SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 0-26224
INTEGRA LIFESCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0317849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Morgan Lane
Plainsboro, New Jersey 08536
(Address of principal executive offices) (Zip code)
(609) 275-0500
(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.
[x] - Yes [ ] - No
As of May 12, 1997 the registrant had outstanding 29,797,366 shares of
Common Stock, $.01 par value.
1
INTEGRA LIFESCIENCES CORPORATION
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 (Unaudited) 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 (Unaudited) 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
Exhibits 11
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRA LIFESCIENCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS
- ------
Current Assets:
Cash and cash equivalents........................ $ 8,817 $ 11,762
Short-term investments........................... 24,384 22,514
Accounts receivable, net......................... 2,376 2,902
Inventories...................................... 2,766 2,635
Prepaid expenses and other current assets........ 412 338
------------ ----------
Total current assets......................... 38,755 40,151
Property and equipment, net.......................... 8,214 8,554
Other assets......................................... 31 36
------------ ----------
Total assets...................................... $ 47,000 $ 48,741
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable, trade............................ $ 411 $ 162
Accrued expenses and other current liabilities..... 1,599 2,053
------------ ----------
Total current liabilities.................... 2,010 2,215
Other liabilities.................................... 150 142
------------ ----------
Total liabilities............................ 2,160 2,357
------------ ----------
Stockholders' Equity:
Preferred stock, $.01 par value (15,000,000
authorized shares; no shares issued or
outstanding)....................................... -- --
Common stock, $.01 par value (60,000,000
authorized shares; 29,630,496 and
28,551,315 issued and outstanding at
March 31, 1997 and December 31, 1996,
respectively)...................................... 296 285
Additional paid-in capital............................ 105,723 105,447
Unearned compensation related to stock options........ (297) (328)
Notes receivable - related parties.................... (35) (35)
Unrealized losses on investments...................... (35) (4)
Accumulated deficit................................... (60,812) (58,981)
------------- -----------
Total stockholders' equity................... 44,840 46,384
------------ ----------
Total liabilities and stockholders' equity........... $ 47,000 $ 48,741
============ ==========
The accompanying notes are an integral part
of the condensed consolidated financial statements
3
INTEGRA LIFESCIENCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
REVENUE
- -------
Product sales........................................ $ 2,970 $ 2,312
Research grants...................................... 154 207
Product license fees................................. - 500
Royalties............................................ 64 62
Contract product development......................... - 26
---------- ----------
Total revenue.................................... 3,188 3,107
COSTS AND EXPENSES
- ------------------
Cost of product sales................................ 1,556 1,454
Research and development............................. 1,417 1,532
Selling, general and administrative.................. 2,533 2,053
---------- ----------
Total costs and expenses......................... 5,506 5,039
---------- ----------
Operating loss....................................... (2,318) (1,932)
Other income......................................... 488 372
---------- ----------
Net income (loss).................................... $ (1,830) $ (1,560)
========== ==========
Net income (loss) per share.......................... $ (0.06) $ (0.06)
========== ==========
Weighted average number of common and
common equivalent shares outstanding............. 28,935 26,863
========== ==========
The accompany notes are an integral part
of the condensed consolidated financial statements
4
INTEGRA LIFESCIENCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
OPERATING ACTIVITIES:
Net loss............................................................... $ (1,830) $ (1,560)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization....................................... 486 515
Gain on sale of assets.............................................. (43) (23)
Amortization of discount and interest on investments................ 22 (126)
Amortization of unearned compensation............................... 31 -
Changes in assets and liabilities:
Accounts receivable.............................................. 526 (256)
Inventories...................................................... (131) (736)
Prepaid expenses and other current assets........................ (74) 76
Non-current assets............................................... - 69
Accounts payable, accrued expenses and other liabilities......... (197) (34)
------------ ------------
Net cash used in operating activities............................... (1,210) (2,075)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of assets........................................... 48 69
Payments of acquired bankruptcy claims................................. - (9)
Purchases of available-for-sale investments............................ (9,922) (28,682)
Proceeds from sale/maturity of investments............................. 8,000 1,200
Purchases of property and equipment.................................... (147) (342)
------------ ------------
Net cash used in investing activities............................... (2,021) (26,764)
------------ ------------
FINANCING ACTIVITIES:
Principal payment on notes receivable - related parties................ - 30
Payments of long-term debt............................................. - (10)
Proceeds from exercised stock options.................................. 286 578
Proceeds from sale of common stock..................................... - 35,759
----------- -----------
Net cash provided by financing activities........................... 286 36,357
----------- -----------
Net (decrease) increase in cash and cash equivalents....................... (2,945) 7,518
Cash and cash equivalents at beginning of period........................... 11,762 4,512
----------- -----------
Cash and cash equivalents at end of period................................. $ 8,817 $ 12,030
=========== ===========
The accompanying notes are an integral part
of the condensed consolidated financial statements
5
INTEGRA LIFESCIENCES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the March 31 unaudited condensed
consolidated financial statements contain all adjustments (consisting only
of normal recurring accruals) which the Company considers necessary for a
fair presentation of the financial position and results of operations of
the Company. Operating results for the three month period ended March 31,
1997 are not necessarily indicative of the results to be expected for the
entire year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. 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,
including disclosures of contingent assets and liabilities, and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates. These unaudited
condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements for the year ended
December 31, 1996 included in the Company's Annual Report on Form 10-K.
