-----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, B2UYDjcU6dk2XcGGdiuwlBej28dxRMVObbBo5vF9cPdhm9yU6wW3yM3GPEiBZdeQ p6VmcvJgIA7BxnJi2508Mg== 0000898430-98-000346.txt : 19980206 0000898430-98-000346.hdr.sgml : 19980206 ACCESSION NUMBER: 0000898430-98-000346 CONFORMED SUBMISSION TYPE: 10KSB40/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19980205 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: 10KSB40/A SEC ACT: SEC FILE NUMBER: 000-19724 FILM NUMBER: 98522743 BUSINESS ADDRESS: STREET 1: 10655 SORRENTO VALLEY RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195586064 10KSB40/A 1 AMENDMENT NO. 1 TO FORM 10-KSB40 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 --------------- ON FORM 10-KSB/A (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 Identification No.) Incorporation or Organization) 10655 Sorrento Valley Road, San Diego, CA 92121 (Address of Principal Executive Offices) Issuer's Telephone Number: (619) 558-6064 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Redeemable Warrants (Title of Class) 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 _ __ Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained herein, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A. [X] The issuer's revenues for the most recent fiscal year were $755,751. The aggregate market value of the voting stock held by non-affiliates of the issuer on February 3, 1998 was $9,681,000. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of February 3, 1998, 10,429,094 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Definitive Proxy Statement filed March 24, 1997 pursuant to Regulation 14A with respect to the Registrant's 1997 Annual Meeting of Stockholders (incorporated by reference in Part III). Transitional Small Business Disclosure Format: Yes No X -- - PART II Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations General Overview Incorporated in 1988, Protein Polymer Technologies, Inc. ("Protein" or "the Company") has concentrated its research and development efforts on establishing a scientific and technical leadership position in the production of unique protein-based materials. The Company has identified biomedical market and product opportunities for further research and development that management believes will exploit the unique properties of the Company's technology to competitive advantage. The Company has been unprofitable to date, and as of December 31, 1996 has an accumulated deficit of $19,207,000. The Company's medical product candidates for surgical repair and regeneration of tissues are in various stages of research and development. Its more advanced programs are in the areas of tissue adhesives and sealants, and tissues augmentation, where the Company is devoting over 90% of its scientific effort currently. The Company's first commercial products, ProNectin F and SmartPlastic, are used by biologists and cell culture laboratories, principally to grow mammalian cells for biomedical research purposes. In 1995 the Company entered into a collaborative relationship with Ethicon regarding its tissue adhesives and sealants program. The Company's strategy with most of its other programs is to enter into similar collaborative development agreements with major medical product marketing and distribution companies. Although these relationships may provide significant near-term revenues through up-front licensing fees, research and development reimbursements and milestone payments, the Company expects to incur continuing operating losses for the next several years. On December 16, 1997, Ethicon elected to terminate the agreements with Protein, based upon Ethicon's determination that the timelines to clinical trials and to market were too lengthy to continue. Although Ethicon remains interested in this product opportunity, and will monitor our continued progress, the Company has decided to discuss the opportunity with other potential partners. Protein's relationship with Ethicon continues to remain good, and Johnson & Johnson subsidiaries are currently evaluating the Company's materials regarding other product opportunities. (See Note 5 - Research and Development Contracts and Royalties - in the Notes to Financial Statements elsewhere herein.) Results of Operations Contract research revenue for the year ended December 31, 1996 was $610,000, compared to $810,000 and $100,000 for 1995 and 1994, respectively. During 1996 the Company received research and development reimbursements totaling $600,000 from Ethicon related to the Company's tissue adhesives and sealants program. In September 1995 the Company received a payment of $800,000 from Ethicon upon the signing of the various agreements related to the Company's tissue adhesives and sealants program. The 1994 revenues were derived from materials evaluation agreements entered into with divisions of J&J. Interest income was $87,000 for the year ended December 31, 1996, as compared to $59,000 for 1995 and $95,000 for 1994. The year-to-year variability resulted from timing differences with regard to the receipt of equity capital and the amounts of excess cash available for investment. 2 Product sales for the years ended December 31, 1996 were $58,000, compared to $118,000 and $94,000 in 1995 and 1994, respectively. Product sales consist of ProNectin F related product revenues and licensing fees. Sales in 1995 reflect the launch of the SmartPlastic line of ProNectin F Activated Cultureware and the resultant distributor stocking orders. Additionally, during 1995 the Company stopped promotional expenditures for these products. Cost of sales was $47,000 for the year ended December 31, 1996, versus $125,000 and $57,000 for the years 1995 and 1994, respectively. The 1996 and 1995 totals reflect certain inventory adjustments and reserves. Royalty expenses paid to Stanford University and Telios Pharmaceuticals, Inc. aggregated $35,000 for each of the three years ended December 31, 1996, 1995 and 1994. Research and development expenses for the year ended December 31, 1996 were $2,021,000, compared to $1,722,000 in 1995, an increase of 17%. This increase in 1996 spending over 1995 was due to expanded activities, including the establishment of a quality assurance department as part of the Company's efforts to implement GLP. The 1995 expenses decreased 12% compared to $1,951,000 incurred in 1994. This decrease in 1995 spending versus 1994 resulted from the continued focusing of the Company's research and development efforts, with fewer programs sponsored and the consequent lowering of expenses incurred. The Company expects its research and development expenses will increase in the future due to the expansion of product directed research and development efforts, an increased number of programs funded, laboratory upgrading and expansion, and increased outside product testing. Selling, general and administrative expenses for the year ended December 31, 1996 were $1,516,000, as compared to $1,329,000 for 1995, an increase of 14%. This increase in 1996 spending over 1995 was due to additional legal, patent and risk insurance expenses, and increased investor relations activities. The 1995 expenses decreased 12% compared to $1,512,000 incurred in 