in 1986. LifeCell began commercial sales of its first transplantable tissue product, AlloDerm(R), during 1994. Sales of AlloDerm to date have not been sufficient to fund the Company's operations, and the Company expects continued operating losses during 1997. The future operating results of the Company will be principally dependent on the market acceptance of its current and future products, competition from other products or technologies, protection of the Company's proprietary technology, and access to funding as required. Accordingly, there can be no assurance of the Company's future success. See "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" elsewhere herein. 2. ACCOUNTING POLICIES: Cash and Cash Equivalents and Short-Term Investments The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Investments that the Company intends to hold to maturity are classified as either current or non-current assets based on the maturity date of the security. As of December 31, 1995 and 1996, the Company held $3,009,376 and $10,638,981, respectively, of interest bearing money market accounts and A1/P1 commercial paper which were classified as "held to maturity" securities. The carrying basis of these investments approximated fair value and amortized cost. The securities held at December 31, 1996 matured prior to March 31, 1997. Inventories Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out (FIFO) basis. Furniture and Equipment Furniture and equipment are stated at cost. Maintenance and repairs that do not improve or extend the life of the assets are expensed as incurred. Expenditures for renewals and betterments are capitalized. The cost of assets retired and the related accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. Depreciation of furniture and equipment is provided on the straight-line method based on the estimated useful lives of the assets of five years. Leasehold improvements are depreciated over the life of the lease. Intangible Assets Intangible assets primarily consist of the costs of obtaining patents for the proprietary technology owned by or licensed to the Company. These costs are being amortized over the lesser of the legal (generally 17 years) or economic life of the patent. Accumulated amortization at December 31, 1995 and 1996, amounted to $39,933 and $53,033, respectively. F-8 11 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition Product sales are recognized as revenue when the product is shipped to fill customer orders. Revenues from corporate alliances and from government grants and contracts are recognized as the work is performed unless the Company has continuing performance obligations, in which case revenue is recognized upon the satisfaction of such obligations. Revenue received, but not yet earned, is classified as deferred revenue. Research and Development Costs Research and development costs are expensed when incurred. The Company performs research funded by others, including research funded through the corporate alliance with Medtronic (see Note 8), as well as its own independent proprietary research, development and clinical testing of its products. Externally funded research consists of direct costs associated with specific projects as well as an allocation of overhead associated with administering these activities. Loss Per Share Loss per share has been computed by dividing net loss, which has been increased for periodic accretion and imputed and stated dividends on outstanding Preferred Stock and the discount offered on warrant exercises induced during 1996, by the weighted average number of shares of Common Stock outstanding during the periods. In all applicable years, all Common Stock equivalents, including the Series A Preferred Stock and the Series B Preferred Stock, were antidilutive and, accordingly, were not included in the computation. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Statement 128 establishes standards for computing and presenting earnings per share (EPS). This statement simplifies the standards for computing earnings per share previously found in APB Opinion No. 15, Earnings Per Share, and makes them comparable to international EPS standards. The statement also retroactively revises the presentation of earnings per share in the financial statements. The Company will adopt this Standard for the year ended December 31, 1997, and has not currently quantified the effect of applying the new Standard. Stock-Based Compensation The Company accounts for employee stock-based compensation pursuant to the provisions of Accounting Principles Board Opinion No. 25. Compensation expense for stock options issued to employees and directors is generally recorded at the intrinsic value (the discount, if any, of the option price from the market price of the Common Stock under option) of the option at the date of grant. Subsequent changes in the market price of the underlying stock do not affect the accounting treatment of the option. Options granted to others are accounted for under the provisions of Statement of Financial Accounting Standards No. 123, which requires that the option be recorded at its estimated fair value using option-pricing formulas used in the financial markets. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-9 12 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. INVENTORIES: Inventories consist of products in various stages produced for sale and includes the costs of raw materials, labor, and overhead. A summary of inventories is as follows:
1995 1996 -------- -------- Raw Materials............................................... $ 29,171 $ 52,738 Work-In-Process............................................. 107,988 437,221 Finished Goods.............................................. 214,343 349,862 -------- -------- $351,502 $839,821 ======== ========
4. FURNITURE AND EQUIPMENT: A summary of furniture and equipment is as follows:
1995 1996 ---------- ---------- Office furniture and fixtures............................... $ 57,636 $ 61,130 Machinery and equipment..................................... 1,097,480 1,342,243 Leasehold improvements...................................... 189,877 220,293 ---------- ---------- 1,344,993 1,623,666 Less -- Accumulated depreciation and amortization................. 929,430 1,145,568 ---------- ---------- Net furniture and equipment............................... $ 415,563 $ 478,098 ========== ==========
5. CAPITAL STOCK: Authorized Capital Stock As of December 31, 1996, the authorized capital of the Company consisted of 25,000,000 shares of Common Stock, $.001 par value, and 2,000,000 shares of Preferred Stock, $.001 par value, of which 300,000 shares were designated as Series A Convertible Preferred Stock and 182,205 shares were designated as Series B Preferred Stock. As of December 31, 1996, there were 4,899,944 shares of Common Stock, 260,000 shares of Series A Convertible Preferred Stock and 124,157 shares of Series B Preferred Stock outstanding. During March 1997, all outstanding shares of Series A Convertible Preferred Stock and a portion of the accrued dividends were converted into 1,772,433 shares of Common Stock. Series A Preferred Stock During November 1994, the Company issued 264,500 shares of Series A Convertible Preferred Stock (Series A Preferred Stock) and warrants to acquire 264,500 shares of Common Stock for gross proceeds of approximately $5.3 million in a private placement. Each share of Series A Preferred Stock was convertible at any time at the option of the holder into 6.69 shares of Common Stock. During 1996, 4,500 shares of Series A Preferred Stock were converted into 30,104 shares of Common Stock. The Series A Preferred Stock had a liquidation preference of $20 per share, or $5,200,000 as of December 31, 1996. The Series A Preferred Stock bore dividends at annual rates of $1.20, $1.60, and $2.00 per share for each of the first, second and third years, respectively, after the date of original issuance. Dividends were payable in cash, Common Stock, or any combination of cash and Common Stock at the Com- F-10 13 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) pany's discretion. The Series A Preferred Stock had no ordinary voting rights. While the preferred shares were outstanding or any dividends were owed thereon, the Company could not declare or pay cash dividends on its Common Stock. During 1995 and 1996, respectively, the Company paid $317,400 and $415,920 in accrued dividends on the Series A Preferred Stock by issuing 103,816 shares and 121,054 shares of Common Stock. The preferred stock was automatically convertible into Common Stock on November 9, 1997 and could be redeemed sooner by the Company if, after November 9, 1995, the closing bid price of the Company's Common Stock averaged or exceeded $5.17 per share for 20 consecutive days. Pursuant to such provisions, during February 1997, the Company called for redemption all outstanding shares of Series A Preferred Stock. During March 1997 the Company issued 1,739,128 shares of Common Stock to redeem the Series A Preferred Stock and paid a cash dividend of $65,000 and issued an additional 33,305 shares of Common Stock for dividends accrued through the date of redemption. The carrying amount of the Series A Preferred Stock was increased for accrued and unpaid stated dividends plus periodic accretion, using the effective interest method, such that the carrying amount equaled the redemption amount on November 9, 1995. In November 1994, the Series A Preferred Stock was also increased by imputed dividends resulting from the increasing dividend rates. Series B Preferred Stock During November 1996, the Company issued 124,157 shares of Series B Preferred Stock (Series B Preferred Stock) and warrants to acquire 2,803,530 shares of Common Stock for gross proceeds of approximately $12.4 million in a private placement. Each share of Series B Preferred Stock is initially convertible at any time at the option of the holder into approximately 32.26 shares of Common Stock (or 4,005,064 shares of Common Stock at December 31, 1996), subject to adjustment for dilutive issuances of securities. The Series B Preferred Stock has a liquidation preference of $100 per share, or $12,415,700 as of December 31, 1996, and shares ratable in any residual assets after payment of such liquidation preference. The Series B Preferred Stock bears cumulative dividends, payable quarterly, for five years at the greater of the annual rate of $6.00 per share or the rate of any dividends paid on the Series A Preferred Stock (effectively $10 per share until the