2. Inventories consist of the following:
(In thousands) March 31, 1997 December 31, 1996
---------------------- -------------------
Finished goods....................... $ 1,203 $ 1,007
Work-in-process...................... 1,256 1,270
Raw materials........................ 307 358
------------------- -------------------
$ 2,766 $ 2,635
=================== ===================
3. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 establishes standards for computing and presenting
earnings per share ("EPS") and supersedes APB Opinion No. 15, "Earnings
Per Share" ("Opinion 15"). SFAS 128 replaces the presentation of primarily
EPS with a presentation of basic EPS which excludes dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding during the period.
This statement also requires dual presentation of basic EPS and diluted
EPS on the face of the income statement for all periods represented. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Early adoption is not
permitted and the Statement requires restatement of all prior period EPS
data presented after the effective date.
The Company will adopt SFAS 128 effective with its 1997 year-end. If SFAS
128 had been adopted at March 31, 1997, there would have been no change in
the EPS as reflected in the accompanying financial statements for the
periods ended March 31, 1997 and 1996.
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion contains trend information and other
forward-looking statements related to the future use of INTEGRA(TM) Artificial
Skin and anticipated expenditure levels and are made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. Such statements
involve risks and uncertainties which may cause results to differ materially
from those set forth in these statements. In addition, the economic,
competitive, governmental, technological and other factors identified in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission could affect such results.
General
The Company is dedicated to the acquisition, discovery and development of
synergistic technologies for creating and marketing cost-effective,
off-the-shelf, bio-absorbable products designed to regenerate specific body
tissues and organs, or treat many cell-based diseases or age-associated
conditions. The Company has developed principally by combining existing
businesses, acquiring synergistic technologies and forming strategic business
and technological alliances.
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Total revenues increased to approximately $3.2 million for the three months
ended March 31, 1997 from $3.1 million for the three months ended March 31,1996,
as an increase in product sales was offset by decreases in licensing fees and
research grant revenue. Product sales increased to $3.0 million for the three
months ended March 31, 1997 from $2.3 million for the three months ended March
31, 1996. Sales of INTEGRA(TM) Artificial Skin ("INTEGRA") increased to $1.25
million for the three months ended March 31, 1997 compared to $180,000 in the
first quarter of 1996. INTEGRA received U.S. Food and Drug Administration
premarket approval in March 1996. In the first quarter 1997, North American
INTEGRA sales represented 83% of total INTEGRA product sales as approximately
50% of North American burn centers have ordered the product at least one time.
In addition, there is at least one physician trained on the use of INTEGRA in
approximately 70% of the North American burn centers. The Company believes that
the primary application of INTEGRA has been for patients with severe
life-threatening burns, but is aware of its application in reconstructive and
wound healing procedures. Factors the Company believes influence the use and
sale of INTEGRA include physician training prior to product use, the collection
of pharma-economic data to address initial product reimbursement issues,
additional positive clinical results and the Company's ability to obtain FDA
approvals for additional indications.
Product sales of the Company's other medical devices were approximately
$1.7 million for the three months ended March 31, 1997 down from $2.1 million
for the three months ended March 31, 1996. The infection control product line
declined by $490,000 compared to the first quarter 1996 due to delays in orders
and shipments to two private label customers. The Company's dental product line
continued to show increases due to the BioMend product, and the Company resumed
shipments of its ophthalmic product during the first quarter of 1997. Sales of
the Company's other medical devices can vary significantly on a quarter to
quarter basis depending on the timing of shipments to private label customers
and contract distributors. Export sales for the three months ended March 31,
1997 increased to $290,000 from $270,000 for the three months ended March 31,
1996 and included an increase of $70,000 in international INTEGRA sales.
Other revenue, which includes grant revenue, license fees, contract
development revenue and royalties, was $220,000 for the three months ended March
31, 1997 compared to $800,000 for the three months ended March 31, 1996.
Included in other revenue during the first quarter of 1996 was a $500,000
licensing fee received as part of an agreement with Cambridge Antibody
Technology Limited involving the
7
Company's human antibody development program. Grant revenue also declined due to
the completion of a three-year National Institute of Standards and Technology
grant as of December 31, 1996. Grant revenue is expected to continue to be lower
in 1997 unless additional grants are awarded to the Company. The Company
continues to seek research grants, licensing arrangements and development
funding for several of its technologies, although the timing and amount of such
revenue, if any, can not be predicted.