1994. This decrease in 1995 spending versus 1994 was due to reduced product marketing, legal and investor relations expenses. The Company expects its selling, general and administrative expenses will increase in the future consistent with supporting its research and development efforts and as business development, patent and investor relations activities require. For the year ended December 31, 1996, the Company recorded a net loss applicable to common shareholders of $3,356,000, or $.51 per share, as compared to $2,610,000, or $.45 per share for 1995, and $3,353,000, or $.58 per share for 1994. The 1996, 1995 and 1994 losses and per share calculations include $492,000, $385,000 and $108,000, respectively, of accumulated and/or paid dividends from the Company's Preferred Stock. The Company expects to incur increasing operating losses for the next several years, to the extent additional capital is raised, based upon the successful continuation of the tissue adhesives program and the tissue augmentation program, as well as expected increases in the Company's other research and development, manufacturing and business development activities. The Company's results depend on its ability to establish strategic alliances and generate contract revenues, increased research, development and manufacturing efforts, preclinical and clinical product testing and commercialization expenditures, expenses incurred for regulatory compliance and 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 impact on its continuing operations. Effective January 1, 1994, the Company adopted Statement No. 109, "Accounting for Income Taxes". There is no current year or cumulative impact of the adoption of Statement No. 109. Based upon Company earnings history, a valuation allowance of $7,363,000 is required to reduce the Company's net deferred tax assets to the amount realizable. 3 Liquidity and Capital Resources As of December 31, 1996, the Company had cash, cash equivalents and short-term investments totaling $1,260,000, as compared to $2,011,000 at December 31, 1995. As of December 31, 1996, the Company had working capital of $840,000, compared to $1,803,000 at December 31, 1995. These decreases in 1996 as compared to 1995 were due to increased operating expenses, reduced revenues and less equity capital raised. During the first week of January 1997 the Company received $4,760,000 before expenses of approximately $160,000 from a private placement of common stock to institutional and qualified individual investors. Accounting on a pro forma basis as though this capital influx had occurred on December 31, 1996, the Company's cash, cash equivalents and short-term investments would have totaled $6,020,000, and working capital would have increased to $5,600,000. The Company had no long-term debt obligations as of December 31, 1996 and December 31, 1995. For the twelve month period ending December 31, 1996 the Company's expenditures for capital equipment and leasehold improvements totaled $184,000, compared with $84,000 for the same period last year. The Company anticipates that these expenditures will increase as laboratory renovations and additional equipment are required to meet current GLP regulations and production requirements. The Company currently has no equipment lease lines of credit, although it may enter into such arrangements in the future if available at appropriate rates and terms. The Company believes its existing available cash, cash equivalents and short-term investments, including the equity capital received during the first week of January 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, manufacturing and product marketing activities. The Company believes there may be a number of alternatives available to meet the continuing capital requirements of its operations, such as additional collaborative agreements and public or private financings, and is actively pursuing all available 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 will be required to significantly curtail its operating plans and may have to relinquish rights to significant portions of the Company's technology or potential products. 4 Item 7. Financial Statements Filed herewith are the following Audited Financial Statements for Protein Polymer Technologies, Inc. (a development stage company):
Description Page ----------- ---- Report of Ernst & Young LLP, Independent Auditors........................... F-2 Balance Sheets at December 31, 1996 and 1995................................ F-3 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 and the period July 6, 1988 (inception) to December 31, 1996.... F-4 Statements of Stockholders Equity for the period July 6, 1988 (inception) to December 31, 1996..................................................... F-5 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 and the period July 6, 1988 (inception) to December 31, 1996.... F-7 Notes to Financial Statements............................................... F-8
F-1 Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Stockholders Protein Polymer Technologies, Inc. We have audited the accompanying balance sheets of Protein Polymer Technologies, Inc. (a Development Stage Company) as of December 31, 1996 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996 and for the period July 6, 1988 (inception) to 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 Protein Polymer Technologies, Inc. (a Development Stage Company) at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 and for the period July 6, 1988 (inception) to December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, Protein Polymer Technologies, Inc. (a Development Stage Company) has reported accumulated losses during the development stage aggregating $19,207,237 and without additional financing, lacks sufficient working capital to fund operations through April 30, 1998, which raises substantial doubt about its ability to continue as a going concern. Management's plans as to these matters are described in Note 1. The 1996 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. ERNST & YOUNG LLP San Diego, California January 30, 1997, except for paragraph 2 of Note 1, as to which the date is January 30, 1998 F-2 Protein Polymer Technologies, Inc. (A Development Stage Company) Balance Sheets
December 31, 1996 1995 -------------------------- Assets Current assets: Cash and cash equivalents (Note 2) $ 267,357 $ 471,296 Short-term investments (Note 2) 993,042 1,540,000 Inventory, net 20,694 54,534 Other current assets 56,561 48,277 -------------------------- Total current assets 1,337,654 2,114,107 Deposits 22,257 22,257 Deferred offering costs 17,356 - Equipment and leasehold improvements, net (Note 1) 369,314 302,795 -------------------------- $ 1,746,581 $ 2,439,159 ========================== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 251,321 $ 157,971 Accrued employee benefits 117,612 101,284 Other accrued expenses 53,525 51,598 Deferred revenue 75,000 - -------------------------- Total current liabilities 497,458 310,853 Commitments (Note 4) - - Stockholders' equity (Note 3): Series D convertible preferred stock, $.01 par value, 71,600 shares authorized, 49,187 shares issued and outstanding at December 31, 1996 and 1995, respectively - liquidation preference $4,918,700 4,764,745 4,764,745 Common stock, $.01 par value, 25,000,000 shares authorized, 7,233,228 and 5,832,925 shares issued and outstanding at December 31, 1996 and 1995, respectively 72,333 58,330 Additional paid-in capital 15,619,282 13,648,036 Deficit accumulated during development stage (19,207,237) (16,342,805) -------------------------- Total stockholders' equity 1,249,123 2,128,306 -------------------------- $ 1,746,581 $ 2,439,149 ==========================