Series A Preferred Stock was redeemed in March 1997). Dividends may be paid in cash, in additional shares of Series B Preferred Stock based on the stated value of $100 per share, or any combination of cash and Series B Preferred Stock at the Company's option. On all matters for which the Company's stockholders are entitled to vote, each share of Series B Preferred Stock will entitle the holder to one vote for each share of Common Stock into which the share of Series B Preferred Stock is then convertible. Additionally, the holders of Series B Preferred Stock have the right to elect up to three directors to the Board of Directors of the Company. While the preferred shares are outstanding or any dividends are owned thereon, the Company may not declare or pay cash dividends on its Common Stock. During 1996 the Company declared accrued dividends on the Series B Preferred Stock of $145,867 payable through the issuance of 1,426 additional shares of Series B Preferred Stock on February 15, 1997. The preferred stock will be automatically converted into Common Stock if (i) the closing price of the Company's Common Stock averages or exceeds $9.30 per share for 30 consecutive trading days and (ii) the Company conducts an underwritten public offering of newly issued Common Stock with gross proceeds, net of underwriting discounts and commissions, exceeding $20 million. Additionally, the preferred stock will be automatically converted into Common Stock if the Company conducts an underwritten public offering of newly issued Common Stock with gross proceeds, net of underwriting discounts and commissions, exceeding $20 million and the price per share in such offering equals or exceeds $9.30. F-11 14 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Common Stock During February 1994, all previously outstanding shares of Class I Common Stock were automatically converted into 2,803,812 shares of Common Stock and the Class I Common Stock was eliminated during June 1995. During 1995 and 1996, respectively, the Company issued 103,816 shares and 121,054 shares of Common Stock as payment of accrued dividends on Series A Preferred Stock. Additionally, during 1996, the Company induced the exercise of warrants by temporarily lowering exercise prices and issued 339,066 shares of Common Stock at a weighted average price of $3.10 upon exercise of certain warrants. During March 1997, the Company issued 1,739,128 shares of Common Stock to redeem all outstanding shares of the Series A Preferred Stock and paid a cash dividend of $65,000 and issued an additional 33,305 shares of Common Stock for dividends accrued through the date of redemption. During 1994, the Company purchased 43,965 shares of Common Stock from several employees, including officers and directors, for the purpose of satisfying their income tax liabilities for shares and options previously granted under a deferred compensation arrangement. These treasury shares were subsequently reissued during 1994. In 1992, the Company adopted a Restricted Stock Plan and issued 241,372 shares of Common Stock to employees, a director and a consultant of the Company for $.001 per share. The restricted stock vested over a four year period. Deferred compensation expense totaling $965,000 was expensed over the vesting period of the grants. The non-cash charge related to these stock grants was $239,000 for 1994 and 1995 and $20,000 for 1996. Options The Company's 1992 Stock Option Plan, as amended (1992 Plan), provides for the grant of options to purchase up to 1,000,000 shares of Common Stock. Granted options generally become exercisable over a four year period, 25 percent per year beginning on the first anniversary of the date of grant. To the extent not exercised, options generally expire on the tenth anniversary of the date of grant, except for employees who own more than 10 percent of all the voting shares of the Company, in which event the expiration date is the fifth anniversary of the date of grant. All options granted under the plan have exercise prices equal to the fair market value at the dates of grant. The 1993 Non-Employee Director Stock Option Plan (Director Plan) was adopted in 1993 and amended during 1996. A total of 750,000 shares of Common Stock are available for grant under the Director Plan. Upon amendment of the Director Plan in 1996, options to purchase 50,000 shares of Common Stock were granted to each then-current non-employee director of the Company at an exercise price equal to the fair market value of a share of Common Stock on the date of the Director Plan. Options to purchase 25,000 shares of Common Stock will be granted to newly elected directors at an exercise price equal to the fair market value of a share of Common Stock on such election date. The provisions of the Director Plan provide for an annual grant of an option to purchase 10,000 shares of Common Stock to each non-employee director. Options under the Director Plan generally vest one year after date of grant and expire after 10 years. F-12 15 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A summary of stock option activity is as follows:
1992 STOCK OPTION PLAN DIRECTOR PLAN ------------------------ ------------------------ WEIGHTED- WEIGHTED- AVG. EXERCISE AVG. EXERCISE OPTIONS PRICE($) OPTIONS PRICE($) -------- ------------- -------- ------------- Balance at December 31, 1993...................... 224,593 9.06 40,000 11.00 Granted......................................... 192,819 2.87 10,000 3.00 Exercised....................................... -- -- -- -- Forfeited....................................... (2,650) 7.68 -- -- -------- -------- Balance at December 31, 1994...................... 414,762 6.19 50,000 9.40 -------- -------- Granted......................................... 266,350 2.46 10,000 2.75 Exercised....................................... (1,000) 3.00 -- -- Forfeited....................................... (225,917) 8.97 -- -- -------- -------- Balance at December 31, 1995...................... 454,195 2.63 60,000 8.29 -------- -------- Granted......................................... 558,000 3.80 240,000 3.07 Exercised....................................... (1,062) 2.74 (5,000) 2.88 Forfeited....................................... (42,313) 3.18 -- -- Reissue......................................... -- -- (220,000) 4.14 -------- -------- Balance at December 31, 1996...................... 968,820 3.28 75,000 4.11 -------- -------- Exercisable at December 31, 1994.................. 57,606 9.11 40,000 11.00 Exercisable at December 31, 1995.................. 158,330 2.61 50,000 9.40 Exercisable at December 31, 1996.................. 255,429 2.61 15,000 8.29
At December 31, 1996, 28,718 and 670,000 options were available for future grant under the 1992 Plan and the Director Plan, respectively. The exercise prices of options outstanding under the 1992 Plan and the Director Plan at December 31, 1996 range from $0.07 to $4.375 and $2.75 to $11.00, respectively. The weighted average contractual life of options outstanding at December 31, 1996 was 9.1 years for the 1992 Plan and 7.8 years for the Director Plan. In addition to the amounts set forth in the table above, during 1996, the Company granted options to purchase 220,000 shares of Common Stock to directors who resigned upon the closing of the sale of the Series B Preferred Stock in exchange for options previously granted under the Director Plan. These options have provisions identical to the options previously granted under the Director Plan, including exercise prices and vesting periods. The weighted average exercise price of the options granted was $4.14. The weighted average remaining contractual life of the grants was 8.8 years as of December 31, 1996. The Company expensed $150,000, which was the difference between the market price and the option price on the date of the grant, during 1996 related to this reissuance. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock-Based Compensation" which, if fully adopted, requires the Company to record stock-based compensation at fair value. The Company has adopted the disclosure requirements of SFAS No. 123 and has elected to record employee compensation expense in accordance with Accounting Principles Board Opinion (APB) No. 25. F-13 16 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Company accounts for its employee stock-based compensation plans under APB No. 25 and its related interpretations. Accordingly, deferred compensation expense is recorded for stock options based on the excess of the market value of the common stock on the date the options were granted over the aggregate exercise price of the options. This deferred compensation is amortized over the vesting period of each option. As the exercise price of options granted under the 1992 Plan and the Director Plan has been equal to or greater than the market price of the Company's stock on the date of grant, no compensation expense related to these plans has been recorded. Had compensation expense for its 1992 Plan and Director Plan been determined consistent with SFAS No. 123, the Company's net loss and loss per share would have been increased to the following pro forma amounts:
1995 1996 ---------- ---------- Net Loss: As reported......................................... $3,905,404 $4,089,714 Pro forma........................................... $3,940,041 $5,372,049 Loss Per Share: As reported......................................... $ 1.10 $ 1.14 Pro forma........................................... $ 1.10 $ 1.42
Because the Statement 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Under the provisions of SFAS No. 123, the weighted average fair value of options granted in 1995 and 1996 was $1.88 and $3.21, respectively, under the 1992 Plan. The weighted average fair value of options granted in 1995 and 1996 was $2.21 and $2.40, respectively, under the Director Plan. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1995 and 1996, respectively: a weighted average risk-free interest rate of 6 percent for both years; no expected dividend yields for both years; expected lives of 3 years for both years and expected volatility between 96 and 100 percent. The stock options issued to retiring directors in 1996 had a weighted average fair value of $2.57. The fair values of such options are estimated on the date of grant using Black-Scholes option price model with the following assumptions used: a weighted average risk-free interest rate of 6 percent, expected lives of 3 to 5 years, expected volatility of 99 percent and no expected dividends. During 1995, options to purchase 225,917 shares of Common Stock at exercise prices of $9.00 and $14.50 were canceled and reissued at substantially the same terms, but with an exercise price equal to the then current market price of $2.50. Warrants As of December 31, 1996, warrants to acquire a total of 3,378,264 shares of Common Stock were outstanding as set forth below. During 1996, the Company issued warrants to acquire 2,803,530 shares of Common Stock in conjunction with the sale of the Series B Preferred Stock (the 1996 Warrants). The 1996 Warrants are exercisable at an exercise price of $4.13 per share. The warrants expire on the fifth anniversary of the date of grant, are callable if the average closing price of the Company's Common Stock for 30 trading days equals or exceeds three times the then-exercise price, and allow cashless exercise. The warrants also have provisions for adjustment of the exercise price and number of shares for below-exercise price issuance of securities. F-14 17 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Additionally, the Company issued a warrant to acquire 354,734 shares of Common Stock to the placement agent for the Series B Preferred Stock (Agent Warrant). The Agent Warrant is exercisable at an exercise price of $4.50 per share. The warrant expires on the fifth anniversary of the date of grant and allows cashless exercise. The warrant also has provisions for adjustment of the exercise price and number of shares for below-exercise price issuance of securities. In connection with the sale of the Series A Preferred Stock, the Company issued warrants to acquire 264,500 shares of Common Stock at exercise prices of $3.26 per share during the first year and $3.54 per share during the second year. Additionally, the placement agent was issued a warrant to purchase 90,816 shares of Common Stock at $6.00 per share. A total of 339,066 warrants were exercised during 1996 through inducement of exercise by lowering the exercise price to $3.10 per share. The difference between the market price on the date of inducement and the induced exercise price has been deducted from net income to determine loss per Common share. A total of 15,000 warrants expired unexercised. As of December 31, 1996, additional warrants to acquire 100,000 shares of Common Stock were outstanding with exercise prices ranging from $2.50 to $11.05. Such warrants expire during periods ranging from December 31, 1997 to December 13, 2000. Additionally, as of December 31, 1996, warrants to acquire 120,000 shares of Common Stock were outstanding but expired unexercised on February 27, 1997. 6. EMPLOYEE BENEFIT PLANS: The Company maintains a retirement savings plan as described in Section 401(k) of the Internal Revenue Code of 1986. The Company may, at its discretion, contribute amounts not to exceed each employee's contribution. During January 1996 and January 1997, the Company made total contributions of $5,292 and $8,187 to the plan for a partial matching of employee contributions during 1995 and 1996, respectively. During 1996, the Company established an Employee Stock Purchase Plan to allow for the purchase of the Company's Common Stock on the open market using employee and any employer matching contributions. During 1996, the Company contributed $1,328 to this plan. F-15 18 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. FEDERAL INCOME TAXES: The Company has not made any income tax payments since inception. As of December 31, 1996, the Company has a net operating loss (NOL) carryforward for federal income tax purposes of approximately $26 million, subject to the limitations described below, expiring as follows:
YEAR EXPIRES ------------ 2001...................................................... $ 500,000 2002...................................................... 1,500,000 2003...................................................... 2,800,000 2004...................................................... 2,200,000 2005...................................................... 1,700,000 2006...................................................... 1,400,000 2007...................................................... 2,400,000 2008...................................................... 3,000,000 2009...................................................... 2,500,000 2010...................................................... 4,000,000 2011...................................................... 4,000,000 ----------- $26,000,000 ===========
Additionally, the Company has approximately $385,000 of research and development tax credit carryforwards which will expire in varying amounts commencing in 2001. The Company's ability to utilize its tax loss and credit carryforwards to reduce future taxable income may be limited by either the prior expiration of such loss or credit or by the occurrence of a "change in ownership," as such term is defined by federal income tax laws and regulations. A change in ownership may occur upon the sale of additional equity securities by the Company, conversion of existing shares of Series B Preferred Stock or by sales of stock by existing stockholders. In the event of a change in ownership, the amount of the tax loss and credit carryforwards that may be utilized to offset taxable income in any year may be limited and result in the payment of federal income taxes that otherwise would be offset by such tax losses or credits. For financial reporting purposes, a valuation allowance of $9,897,000 has been recorded as of December 31, 1996 to fully offset the deferred tax asset related to these carryforwards. The principal components of the deferred tax asset as of December 31, 1995 and 1996, assuming a 34% federal tax rate, are as follows:
1995 1996 ---------- ---------- Temporary differences: Deferred revenue.......................................... 582,000 510,000 Restricted stock compensation............................. (196,000) 154,000 Uniform capitalization of inventory costs................. 160,000 37,000 Other items............................................... 66,000 (29,000) ---------- ---------- Total temporary differences............................... 612,000 672,000 Federal tax losses and credits not currently utilizable... 7,845,000 9,225,000 ---------- ---------- Total deferred tax assets................................... 8,457,000 9,897,000 Less valuation allowance.................................. (8,457,000) (9,897,000) ---------- ---------- Net deferred tax asset...................................... -- -- ---------- ----------
F-16 19 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The net increase in the deferred tax valuation allowance for 1995 and 1996 was $1,691,000, and $1,440,000, respectively. Other than the net operating loss and tax credit carryforwards, there is no significant difference between the statutory federal income tax rate and the Company's effective tax rate during 1994, 1995 and 1996. 8. COLLABORATIONS AND CORPORATE ALLIANCES Medtronic Collaboration During March 1994, the Company entered into a collaboration with Medtronic, Inc. (Medtronic) for the development and commercialization of universal tissue heart valves engineered with LifeCell's proprietary technology. Medtronic paid the Company an initial licensing fee of $1,500,000, agreed to fund development of heart valve products, and acquired $500,000 of the Company's Common Stock at a price of $7.77 per share. Medtronic is obligated to pay royalties, up to a maximum of $25,000,000, on any product sales. Medtronic was also granted rights of first refusal to evaluate technology and negotiate license and development agreements for vascular conduit products utilizing the Company's technology. In the event Medtronic terminates funding of the heart valve program, Medtronic may convert its initial $1.5 million license fee into newly issued shares of the Company's Common Stock at the then-current market price. Accordingly, the Company has deferred recognition of the initial license fee and recorded a $1.5 million deferred credit in the accompanying balance sheet. Medtronic also has the right, subject to certain restrictions, to purchase additional shares of the Company's Common Stock, to have the Company register the resale of any Common Stock acquired from it, and to appoint one member of the Board of Directors of the company through March 1999. Other Product Sales Arrangements The Company has negotiated other distribution or sales collaboration arrangements with various parties with exclusive regional or international territories under each agreement. The agreements generally provide that the distributor must meet certain performance measures or the agreement may be terminated by the Company. The markets served by these arrangements include plastic and reconstructive surgery. 9. COMMITMENTS AND CONTINGENCIES: External Funding for Research Certain of the Company's research programs have been funded by Small Business Innovation Research (SBIR) grants and other direct federal government funding contracts. The grants and contracts generally obligate the Company to perform specified research activities in return for such funding, and the utilization of funds under the grants is subject to audit by the appropriate governmental agencies. At December 31, 1996, the Company had received $138,792 of deferred revenue, including advance payments from a corporate alliance, for research to be conducted during 1997. Additionally, as of December 31, 1996, the Company has unfunded awards totaling $1,597,000 for research that is expected to occur and be funded during 1997 and 1998. Exclusive License Agreement The Company has an exclusive license agreement with the Board of Regents of the University of Texas System (Board) to technology and patents related to the analysis or preservation of certain cells or tissues. The Company is required to pay the Board royalties on net sales of products encompassing the licensed technologies. For the periods ended December 31, 1994, 1995 and 1996 no significant royalties were paid under the agreement. F-17 20 LIFECELL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Leases The Company leases approximately 20,000 square feet for office and laboratory space. The future minimum lease payments under noncancelable lease terms in excess of one year as of December 31, 1996 were as follows: 1997........................................................ $218,028 1998........................................................ 221,320 1999........................................................ 221,320 2000........................................................ 221,320 2001........................................................ 18,443 -------- Total.................................................. $900,431 --------
