-----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, Ql+1smfvYSH2kWlXShDdOEIS7R5Z22fFC1pNa18N5XIrK4CCceKqHM/oW/ygrf5J 7bAKIkms4/VLHqHGYdB2pg== 0000858155-97-000007.txt : 19971113 0000858155-97-000007.hdr.sgml : 19971113 ACCESSION NUMBER: 0000858155-97-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTEIN POLYMER TECHNOLOGIES INC CENTRAL INDEX KEY: 0000858155 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 330311631 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19724 FILM NUMBER: 97716130 BUSINESS ADDRESS: STREET 1: 10655 SORRENTO VALLEY RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195586064 10QSB 1 FORM 10QSB PAGE ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ____________________ Commission file number 0-19724 PROTEIN POLYMER TECHNOLOGIES, INC. (Exact name of small business issuer as specified in its charter) Delaware 33-0311631 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 10655 Sorrento Valley Road, San Diego, CA 92121 (Address of principal executive offices) (619) 558-6064 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ___ State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of October 30, 1997, 10,413,598 shares of common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes ___ No _X_ ================================================================================ PAGE PROTEIN POLYMER TECHNOLOGIES, INC. FORM 10-QSB INDEX Page No. ________ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Balance Sheets - September 30, 1997 and December 31, 1996....................... 3 Condensed Statements of Operations - For the Three and Nine Months Ended September 30, 1997 and 1996................................... 4 Condensed Statements of Cash Flows - For the Nine Months Ended September 30, 1997 and 1996................................... 5 Notes to Condensed Financial Statements......................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................... 10 Item 4. Submission of Matters to a Vote of Security Holders. 10 Item 6. Exhibits and Reports on Form 8-K.................... 10 Signature........................................... 11 2 PAGE PROTEIN POLYMER TECHNOLOGIES, INC. Condensed Balance Sheets September 30, December 31, 1997 1996 ____________ ____________ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 188,644 $ 267,357 Short-term investments 2,300,000 993,042 Interest receivable 58,936 20,448 Inventory, net 5,552 20,694 Other current assets 238,984 36,113 ____________ ____________ Total current assets 2,792,116 1,337,654 Deposits 38,479 22,257 Deferred offering costs - 17,356 Equipment and leasehold improvements, net 624,932 369,314 ____________ ____________ $ 3,455,527 $ 1,746,581 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 271,353 $ 251,321 Accrued employee benefits 148,758 117,612 Other accrued expenses 53,004 53,525 Deferred revenue 75,000 75,000 Current portion capital lease obligations 56,926 - ____________ ____________ Total current liabilities 605,041 497,458 Long-term portion capital lease obligations 151,240 - Stockholders' equity: Series D convertible preferred stock, $.01 par value, 71,600 shares authorized, 28,214 and 49,187 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively - liquidation preference $2,821,400 2,667,404 4,764,745 Common stock, $.01 par value, 25,000,000 shares authorized, 10,413,598 and 7,233,228 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively 104,136 72,333 Additional paid-in capital 22,765,996 15,619,282 Accumulated deficit (22,838,290) (19,207,237) ____________ ____________ Total stockholders' equity 2,699,246 1,249,123 ____________ ____________ $ 3,455,527 $ 1,746,581 ============ ============ See accompanying notes. 3 PAGE PROTEIN POLYMER TECHNOLOGIES, INC. Condensed Statements of Operations Three Months Nine Months Ended September 30, Ended September 30, 1997 1996 1997 1996 __________ __________ __________ __________ Revenues: Contract revenue $ 91,510 $ 310,000 $ 324,510 $ 410,000 Interest income 41,151 26,206 162,885 65,263 Product and other income 27,840 21,140 61,744 45,664 __________ __________ __________ __________ Total revenues 160,501 357,346 549,139 520,927 Expenses: Cost of sales 5,380 7,994 23,301 19,878 Research and development 835,844 544,146 2,252,069 1,452,415 Selling, general and administrative 463,817 394,482 1,453,731 1,061,637 Royalties 6,250 6,250 28,750 28,750 __________ __________ __________ __________ Total expenses 1,311,291 952,872 3,757,851 2,562,680 __________ __________ __________ __________ Net loss (1,150,799) (595,526) (3,208,712) (2,041,753) Undeclared accumulated and/or paid dividends on preferred stock 117,657 123,639 361,569 368,228 __________ __________ __________ __________ Net loss applicable to common shareholders $(1,268,447) $ (719,165) $(3,570,281) $(2,409,981) =========== =========== =========== =========== Net loss per common share $ (0.14) $ (0.10) $ (0.39) $ (0.37) =========== =========== =========== =========== Shares used in computing net loss per common share 9,332,156 7,008,171 9,173,040 6,445,343 =========== =========== =========== =========== See accompanying notes. 