See accompanying notes. F-3 Protein Polymer Technologies, Inc. (A Development Stage Company) Statements of Operations
For the period July 6, 1988 (inception) to Years ended December 31, December 31, 1996 1995 1994 1996 ------------------------------------------------------------ Revenues: Contract revenue (Note 5) $ 610,000 $ 810,000 $ 100,000 $ 3,845,455 Interest income 87,317 58,702 94,941 759,420 Product and other income 58,434 117,991 114,294 482,251 --------------------------------------------------------- Total revenues 755,751 986,693 309,235 5,087,126 Expenses: Cost of sales 47,364 124,824 56,843 249,380 Research and development 2,021,413 1,721,776 1,951,120 14,120,011 Selling, general and administrative 1,516,406 1,329,497 1,511,631 9,440,926 Royalties 35,000 35,000 35,000 230,171 --------------------------------------------------------- Total expenses 3,620,183 3,211,097 3,554,594 24,040,488 --------------------------------------------------------- Net loss (2,864,432) (2,224,404) (3,245,359) (18,953,362) Undeclared and/or paid dividends on preferred stock (491,867) (385,143) (108,000) (985,010) --------------------------------------------------------- Net loss applicable to common shareholders $(3,356,299) $(2,609,547) $(3,353,359) $(19,938,372) ========================================================= Net loss per common share $ (.51) $ (.45) $ (.58) ========================================= Shares used in computing net loss per common share 6,638,814 5,831,446 5,830,925 =========================================
See accompanying notes. F-4 Protein Polymer Technologies, Inc. (A Development Stage Company) Statements of Stockholders' Equity For the period July 6, 1988 (inception) to December 31, 1996
Common stock Preferred stock ------------------- ------------------- Additional Shares Amount Shares Amount paid-in capital -------- -------- -------- -------- --------------- Issuance of common stock at $.01 per share for cash 400,000 $ 4,000 -- $ -- $ -- Issuance of common stock at $.62 per share for cash and receivables 1,116,245 11,162 -- -- 681,838 Receivables from sale of common stock -- -- -- -- -- Net loss -- -- -- -- -- --------- ------- ------- ---------- ----------- Balance at December 31, 1988 1,516,245 15,162 -- -- 681,838 Repayment of receivables from sale of common stock -- -- -- -- -- Issuance of common stock at $.62 per share 359,136 3,594 -- -- 219,358 Net loss -- -- -- -- -- --------- ------- ------- ---------- ----------- Balance at December 31, 1989 1,875,381 18,756 -- -- 901,196 Exercise of common stock options at $.01 per share for cash 60,000 600 -- -- -- Issuance of common stock at $.68 per share for cash and compensation 5,000 50 -- -- 3,350 Common stock repurchased at $.01 per share for cash (25,000) (250) -- -- -- Common stock issued at $.68 per share for cash and compensation 25,000 250 -- -- 16,750 Net loss -- -- -- -- -- --------- ------- ------- ---------- ----------- Balance at December 31, 1990 1,940,381 19,406 -- -- 921,296 Exercise of common stock options at $.68 per share for cash 5,000 50 -- -- 3,350 Exercise of warrants for common stock 483,755 4,837 -- -- 295,493 Conversion of notes payable to common stock 339,230 3,391 -- -- 508,414 Conversion of notes payable to preferred stock -- -- 278,326 2,783 553,869 Issuance of preferred stock at $2.00 per share for cash, net of issuance costs -- -- 400,000 4,000 703,475 Issuance of warrants for cash -- -- -- -- 3,000 Issuance of warrants in connection with convertible notes payable -- -- -- -- 28,000 Net loss -- -- -- -- -- --------- ------- ------- ---------- ----------- Balance at December 31, 1991 2,768,366 27,684 678,326 6,783 3,016,897 Initial public offering at $6.50 per unit, net of issuance costs 1,667,500 16,676 -- -- 8,911,024 Conversion of Series B preferred stock into common stock in connection with initial public offering 678,326 6,783 (678,326) (6,783) -- Conversion of Series A preferred stock into common stock at 1.13342 per share 713,733 7,137 -- -- 1,717,065 Net loss -- -- -- -- -- --------- ------- ------- ---------- ----------- Balance at December 31, 1992 5,827,925 58,280 -- -- 13,644,986 Exercise of common stock options at $.68 per share 3,000 30 -- -- 2,010 Net loss -- -- -- -- -- --------- ------- ------- ---------- ----------- Balance at December 31, 1993 5,830,925 58,310 -- -- 13,646,996 Issuance of preferred stock at $100 per share for cash, net of issuance costs -- -- 21,600 2,073,925 -- Net loss -- -- -- -- -- --------- ------- ------- ---------- ----------- Balance at December 31, 1994 5,830,925 58,310 21,600 2,073,925 13,646,996 Issuance of preferred stock at $100 per share for cash, net of issuance costs -- -- 25,000 2,432,150 -- Series C dividends paid in Series D preferred stock -- -- 2,539 253,875 -- Interest paid in Series D stock -- -- 48 4,795 -- Exercise of common stock options at $.53 per share 2,000 20 -- -- 1,040 Net loss -- -- -- -- -- --------- ------- ------- ---------- ----------- Balance at December 31, 1995 5,832,925 58,330 49,187 4,764,745 13,648,036
Deficit accumulated during Receivables from development sale of common Total stockholders' stage stock equity ----------- --------------- ----------------- Issuance of common stock at $.01 per share for cash $ -- -- 4,000 Issuance of common stock at $.62 per share for cash and receivables -- -- 693,000 Receivables from sale of common stock -- (86,000) (86,000) Net loss (322,702) -- (322,702) ----------- --------- ----------- Balance at December 31, 1988 (322,702) (86,000) 288,298 Repayment of receivables from sale of common stock -- 86,000 86,000 Issuance of common stock at $.62 per share -- -- 222,952 Net loss (925,080) -- (925,080) ----------- --------- ----------- Balance at December 31, 1989 (1,247,782) -- (327,830) Exercise of common stock options at $.01 per share for cash -- -- 600 Issuance of common stock at $.68 per share for cash and compensation -- -- 3,400 Common stock repurchased at $.01 per share for cash -- -- (250) Common stock issued at $.68 per share for cash and compensation -- -- 17,000 Net loss (1,501,171) -- (1,501,171) ----------- --------- ----------- Balance at December 31, 1990 (2,748,953) -- (1,808,251) Exercise of common stock options at $.68 per share for cash -- -- 3,400 Exercise of warrants for common stock -- -- 300,330 Conversion of notes payable to common stock -- -- 511,805 Conversion of notes payable to preferred stock -- -- 556,652 Issuance of preferred stock at $2.00 per share for cash, net of issuance costs -- -- 707,475 Issuance of warrants for cash -- -- 3,000 Issuance of warrants in connection with convertible notes payable -- -- 28,000 Net loss (1,143,119) -- (1,143,119) ----------- --------- ----------- Balance at December 31, 1991 (3,892,072) -- (840,708) Initial public offering at $6.50 per unit, net of issuance costs -- -- 8,927,700 Conversion of Series B preferred stock into common stock in connection with initial public offering -- -- -- Conversion of Series A preferred stock into common stock at 1.13342 per share -- -- 1,724,202 Net loss (3,481,659) -- (3,481,659) ----------- --------- ----------- Balance at December 31, 1992 (7,373,731) -- 6,329,535 Exercise of common stock options at $.68 per share -- -- 2,040 Net loss (3,245,436) -- (3,245,436) ----------- --------- ----------- Balance at December 31, 1993 (10,619,167) -- 3,086,139 Issuance of preferred stock at $100 per share for cash, net of issuance costs -- -- 2,073,925 Net loss (3,245,359) -- (3,245,359) ----------- --------- ----------- Balance at December 31, 1994 (13,864,526) -- 1,914,705 Issuance of preferred stock at $100 per share for cash, net of issuance costs -- -- 2,432,150 Series C dividends paid in Series D preferred stock (253,875) -- -- Interest paid in Series D stock -- -- 4,795 Exercise of common stock options at $.53 per share -- -- 1,060 Net loss (2,224,404) -- (2,224,404) ----------- --------- ----------- Balance at December 31, 1995 (16,342,805) -- 2,128,306
F-5 Protein Polymer Technologies, Inc. (A Development Stage Company) Statements of Stockholders' Equity For the period July 6, 1988 (inception) to December 31, 1996
Common stock Preferred stock ---------------------------------------------------------- Shares Amount Shares Amount ---------------------------------------------------------- Exercise of common stock warrants at $1.25 per share 932,960 $ 9,330 - $ - Exercise of common stock warrants at $2.50 per share, net of issuance costs of $24,020 322,663 3,226 - - Exercise of common stock warrants at $1.00 per share 25,000 250 - - Exercise of common stock options 136,000 1,360 - - Stock repurchases (16,320) (163) - - Net loss - - - - ---------------------------------------------------------- Balance at December 31, 1996 7,233,228 $72,333 49,187 $4,764,745 ========================================================== Deficit accumulated during Receivables from Additional development sale of common Total stockholders' paid-in capital stage stock equity ----------------------------------------------------------------- Exercise of common stock warrants at $1.25 per share $ 1,156,870 $ - $ _ $ 1,166,200 Exercise of common stock warrants at $2.50 per share, net of issuance costs of $24,020 779,413 - - 782,639 Exercise of common stock warrants at $1.00 per share 24,750 - - 25,000 Exercise of common stock options 91,650 - - 93,010 Stock repurchases (81,437) - - (81,600) Net loss - (2,864,432) - (2,864,432) ----------------------------------------------------------------- Balance at December 31, 1996 $15,619,282 $(19,207,237) $ - $ 1,249,123 =================================================================
See accompanying notes. F-6 Protein Polymer Technologies, Inc. (A Development Stage Company) Statements of Cash Flows
For the period July 6, 1988 (inception) to Years ended December 31, December 31, 1996 1995 1994 1996 --------------------------------------------------------------------- Operating activities Net loss $(2,864,432) $(2,224,404) $(3,245,359) $(18,953,362) Adjustments to reconcile net loss to net cash used for operating activities: Stock issued for compensation - - - 20,100 Stock issued for interest - 4,795 - 4,795 Increase in inventory reserve 20,717 50,805 - 71,522 Depreciation and amortization 117,203 138,866 171,588 1,075,419 Write-off of purchased technology - - - 503,500 Changes in assets and liabilities: Inventory 13,123 (63,173) (36,006) (92,216) Deposits - 6,300 (6,300) (22,257) Other current assets (8,284) (8,770) (3,061) (56,561) Accounts payable 93,350 (75,189) 82,052 251,321 Accrued employee benefits 16,328 21,977 18,361 117,612 Other accrued expenses 1,927 (32,320) 56,661 53,525 Deferred revenue 75,000 (5,000) 834 75,000 --------------------------------------------------------------------- Net cash used for operating activities (2,535,068) (2,186,113) (2,961,230) (16,951,602) Investing activities Purchase of technology - - - (570,000) Purchase of equipment and improvements (183,722) (84,192) (209,320) (1,291,476) Short-term investments 546,958 (1,052,972) (1,011,575) (993,042) --------------------------------------------------------------------- Net cash provided by (used for) investing activities 363,236 (1,137,164) 802,255 (2,854,518) Financing activities Net proceeds from issuance of warrants and sale of common stock 1,985,249 1,060 - 11,843,051 Net proceeds from issuance and conversion of preferred stock - 2,432,150 2,073,925 6,937,752 Proceeds from convertible notes and detachable warrants - - - 1,068,457 Payment on note payable - - - (92,750) Proceeds from note payable - - - 334,323 Deferred offering costs (17,356) - - (17,356) --------------------------------------------------------------------- Net cash provided by financing activities 1,967,893 2,433,210 2,073,925 20,073,477 Net increase (decrease) in cash and cash equivalents (203,939) (890,067) (85,050) 267,357 Cash and cash equivalents at beginning of the period 471,296 1,361,363 1,446,413 - --------------------------------------------------------------------- Cash and cash equivalents at end of the period $ 267,357 $ 471,296 $ 1,361,363 $ 267,357 ===================================================================== Supplemental disclosures of cash flow information Interest paid $ - $ - $ - $ 63,473 Series D stock issued for Series C stock $ - $ 2,073,925 $ - $ 2,073,925 Series C dividends paid with Series D stock $ - $ 253,875 $ - $ 253,875 =====================================================================
See accompanying notes. F-7 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements December 31, 1996 1. Organization and Significant Accounting Policies Organization and business activities Protein Polymer Technologies, Inc. (the "Company") was incorporated in Delaware on July 6, 1998. The Company was established for the purpose of designing, producing and marketing genetically engineered protein polymers for a variety of biomedical and specialty materials applications. For the period from its inception to date, the Company has been a development stage enterprise, and accordingly, the Company's operations have been directed primarily toward developing business strategies, raising capital, exploring marketing channels, recruiting personnel, and research and development activities. Liquidity The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. In January 1997 the Company received $4.76 million, before expenses of approximately $160,000, from a private placement of common stock to certain qualified institutions and individuals (see Note 8. Subsequent Event, below). The Company believes that these funds, combined with its cash, cash equivalents and short-term investments of $1.26 million as of December 31, 1996, and anticipated contract revenues and interest income, 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 product marketing activities. The Company believes there may