10. TRANSACTIONS WITH RELATED PARTIES: The Company leases office space from an affiliate of a stockholder of the Company. The Company paid rent expense of approximately $139,000, $129,000 and $142,000 during 1994, 1995, and 1996 respectively, related to this lease. The Company paid consulting fees and expenses to an affiliate of a stockholder and a former director of the Company, totaling approximately $96,000, $91,000 and $80,000 during the years ended December 31, 1994, 1995 and 1996 respectively, pursuant to a consultant agreement. As of December 31, 1996, the Company has notes receivable totaling $95,060 from participants, two of whom are directors of the Company, in a previous deferred compensation plan. Such notes represent loans of federal income tax amounts payable by the individuals as a result of grants under the plan. 11. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table presents summary unaudited financial data for the years ended December 31, 1995 and 1996. The Company believes that this information reflects all adjustments, consisting of only normal recurring items, considered necessary for a fair presentation of the quarterly financial information presented. The operating results for any quarterly period are not necessarily indicative of the results that may be expected for future periods.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1995 Product Sales.................................. $ 98 $ 130 $ 251 $ 263 Total Revenues................................. $ 430 $ 399 $ 514 $ 464 Gross Margin................................... $ (5) $ (52) $ (7) $ (119) Net loss....................................... $ (958) $(1,016) $ (867) $(1,064) Loss per share................................. $(0.27) $ (0.29) $ (0.25) $ (0.29) 1996 Product Sales.................................. $ 421 $ 429 $ 561 $ 602 Total Revenues................................. $ 576 $ 678 $ 816 $ 876 Gross Margin................................... $ 149 $ 157 $ 205 $ 220 Net loss....................................... $ (949) $ (909) $(1,023) $(1,209) Loss per share................................. $(0.25) $ (0.24) $ (0.33) $ (0.32)
12. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (UNAUDITED) On November 4, 1997, Integra (Artificial Skin) Corporation ("Integra") a subsidiary of Integra LifeSciences Corporation, and Massachusetts Institute of Technology ("MIT") filed a lawsuit in the United States District Court for the District of Massachusetts, alleging that the Company infringes two patents licensed by MIT to Integra (the "Integra Patents"). The lawsuit seeks injunctive relief, an accounting of revenues, enhanced monetary damages and attorneys' fees. On November 14, 1997, LifeCell responded to the complaint denying the infringement claims and asserting certain affirmative defenses and counterclaims. The Company has received an opinion from its patent counsel to the effect that the intended uses of AlloDerm do not infringe the Integra Patents. This opinion represents only the reasoned professional judgment of the Company's patent counsel and is not binding on any court or third party. Patent litigation involves complex legal and factual questions. As a result, the outcome of such litigation is inherently unpredictable, and there can be no assurance that the result of this proceeding will be favorable to the Company or that it will not have a material adverse effect on the Company's business, operating results or financial condition. If it is determined that the Company is infringing the Integra Patents, the court could issue an injunction prohibiting the Company from making, using or selling its AlloDerm product for some or all of its intended uses. Such injunction could also extend to the Company's other potential products under development. In addition, the court could assess significant damages and attorneys' fees against the Company, which would have a material adverse effect on the Company's business, operating results and financial condition and otherwise affect the ability of the Company to continue as a viable enterprise. In addition, an adverse determination in this proceeding could require the Company to seek licenses from Integra, which may not be available on reasonable terms, if at all. Regardless of the outcome, defending such claims could involve significant costs and diversion of management resources, which could have a material adverse effect on the Company's business, operating results or financial condition. F-18 21 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIFECELL CORPORATION (Registrant) By: /s/ PAUL M. FRISON Paul M. Frison, President and Chief Executive Officer and Chairman of the Board of Directors Dated: November 17, 1997. 22 [INDEX TO EXHIBITS] EXHIBIT NUMBER DESCRIPTION - ------ ----------- 23.1 Consent of Arthur Andersen LLP EX-23.1 2 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, as amended, into the Company's previously filed Registration Statements File No. 33-90740 and File No. 333-20093. ARTHUR ANDERSEN LLP Houston, Texas November 17, 1997 -----END PRIVACY-ENHANCED MESSAGE-----