4 PAGE PROTEIN POLYMER TECHNOLOGIES, INC. Condensed Statements of Cash Flows Nine Months ended September 30, 1997 1996 ____________ ____________ (unaudited) OPERATING ACTIVITIES Net loss $ (3,208,712) $ (2,041,753) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 124,166 84,265 Changes in assets and liabilities: Inventory 15,142 9,383 Deposits (16,222) (800) Interest receivable (38,488) 3,639 Other current assets (202,871) (28,946) Accounts payable 20,032 67,129 Accrued employee benefits 31,146 9,858 Deferred revenue - 200,000 Deferred offering costs 17,356 - Other accrued expenses (521) (10,468) ____________ ____________ Net cash used for operating activities (3,258,972) (1,707,693) INVESTING ACTIVITIES Purchase of equipment and improvements (164,192) (96,907) Short-term investments (1,306,958) (18,042) ____________ ____________ Net cash used for investing activities (1,471,150) (114,949) FINANCING ACTIVITIES Net proceeds from exercise of options and warrants, and sale of common stock 4,658,836 1,960,249 Payment on capital lease obligations (7,427) - ____________ ____________ Net cash provided by financing activities 4,651,409 1,960,249 ____________ ____________ Net increase (decrease) in cash and cash equivalents (78,713) 137,607 Cash and cash equivalents at beginning of the period 267,357 471,296 ____________ ____________ Cash and cash equivalents at end of the period $ 188,644 $ 608,903 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ 3,074 $ - Equipment financed by capital leases $ 215,592 $ - Preferred stock converted to common stock $ 2,097,341 $ - See accompanying notes. 5 PAGE PROTEIN POLYMER TECHNOLOGIES, INC. Notes to Condensed Financial Statements (Unaudited) September 30, 1997 1. Basis of Presentation The condensed financial statements of Protein Polymer Technologies, Inc. (the "Company") for the three and nine months ended September 30, 1997 and 1996 are unaudited. These financial statements reflect all adjustments, consisting of only normal recurring adjustments which, in the opinion of management, are necessary to state fairly the financial position at September 30, 1997 and the results of operations for the three and nine months ended September 30, 1997 and 1996. The results of operations for the three and nine months ended September 30, 1997 are not necessarily indicative of the results to be expected for the year ended December 31, 1997. For more complete financial information, these financial statements and the notes thereto should be read in conjunction with the audited financial statements included in the Company's Annual Report and Form 10-KSB for the year ended December 31, 1996, filed with the Securities and Exchange Commission. 2. Net Loss Per Share Net loss per share is computed using the weighted average number of common shares outstanding during the period. The net loss figures used for this calculation recognize accumulated dividends on the Company's Series D Preferred Stock. Such dividends are payable when declared by the Board of Directors in cash or common stock. 3. Accounting Standards on Earnings per Share In February 1997 the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share", which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is not expected to be material. 4. Capital Lease Financing In August 1997 the Company entered into a capital equipment lease line agreement with Transamerica Business Credit initially for up to $400,000 of laboratory and manufacturing equipment. During September the Company financed $177,000 of laboratory equipment on a 42 month term. 5. Series D Preferred Stock Conversion On September 14, 1997 the two year lock-up on conversion of the Company's Series D Convertible Preferred Stock expired. Subsequently, on September 19, 1997 a group of Series D Preferred investors elected to convert 20,973 shares, plus accumulated dividends. The investors received a total of 1,240,458 shares of unregistered common stock. Per the terms of the investors' Stock Purchase Agreement, the Company will file for registration of these shares under Form S-3 of the Securities and Exchange Commission. There remain 28,214 shares of Series D Preferred Stock outstanding at September 30, 1997. 6 PAGE 6. Liquidity The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company believes its existing available cash and short-term investments as of September 30, 1997 is sufficient to meet its anticipated capital requirements until April 1998. Substantial additional capital resources will be required to fund continuing expenditures related to the Company's research, development and product marketing activities. If adequate funds are not available, the Company may be required to significantly curtail its operating plans and relinquish rights to major portions of the Company's technology or potential products. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN, AS WELL AS THOSE DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996. General Overview Protein Polymer Technologies, Inc. is a development-stage biotechnology company engaged in the research, development and production of proprietary protein-based biomaterials. Since 1992 the Company has focused on medical uses for its materials, primarily for the surgical repair markets: surgical adhesives and sealants, soft tissue augmentation, wound healing and tissue engineering, surgical adhesion barriers and drug delivery devices. The Company has also developed coating technology that can efficiently modify and improve the surface properties of more traditional implantable materials used in a variety of applications, including cardiovascular products and contact lenses. The Company has been unprofitable to date and has an accumulated deficit of $22,838,000. In September 1995 the Company entered into collaborative agreements with Ethicon, Inc., a subsidiary of the Johnson & Johnson Company, related to the Company's surgical adhesives and sealants program. To date the Company has received $1.7 million in contractual payments from Ethicon as reimbursements for ongoing program research and development efforts. The Company's intended strategy with most of its other programs is to enter into product development agreements with additional medical product marketing and distribution companies. In early January 1997 the Company received $4.76 million, less expenses of approximately $140,000, from a private placement of the Company's common stock with a number of institutional and qualified individual investors, consisting of 1,904,000 shares at $2.50 per share. The Company agreed to register the shares with the Securities and Exchange Commission promptly after the closing; the registration was declared effective on January 24, 1997. 7 PAGE Results of Operations Contract research revenue for the three months ended September 30, 1997 totaled $92,000, compared to $310,000 in revenue for the same period in 1996. For the nine month period ended September 30, 1997 these revenues were $325,000, compared to $410,000 for the same period in 1996. The revenue represents contractual payments primarily from Ethicon related to the Company's surgical adhesives and sealants program. Interest income was $41,000 for the three months ended September 30, 1997, versus $26,000 for the same period in 1996. For the nine month period ended September 30, 1997 interest income was $163,000, compared to $65,000 for the same period in 1996. The increase in income resulted from additional cash made available for investing from the sale of common stock in a private placement during January 1997. For the three months ended September 30, 1997 and 1996, sales from the Company's ProNectin(R) product line were $28,000 and $21,000, respectively. For the nine month period ended September 30, 1997 these product sales were $62,000, compared to $46,000 for the same period in 1996. The increases were due to reorders from the distributors. Cost of sales was $5,000 for the three months ended September 30, 1997, compared to $8,000 for the same period in 1996. For the nine month period ended September 30, 1997 these expenses were $23,000, compared to $20,000 for the same period in 1996. The variances related primarily to the mix of product sold. Royalty expenses paid to Stanford University and Telios Pharmaceuticals, Inc. were $6,000 for each of the three month periods ended September 30, 1997 and 1996. These expenses were $29,000 for each of the nine month periods ended September 30, 1997 and 1996. Research and development expenses for the three months ended September 30, 1997 were $836,000, compared to $544,000 for the same period in 1996, a 54% increase. For the nine month period ended September 30, 1997 these expenses were $2,252,000, compared to $1,452,000 for the same period in 1996, a 55% increase. These increases were primarily due to expanded efforts in the Company's surgical adhesives and sealants program and the soft tissue augmentation program, including preparation for Good Laboratory Practices ("GLP") materials manufacturing and testing capabilities, as required by the Food and Drug Administration before entering clinical trials. The Company expects that its research and development expenses will continue to increase over time to the extent its programs are successfully progressing and additional capital is obtained. Selling, general and administrative expenses for the three months ended September 30, 1997 were $464,000, as compared to $394,000 for the same period in 1996, an 18% increase. For the nine month period ended September 30, 1997 these expenses were $1,454,000, compared to $1,062,000 for the same period in 1996, a 37% increase. These increases were primarily due to additional patent, legal and insurance expenses and expanded investor relations efforts. The Company expects its selling, general and administrative expenses to continue to increase as support for its research and development efforts require and to the extent additional capital is raised. 