be a number of alternatives available 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 will be required to significantly curtail its operating plans and relinquish rights to significant portions of the Company's technology or potential products. Net loss per common share Net loss per common share is computed using the weighted average number of common shares outstanding during the period as adjusted for the effects of certain rules of the Securities and Exchange Commission for the period prior to the Company's initial public offering. For purposes of this calculation, net loss in 1996 and 1995 have been adjusted for cumulative dividends on the Series C and D Preferred Stock. Research and development revenues and expenses Research and development contract revenues are recorded as earned based on the performance requirements of the contracts. Payments received in advance of amounts earned are recorded as deferred revenue. Research and development costs are expensed as incurred. Product revenue recognition Revenue from product sales are recognized when orders are shipped. F-8 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 1. Organization and Significant Accounting Policies (continued) 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 liabilites, the disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenue and expense reported during the period. Actual results could differ form those estimates. Cash equivalents and short-term investments Short-term investments consist primarily of commercial paper, notes and short- term U.S. Government securities with original maturities beyond three months and are stated at estimated fair value. Similar items with original maturities of three months or less are considered cash equivalents. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. The Company has not experienced any losses on its short- term investments. Inventory Inventory is stated at the lower of cost (first-in, first-out method) or market. Equipment and leasehold improvements Equipment and leasehold improvements are stated at cost. Equipment is depreciated over the estimated useful life of the asset, typically one to seven years, using the straight-line method. Leasehold improvements are amortized over the shorter of the lease term or life of the asset. Equipment and leasehold improvements consist of the following:
December 31, 1996 1995 ---------------------- Laboratory equipment $1,079,945 $ 917,080 Office equipment 131,801 128,440 Leasehold Improvements 79,730 62,234 ---------------------- 1,291,476 1,107,754 Less accumulated depreciation and amortization 922,162 804,959 ---------------------- $ 369,314 $ 302,795 ======================
F-9 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 2. Investments The following is a summary of the estimated fair value of available-for-sale securities by balance sheet classification:
December 31, 1996 1995 ------------------------ Cash and cash equivalents: Commercial paper $250,000 $ - Money market funds 17,357 471,296 ------------------------- $267,357 $ 471,296 ========================= Short-term investments: Commercial paper $908,042 $1,200,000 U.S. Treasury obligations 85,000 340,000 ------------------------- $993,042 $1,540,000 =========================
All of the available-for-sale securities are due in one year or less. The estimated fair value of each investment approximates the amortized cost, and therefore, there are no unrealized gains or losses as of December 31, 1996. 3. Stockholders' Equity Series D Preferred Stock During 1995 a total of 49,187 shares of Series D Stock were issued, including the exchange of Series C Stock for Series D Stock (see "Series C Preferred Stock" below). Each share of Series D Stock earns a cumulative dividend at the annual rate of $10 per share payable as and when declared by the Company in the form of cash, common stock or any combination thereof. The Series D Stock is convertible into common stock after two years at the stockholder's option. The conversion price at the time of conversion is the lesser of $3.75 or the market price. The Series D Stock is redeemable at the Company's option after four years. Automatic conversion of all of the Series D Stock will occur if: (a) the Company completes a public offering of common stock at a price of $2.50 or higher; or (b) a majority of stockholders decide to convert their stock. The Company has the option to demand conversion of the Series D Stock if the average market price of its common stock equals or exceeds $5.00 per share over a period of twenty business days. The Series D Stock has a liquidation preference value of $100.00 per share. F-10 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 3. Stockholders' Equity (continued) In addition, the Series D stockholders received warrants to purchase, at an exercise price of $1.25 per share, twenty shares of the Company's common stock for each share of Series D Stock acquired. Warrants to acquire a total of 500,960 shares of common stock were issued. All of the warrants have been exercised during 1996. The Series D stockholders were granted certain registration rights relating to their shares of common stock issuable upon conversion of the Series D Stock or upon exercise of their warrants. Series C Preferred Stock In July 1994 the Company received $2,160,000 form the sale of 21,600 shares of unregistered Series C Convertible Preferred Stock ("Series C Stock") to JJDC and certain investors. The terms of the sale were similar to those of the Company's Series D Stock. At the time of the sale of the Series D Stock, JJDC and these investors exchanged 21,600 shares of Series C Stock, plus accumulated dividends, for 24,139 shares of Series D Stock. There are currently no remaining shares of Series C Stock outstanding. In connection with the Series C offering, warrants were also issued to acquire a total of 432,000 shares of the Company's common stock at an exercise price of $1.25 per share. All of the warrants have been exercised during 1996. Stock option plans The Company has elected to follow APB 25 and related accounting Interpretations. Under APB 25 whenever the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant no compensation expense is recognized. The effects of using the fair value accounting method, as described in FASB Statement No. 123, "Accounting for Stock-Based Compensation", are described below under its own subheading to Note 3. The Company adopted the 1989 Stock Option Plan which provides for the issuance of incentive and non-statutory stock options for the purchase of up to 500,000 shares of common stock to key employees and certain other individuals. The options will expire ten years from their respective dates of grant. Options become exercisable ratably over periods of up to five years from the date of grant. At December 31, 1996, options for 310,500 shares were exercisable, and 179,500 shares were available for future grant. F-11 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 3. Stockholders' Equity (continued) The Company adopted the 1992 Stock Option Plan which provides for the issuance of incentive and non-statutory stock options for the purchase of up to 1,000,000 shares of common