Cost of product sales increased to approximately $1.6 million (52% of
product sales) for the three months ended March 31, 1997 from $1.5 million (63%
of product sales) for the three months ended March 31, 1996. The decrease in
costs of product sales as a percentage of product sales is primarily
attributable to higher utilization of the Company's INTEGRA manufacturing
facility in 1997 compared to the scale-up period during the first quarter 1996.
Due to the high fixed costs of the manufacturing facility for INTEGRA, the
Company is anticipating higher unit costs until there is a requirement for
higher production volume. The Company believes its current capacity to produce
INTEGRA and its other medical products is sufficient to support significant
growth, and the utilization of this capacity will affect its gross margin on
product sales. The Company continues to seek contract manufacturing
opportunities to increase utilization of its capacity.
Research and development expense decreased to approximately $1.4 million
for the three-month period ended March 31, 1997 from $1.5 million for the
three-month period ended March 31, 1996. The largest declines were in personnel
and facility costs associated with the Company's Telios operation. The Company
expects the level of research and development expenditures in 1997 to exceed
1996 expenditures as expenditures related to the post-approval study of INTEGRA
and pre-clinical and clinical trials for the Company's regenerative and matrix
medicine technologies expand during the year. The amount of resources and the
allocation of those resources to fund research and development will vary
depending upon a number of factors, including the progress of development of the
Company's technologies, the timing and outcome of pre-clinical and clinical
results, changing competitive conditions and determinations with respect to the
commercial potential of the Company's technologies.
Selling, general and administrative expense increased to approximately $2.5
million for the three-month period ended March 31, 1997 from $2.1 million for
the three-month period ended March 31, 1996. Sales and marketing expenses
increased by $320,000 as a result of the domestic and international market
introduction of INTEGRA, which included costs associated with the addition of
technical personnel and consultants involved in training and promotional
activities. General and administrative expenses also increased largely due to
increased legal and professional costs. The Company is anticipating modest
increases in sales and marketing expenses over 1996 levels associated with the
continued introduction of INTEGRA. General and administrative expenses are
likely to increase and will depend, in part, on the progress of the Company's
patent litigation lawsuit.
Liquidity and Capital Resources
At March 31, 1997, the Company had cash, cash equivalents and short-term
investments of approximately $33.2 million and no long-term debt. The Company's
principal uses of funds during the three-month period ended March 31, 1997 were
$1.2 million for operations and $150,000 in purchases of property and equipment.
The Company also received $290,000 in funds from the exercise of stock options
under the Company's stock option plans. The Company anticipates that it will
continue to use its liquid assets to fund operations until sufficient revenues
can be generated through product sales and collaborative arrangements. There can
be no assurance that the Company will be able to generate sufficient revenues to
obtain positive operating cash flows or profitability.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re Computation of Per Share Amounts
27 Financial Data Schedule
(b) Reports on Form 8-K
None
9
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.
INTEGRA LIFESCIENCES CORPORATION
Date: May 14, 1997 /s/ Richard E. Caruso
----------------------
Richard E. Caruso, Ph.D.
Chairman, President and Chief Executive Officer
Date: May 14, 1997 /s/ David B. Holtz
-------------------
David B. Holtz
Vice President, Treasurer
10
Exhibit 11
Statement of Computation of Per Share Amounts
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Primary:
Net loss for the period............................. $ (1,830) $ (1,560)
========= ===========
Weighted average number of shares of common
stock outstanding.............................. 28,935 26,863
Shares issuable upon exercise of outstanding
options and warrants........................... ---- ----
Shares assumed to be acquired in accordance with
the treasury stock method...................... ---- ----
------- ----------
Shares used in computing per share income........... 28,935 26,863
------- ----------
Net loss per share.................................. $ (0.06) $ (0.06)
======== ===========
Fully Diluted:
Net income (loss) for the period.................... $(1,830) $ (1,560)
======== ===========
Weighted average number of shares of common
stock outstanding.............................. 28,935 26,863
Shares issuable upon exercise of outstanding
options and warrants........................... 1,130 3,374
Shares assumed to be acquired in accordance
with the treasury stock method................. (67) (1,253)
-------- -----------
Shares used in computing per share income........... 29,998 28,984
------- ----------
Net income (loss) per share......................... $ (0.06) $ (0.05)
======== ===========
11
5
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
8,817
24,384
2,376
0
2,766
38,755
12,380
4,166
47,000
2,010
0
0
0
296
105,723
47,000
2,970
3,188
1,556
1,556
0
0
0
(1,830)
0
(1,830)
0
0
0
(1,830)
(.06)
(.06)