8 PAGE For the three months ended September 30, 1997, the Company recorded a net loss applicable to common shareholders of $1,268,000, or $.14 per share, compared to a loss of $719,000, or $.10 per share for the same period in 1996. For the nine month period ended September 30, 1997 the net loss applicable to common shareholders was $3,570,000, or $.39 per share, compared to a loss of $2,410,000, or $.37 per share for the same period in 1996. Included in the net loss figures for each of the three and nine month periods of 1997 and 1996 were undeclared and/or paid dividends related to the Company's preferred stock. The Company expects to incur similar or increasing operating losses for the immediate future (to the extent additional capital is obtained), due primarily to increases in the Company's product development, manufacturing and business development activities. The Company's results depend on its ability to generate product and contract revenues, and establish and maintain strategic alliances. Its results also depend on increased research, development and manufacturing efforts, preclinical and clinical product testing and commercialization expenditures, expenses incurred for regulatory compliance and seeking various regulatory approvals, patent prosecution, and other factors. The Company's results will also fluctuate from period to period due to timing differences. To date the Company believes that inflation and changing prices have not had a material effect on its continuing operations. Liquidity and Capital Resources As of September 30, 1997, the Company had cash, cash equivalents and short-term investments of $2,489,000 as compared to $1,260,000 at December 31, 1996. As of September 30, 1997, the Company had working capital of $2,244,000, compared to $840,000 at December 31, 1996. In early January 1997 the Company received $4.76 million, less expenses of approximately $140,000, from a private placement of the Company's common stock with a number of institutional and qualified individual investors, consisting of 1,904,000 shares at $2.50 per share. The Company had long-term debt obligations as of September 30, 1997 of $208,000 in the form of capital lease obligations, versus no such obligation as of December 31, 1996. For the nine months ending September 30, 1997, the Company's expenditures for capital equipment and leasehold improvements totaled $380,000 (including $216,000 financed by capital leases), compared with $97,000 for the same period last year. The Company is expecting to continue its capital expenditures in the next few quarters (to the extent additional capital is obtained), as the Company improves existing space to achieve GLP compliance for laboratory testing and materials manufacturing requirements. In August 1997 the Company entered into a capital equipment lease line agreement for initially up to $400,000 with Transamerica Business Credit, and during September financed $177,000 of laboratory equipment on a 42 month term. The Company believes its existing available cash and short-term investments as of September 30, 1997 will be sufficient to meet its anticipated capital requirements until April 1998. Substantial additional capital resources will be required to fund continuing expenditures related to the Company's research, development and manufacturing activities. The Company believes there may be a number of alternatives to meet the continuing capital requirements of its operations, such as additional collaborative agreements and public or private financings, and is actively pursuing all of these approaches. However, there can be no assurance that the requisite fundings will be consummated in the necessary time frame or on terms favorable to the Company. If adequate funds are not available, the Company may be required to significantly curtail its operating plans and relinquish rights to major portions of the Company's technology or potential products. 9 PAGE PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS During September 1997 the Company reached an amicable settlement, without monetary payments, with certain persons who held Underwriter Unit Warrant Certificates. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: Exhibit Number Description 27 Financial Data Schedule b. Reports on Form 8-K None. 10 PAGE SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROTEIN POLYMER TECHNOLOGIES, INC. Date: November 11, 1997 By: /s/ J. Thomas Parmeter ___________________ __________________________________ J. Thomas Parmeter Chairman of the Board, Chief Executive Officer, President Date: November 11, 1997 By: /s/ Aron P. Stern ___________________ __________________________________ Aron P. Stern Vice President, Finance and Administration and Chief Financial Officer 11 PAGE EXHIBIT INDEX Exhibit Sequentially Number Description Numbered Page ________ ___________________________________________ _____________ 27 Financial Data Schedule 13 12 PAGE EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 JUL-01-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 188644 188644 2300000 2300000 8577 8577 0 0 5552 5552 2792116 2792116 1671260 1671260 (1046328) (1046328) 3455527 3455527 605041 605041 0 0 0 0 2667404 2667404 22870132 22870132 (22838290) (22838290) 3455527 3455527 27840 61744 160501 549139 5380 23301 11630 52051 1299661 3705800 0 0 3074 0 (1268447) (3570281) 0 0 (1268447) (3570281) 0 0 0 0 0 0 (1268447) (3570281) (0.14) (0.39) (0.14) (0.39)
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