stock to its key employees and certain other individuals. The options will expire ten years from their respective dates of grant. Options become exercisable ratably over periods of up to five years from the dates of grant. At December 31, 1996, options for 93,500 shares were exercisable, and 279,000 shares were available for future grant. Since inception, the Company has granted non-qualified options outside the Plan to purchase a total of 525,100 shares of common stock (net of options cancelled) to employees, directors and consultants of the Company. At December 31, 1996, options for 293,100 shares were exercisable. In June 1996 the Company adopted the 1996 Non-Employee Directors Stock Option Plan ("Plan"), which provides for the granting of nonqualified options to purchase up to 250,000 shares of common stock to directors of the Company. Such grants shall be awarded automatically on the first business day of June during each calendar year to every Participating Director then in office, and consist of 5,000 shares of common stock, subject to certain adjustments. No Participating Director shall receive more than one grant per year. The purchase price of each option shall be the fair market value of the common stock on the date of grant. Each option has a duration of ten years, and is exercisable six months after the grant date. The Board (or a designated committee of the Board) shall administer the Plan. On June 3, 1996, an initial grant of 35,000 shares was made to all non-employee directors then eligible. In September 1996 the Board of Directors approved, subject to stockholder approval at the 1997 Annual Meeting of Stockholders, the Protein Polymer Technologies, Inc. Employee Stock Purchase Plan ("Plan"). The Plan commences January 2, 1997, and allows for offering periods of up to two years with quarterly purchase dates occurring the last business day of each quarter. The purchase price per share is generally calculated at 85% of the lower of the fair market value on an eligible employee's entry date or the quarterly purchase date. The maximum number of shares available for issuance under the Plan is 500,000; an eligible employee may purchase up to 5,000 shares per quarter. The Plan Administrator consists of a committee of at least two non-employee directors of the Company. The Board may modify the Plan at any time. In November 1993 the Company repriced a total of 272,500 outstanding stock options to $1.00 per share, the then current fair market value. F-12 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 3. Stockholders' Equity (continued) The following table summarizes the Company's stock option activity:
Years ended December 31, --------------------------------------------------------------------------- 1996 1995 1994 ----------------------- -------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- -------- ------- -------- -------- ---------- Outstanding - beginning of year 1,064,600 $ 0.90 910,600 $ 0.91 885,600 $ 1.40 Granted 465,000 $ 2.27 183,500 $ 0.86 90,000 $ 0.82 Exercised (136,000) $(0.68) (2,000) $(0.53) - - Forfeited - - (27,500) $(0.93) (65,000) $(0.96) ---------- ------- ---------- ------- -------- ------ Outstanding - end of year 1,393,600 $ 1.38 1,064,600 $ 0.90 910,600 $0.91 ========== ======= ========== ======= ======== ====== Exercisable - end of year 732,100 $ 1.08 714,500 $ 0.87 612,880 $ 0.84 ========== ======= ========== ======= ======== ======
The exercise prices for options outstanding as of December 31, 1996 range from $0.53 to $3.75. The weighted average remaining contractual life of these options is approximately 6.5 years. Statement 123 pro forma information Pro forma information regarding net income and net income per share is required by Statement 123. This information has been calculated as if the Company has accounted for its stock options granted under the fair value method as described in this Statement, using the Black-Scholes option pricing model. The following were the weighted average assumptions used for 1996 and 1995: risk-free interest rates of 5.6% to 7.1% for 1996 and 5.7% to 7.7% for 1995; a volatility factor of the expected market price of the Company's common stock of 110%; expected option lives of 7.9 years; and dividend yields of 0% for both years. The Black-Scholes option valuation model was originally developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-13 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 3. Stockholders' Equity (continued) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the expected life of the options. The Company's pro forma information is as follows:
1996 1995 ----------------------------------- Net loss as reported $(3,356,299) $(2,609,547) Net loss per share as reported $ (0.51) $ (0.45) Net loss pro forma $(3,492,030) $(2,632,144) Net loss per share pro forma (0.53) $ (0.45) Weighted average fair value per share of options granted during the year $ 2.06 $ 0.84
The pro forma effect on net loss for 1996 and 1995 is not representative of the pro forma effect on net loss in future years because it does not take into consideration pro forma compensation expense from option grants made prior to 1995. Common stock warrants As a result of the Company's initial public offering, unit holders were granted redeemable warrants for 1,667,500 shares of common stock, which are exercisable at $8.00 per share until January 21, 1997, and are redeemable at the option of the Company at a redemption price of $.10 at any time after January 21, 1993, based on the price of the common stock and other requirements. In November 1996 the Company extended the expiration date of these warrants one year, to January 21, 1998. The underwriter was granted warrants to purchase 145,000 units at $8.06 per unit, subject to certain antidilution adjustments. At December 31, 1996, including the unit and underwriter warrants, there were outstanding warrants to purchase a total of 2,007,500 shares of common stock at a weighted average exercise price of $7.95 per share. All of these warrants were exercisable at December 31, 1996, and as of January 21, 1997 the underwriter warrants expired. 4. Commitments The Company leases its office and research facilities under two operating leases that expire in December 1998. During 1996 the Company leased additional laboratory space. F-14 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 4. Commitments (continued) Future minimum payments under operating leases as of December 31, 1996 are as follows: 1997 $412,200 1998 412,200 -------- $824,400 ========
Rent expense was approximately $320,000, $306,000, $300,000 and $2,366,000 for the years ended December 31, 1996, 1995 and 1994 and for the period July 6, 1988 (inception) through December 31, 1996, respectively. 5. Research and Development Contracts and Royalties On September 14, 1995, the Company signed supply, licensing and development agreements with Ethicon, Inc., a subsidiary of the Johnson & Johnson Company, whose affiliate is a preferred stockholder, related to the Company's tissue adhesives and sealants program. The licensing and development agreement calls for Ethicon to make licensing, milestone and contract revenue payments to the Company as certain scientific progress is achieved. Such payments could total almost $11 million over the next several years if all milestones are met. In 1996 and 1995, the Company recognized $600,000 and $800,000 of revenue respectively, related to these agreements. In December 1996 Ethicon extended the research phase of these agreements for one year, until December 1997, and will pay the Company $75,000 every three months for one year in advance of the research work to be performed. The Company received its first installment in December 1996, and classified it as deferred revenue. On December 16, 1997 Ethicon elected to terminate the agreements with the Company, based upon Ethicon's determination that the timelines to clinical trials and to market were too lengthy to continue. Although Ethicon remains interested in this product opportunity, and will monitor our continued progress, the Company has decided to discuss the opportunity with other potential partners. The Company's relationship with Ethicon continues to remain good, and Johnson & Johnson subsidiaries are currently evaluating the Company's materials regarding other product opportunities. The management of the Company believes the technology is sufficiently advanced to be of interest to other potential partners, and has begun the process of determining which potential applications make the most sense to pursue. However, until the program is partnered, continued development efforts will be slowed to conserve available cash. In 1994 the Company entered into agreements with subsidiaries of the Johnson & Johnson Company. These agreements concluded in the first quarter of 1995. Total contract revenue recognized from these agreements was $100,000 for the year ended December 31, 1994. Under an agreement completed in October 1991 with Telios Pharmaceuticals, Inc., ("Telios"), now a wholly-owned subsidiary of Integra Life Sciences Corp., Telios granted the Company a worldwide, exclusive sublicense to use Telios patent rights to develop and sell protein polymers containing RGD amino acid sequence in two or more polymer segments for the purpose of in vitro cell culture. In exchange for this sublicense, the Company has agreed to pay Telios royalties on net revenues derived by the Company from its sales of RGD containing polymers at a rate equal to 5% of net revenues, until such net revenues reach $500,000, and 3.5% of net revenues in excess of $500,000. There is a required minimum royalty payment by the Company of $25,000 per year. F-15 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 5. Research and Development Contracts and Royalties (continued) In 1992 Stanford University granted the Company a non-exclusive, non- transferable right to use their recombinant DNA technology patents to develop and sell protein polymers. In exchange for this license, the Company has agreed to pay royalties on products sold employing this technology ranging from 1/2% to 10%, depending on the product. There is a required minimum royalty payment by the Company of $10,000 per year. 6. Income Taxes At December 31, 1996, the Company had net operating loss carryforwards of approximately $17,090,000 for federal income tax purposes, which may be applied against future income, if any, and will begin expiring in 2004 unless previously utilized. In addition, the Company has California net operating loss carryforwards of approximately $7,891,000 for California tax purposes which have begun expiring in 1996. The difference between the tax loss carryforwards for federal and California purposes is attributable to the capitalization of research and development expenses for California tax purposes and a required 50% limitation in the utilization of California loss carryforwards. The Company also has federal and California research and development tax credit carryforwards of approximately $496,000 and $200,000, respectively, which will begin expiring in 2004 unless previously utilized. Because of the ownership change that occurred in January 1992 as a result of the Company's initial public offering, approximately $2,700,000 of the Company's federal net operating loss carryforwards will be subject to an annual limitation regarding utilization against taxable income in future periods. However, the Company believes that such limitations will not have a material impact upon the utilization of the carryforwards. Significant components of the Company's deferred tax assets as of December 31, 1996 are shown below. A valuation allowance of $7,363,000 has been recognized to offset the deferred tax assets as realization of such assets is uncertain.
1996 1995 ---------------------------- Deferred tax assets: Net operating loss carryforwards $ 6,455,000 $ 5,343,000 Research and development credits 626,000 597,000 Other 282,000 445,000 ---------------------------- Total deferred tax assets 7,363,000 6,385,000 Valuation allowance for deferred tax assets (7,363,000) (6,385,000) ---------------------------- Net deferred tax assets $ - $ - ============================
F-16 Protein Polymer Technologies, Inc. (A Development Stage Company) Notes to Financial Statements (continued) 7. Employee Benefits Plan On January 1, 1993, the Company established a 401(k) Savings Plan for substantially all employees who meet certain service and age requirements. Participants may elect to defer up to 20% of their compensation per year. Each year the Company may provide a discretionary matching contribution. As of December 31, 1996, the Company had not made a contribution to the Savings Plan. 8. Subsequent Event During the first week of January 1997 the Company received $4.76 million, less estimated expenses of approximately $160,000, 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. F-17 PART III Items 9, 10, 11 and 12 are incorporated by reference from the Company's definitive Proxy Statement to be filed by the Company with the Commission no later than April 30, 1997. Item 13. Exhibits, Financial Statements and Reports on Form 8-K (a)(1) and (2) Financial Statements and Schedules The Financial Statements are incorporated herein as a part of Item 7. (a)(3) Exhibits The following documents are included or incorporated by reference:
Exhibit Number Description ------- ----------- 3.1 (6) Certificate of Incorporation of the Company, as amended. 3.2 (6) Bylaws of the Company, as amended. 4.1 (4) Warrant Agreement, dated January 21, 1992, between the Company and Continental Stock Transfer and Trust Company. 4.2 (1) Revised Form of Redeemable Warrant. 10.1 (2) Lease, with exhibits, dated October 16, 1991, between the Company and Sycamore/San Diego Investors, together with an amendment thereto dated April 21, 1992. 10.2 (3) Amendment to lease, between the Company and Sycamore/San Diego Investors, dated June 22, 1992. 10.3 (1) Sublicense Agreement for RGD-Containing Engineered Protein Polymers, with exhibit attached, dated October 1, 1991, between the Company and Telios Pharmaceuticals, Inc. 10.4 (1) 1989 Stock Option Plan, together with forms of Incentive Stock Option Agreement and Nonstatutory Option Agreement. 10.5 (4) 1992 Stock Option Plan of the Company, together with forms of Incentive Stock Option Agreement and Nonstatutory Option Agreement.
18 10.6 (1) Form of Employee's Proprietary Information and Inventions Agreement. 10.7 (1) Form of Consulting Agreement. 10.8 (1) Form of Indemnification Agreement. 10.9 (4) License Agreement, dated as of April 15, 1992, between the Board of Trustees of the Leland Stanford Junior University and the Company. 10.10 (5) Replacement ProNectin F License Agreement between Cellco, Inc. and the Company, dated February 15, 1995. 10.11 (6) License and Development Agreement between the Company and Ethicon, Inc. dated September 14, 1995. 10.12 (6) Supply Agreement between the Company and Ethicon, Inc., dated September 14, 1995. 10.13 (6) Escrow Agreement between Protein Polymer Technologies, Inc. and Ethicon, Inc., dated September 14, 1995. 10.14 (6) Amended and Restated Registration Rights Agreement dated September 14, 1995 among the Company and the holders of its Series D Preferred Stock. 10.15 (6) Securities Purchase Agreement related to the sale of the Company's Series D Preferred Stock. 10.16 (6) Form of Warrant to Purchase Common Stock issued in connection with the Series D Preferred Stock. 10.17 (7) Letter Agreement dated as of October 4, 1996 between the Company and MBF I, LLC ("MBF") relating to the provision of consulting and advisory services. 10.18 (7) Form of Warrant with respect to a warrant for 50,000 shares issued to MBF, and to be used with respect to additional warrants which may be issued to MBF. 10.19 (7) Registration Rights Agreement dated as of October 4, 1996 between the Company and MBF. 10.20 (7) Letter Agreement dated December 9, 1996 between the Company and Ethicon, Inc. with respect to an extension of the License and Development Agreement between them dated September 14, 1995. 10.21 (7) Securities Purchase Agreement dated as of January 6, 1997 among the Company and the investors named therein relating to the sale and purchase of 1,904,000 shares of the Company's common stock. 10.22 (8) Lease, with exhibits, dated March 1, 1996 between the Company and Sycamore/San Diego Investors. 19 10.23(8) Second Amendment to Lease between the Company and Sycamore/San Diego Investors, dated March 1, 1996. 10.24(8) 1996 Non-Employee Directors' Stock Option Plan. 10.25(8) Employment Agreement, dated as of November 1, 1996, between the Company and J. Thomas Parmeter. 10.26(8) Employment Agreement, dated as of November 1, 1996, between the Company and John E. Flowers. 10.27(8) Employment Agreement, dated as of November 1, 1996, between the Company and Joseph Cappello. 10.28(8) Employment Agreement, dated as of November 1, 1996, between the Company and Franco A. Ferrari. 10.29(8) Employment Agreement, dated as of November 1, 1996, between the Company and Erwin R. Stedronsky. 10.30(8) Employment Agreement, dated as of November 1, 1996, between the Company and Aron P. Stern. 23.1* Consent of Ernst & Young LLP, Independent Auditors. (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-43875) filed with the Commission on November 12, 1991, as amended by Amendments Nos. 1, 2, 3 and 4 thereto filed on November 25, 1991, December 23, 1991, January 17, 1992 and January 21, 1992, respectively. (2) Incorporated by reference to Registrant's Report on Form 10-Q for the quarter ended March 31, 1992, as filed with the Commission on May 14, 1992. (3) Incorporated by reference to Registrant's Report on Form 10-Q for the quarter ended September 30, 1992, as filed with the Commission on November 13, 1992. (4) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 31, 1993. (5) Incorporated by reference to Registrant's Report on Form 10-KSB for the fiscal year ended December 31, 1994, as filed with the Commission on March 30, 1995. (6) Incorporated by reference to Registrant's Report on Form 10-Q for the quarter ended September 30, 1995, as filed with the Commission on October 24, 1995. (7) Incorporated by reference to Registrant's current Report on Form 8-K, as filed with the Commission on January 7, 1997. (8) Previously filed. * Filed herewith. (b) Reports on Form 8-K. None. 20 SIGNATURE In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROTEIN POLYMER TECHNOLOGIES, INC. February 5, 1998 By /s/ J. THOMAS PARMETER --------------------------------- J. Thomas Parmeter Chairman of the Board, Chief Executive Officer, President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date - --------- -------- ---- /s/ J. THOMAS PARMETER Chairman of the Board, Chief February 5, 1998 - ------------------------ Executive Officer, President J. Thomas Parmeter /s/ ARON P. STERN Vice President, Chief Financial February 5, 1998 - ------------------------ Officer (Principal Accounting Aron P. Stern Officer) /s/ PATRICIA J. CORNELL Director February 5, 1998 - ------------------------ Patricia J. Cornell /s/ EDWARD E. DAVID Director February 5, 1998 - ------------------------ Edward E. David /s/ PHILIP J. DAVIS Director February 5, 1998 - ------------------------ Philip J. Davis /s/ EDWARD J. HARTNETT Director February 5, 1998 - ------------------------ Edward J. Hartnett /s/ BRENT R. NICKLAS Director February 5, 1998 - ------------------------ Brent R. Nicklas /s/ BERTRAM I. ROWLAND Director February 5, 1998 - ------------------------ Bertram I. Rowland /s/ GEORGE R. WALKER Director February 5, 1998 - ------------------------ George R. Walker 21 EX-23.1 2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the use of our report dated January 30, 1997, (except for paragraph 2 of Note 1, as to which the date is January 30, 1998), included in the Annual Report on Form 10-KSB of Protein Polymer Technologies, Inc. for the year ended December 31, 1996 with respect to the financial statements, as amended, included in this Form 10-KSB/A. ERNST & YOUNG LLP San Diego, California February 2, 1998 -----END PRIVACY-ENHANCED MESSAGE-----