-----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, SCmVs61tuhgK09I/3v1z4tQC/zgaCqFDxUKSbeJ5kSajdgx8IR7/Kkbs/Gl9L+Nt mBXtjWNIfQ6xx+OR6bTRsg== 0000898430-98-003027.txt : 19980817 0000898430-98-003027.hdr.sgml : 19980817 ACCESSION NUMBER: 0000898430-98-003027 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98689990 BUSINESS ADDRESS: STREET 1: 10655 SORRENTO VALLEY RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195586064 10QSB 1 FORM 10-QSB DATED JUNE 30, 1998 ================================================================================ 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 June 30, 1998 [_] 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 August 13, 1998, 10,575,811 shares of common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes ___ No X --- ================================================================================ PROTEIN POLYMER TECHNOLOGIES, INC. FORM 10-QSB INDEX
Page No. ________ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Balance Sheets - June 30, 1998 and December 31, 1997............................... 3 Condensed Statements of Operations - For the Three and Six Months Ended June 30, 1998 and 1997 and the period July 6, 1988 (inception) to June 30, 1998......... 5 Condensed Statements of Cash Flows - For the Six Months Ended June 30, 1998 and 1997 and the period July 6, 1988 (inception) to June 30, 1998......... 6 Notes to Condensed Financial Statements............................ 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 10 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders... 13 Item 6. Exhibits and Reports on Form 8-K...................... 13 Signature............................................. 14
2 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Balance Sheets
June 30, December 31, 1998 1997 -------- ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $3,098,774 $ 325,021 Short-term investments 893,180 974,817 Other current assets 38,696 88,868 ---------- ---------- Total current assets 4,030,650 1,388,706 Deposits 36,977 36,617 Notes receivable from officers 147,000 153,000 Equipment and leasehold improvements, net 689,812 769,564 ---------- ---------- $4,904,439 $2,347,887 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 360,513 $ 423,594 Accrued employee benefits 156,589 151,831 Other accrued expenses 33,873 41,151 Current portion capital lease obligations 79,674 75,110 ---------- ---------- Total current liabilities 630,649 691,686 Long-term portion capital lease obligations 149,054 190,068
3 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Balance Sheets, continued
June 30, December 31, 1998 1997 _________ ____________ (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY, continued Stockholders' equity: Series D convertible preferred stock, $.01 par value, 71,600 shares authorized, 1,794 and 28,214 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively - liquidation preference of $179,400 169,608 2,667,403 Series E convertible preferred stock, $.01 par value, 55,000 shares authorized, 54,437.5 shares issued and outstanding at June 30, 1998 - liquidation preference of $5,437,500 5,277,813 - Series F convertible preferred stock, $.01 par value, 27,317 shares authorized, 26,420 shares issued and outstanding at June 30, 1998 - liquidation preference of $2,642,000 2,497,795 - Common stock, $.01 par value, 25,000,000 shares authorized, 10,536,467 and 10,420,722 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively 105,131 104,208 Additional paid-in capital 26,151,604 22,778,033 Deficit accumulated during development stage (30,077,215) (24,083,511) ------------ ------------ Total stockholders' equity 4,124,736 1,466,133 ------------ ------------ $ 4,904,439 $ 2,347,887 ============ ============
See accompanying notes. 4 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Statements of Operations (unaudited)
For the period Three Months Six Months July 6, 1988 Ended June 30, Ended June 30, (inception) to 1998 1997 1998 1997 June 30, 1998 ---- ---- ---- ---- --------------- Revenues: Contract revenue $ - $ 95,750 $ 50,000 $ 233,000 $ 4,358,715 Interest income 39,909 59,289 48,565 121,734 994,516 Product and other income 5,506 15,300 34,295 33,904 589,713 ----------- ----------- ----------- ----------- ------------ Total revenues 45,415 170,339 132,860 388,638 5,942,944 Expenses: Cost of sales 1,213 6,033 4,373 17,921 279,894 Research and development 1,064,159 777,296 1,917,383 1,416,225 19,164,651 Selling, general and administrative 424,010 561,326 926,058 989,914 12,355,477 Royalties 6,250 6,250 12,500 22,500 277,671 ----------- ----------- ----------- ----------- ------------ Total expenses 1,495,632 1,350,905 2,860,314 2,446,560 32,077,693 ----------- ----------- ----------- ----------- ------------ Net loss (1,450,217) (1,180,566) (2,727,454) (2,057,922) (26,134,749) Undeclared, imputed and/or paid dividends on preferred stock 3,335,936 122,630 3,405,503 243,912 4,823,195 ----------- ----------- ----------- ----------- ------------ Net loss applicable to common shareholders $(4,786,153) $(1,303,196) $(6,132,957) $(2,301,834) $(30,957,944) =========== =========== =========== =========== ============ Basic and diluted net loss per common share $ (0.46) $ (0.14) $ (0.59) $ (0.25) =========== =========== =========== =========== Shares used in computing basic and diluted net loss per common share 10,455,953 9,148,593 10,442,598 9,092,163 =========== =========== =========== ===========
See accompanying notes. 5 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Statements of Cash Flows (unaudited)
For the period July 6, 1988 Six Months ended June 30, (inception) to 1998 1997 June 30, 1998 --------------- --------------- ---------------------- OPERATING ACTIVITIES Net loss $ (2,727,454) $ (2,057,922) $(26,134,749) Adjustments to reconcile net loss to net cash used for operating activities: Stock issued for compensation and interest - - 24,895 Depreciation and amortization 179,002 76,572 1,438,721 Write-off of purchased technology - - 503,500 Changes in assets and liabilities: Deferred offering costs - 17,356 - Deposits (360) (16,222) (36,977) Notes receivable from officers 6,000 (150,000) (147,000) Other current assets 50,172 (46,196) (38,696) Accounts payable (63,081) 109,078 360,513 Accrued employee benefits 4,758 22,368 156,589 Other accrued expenses (7,278) 28,672 33,873 ------------ ------------ ------------ Net cash used for operating activities (2,558,241) (2,016,294) (23,839,331) INVESTING ACTIVITIES Purchase of technology - - (570,000) Purchase of equipment and improvements (99,250) (198,744) (1,686,504) Purchases of short-term investments (893,180) (4,051,911) (17,054,847) Sales of short-term investments 974,817 1,886,510 16,161,667 ------------ ------------ ------------ Net cash used for investing activities (17,613) (2,364,145) (3,149,684)
6 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Statements of Cash Flows, continued (unaudited)
For the period July 6, 1988 Six Months ended June 30, (inception) to 1998 1997 June 30, 1998 --------------- --------------- ---------------------- FINANCING ACTIVITIES Net proceeds from exercise of options and warrants, and sale of common stock $ 108,244 $ 4,638,637 $ 16,622,238 Net proceeds from issuance and conversion of preferred stock 5,277,813 - 12,215,565 Net proceeds from convertible notes and detachable warrants - - 1,068,457 Payment on capital lease obligations (36,450) (4,701) (60,044) Payment on notes payable - - (92,750) Proceeds from note payable - - 334,323 ----------- ----------- ------------ Net cash provided by financing activities 5,349,607 4,633,936 30,087,789 ----------- ----------- ------------ Net increase in cash and cash equivalents 2,773,753 253,497 3,098,774 Cash and cash equivalents at beginning of the period 325,021 267,357 - ----------- ----------- ------------ Cash and cash equivalents at end of the period $ 3,098,774 $ 520,854 $ 3,098,774 ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Equipment purchased by capital leases $ - $ 38,595 $ 288,772 Interest paid 14,453 1,824 86,226 Conversion of Series D Preferred Stock to Series F Preferred Stock 2,497,795 - 2,497,795 Conversion of Series D Preferred Stock to common stock - - 2,097,342 Series D Stock issued for Series C Stock - - 2,073,925 Series C dividends paid with Series D Stock - - 253,875 Series D dividends paid with common stock - - $ 422,341
See accompanying notes. 7 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 six months ended June 30, 1998 and 1997 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 June 30, 1998 and the results of operations for the three and six months ended June 30, 1998 and 1997. The results of operations for the three and six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ended December 31, 1998. 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, 1997, 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 imputed and accumulated dividends on the Company's Preferred Stock. The accumulated dividends are payable when declared by the Board of Directors in cash or common stock. During April and May 1998, the Company issued Series E Convertible Preferred Stock whereby each share is at any time convertible into 80 shares of common stock at $1.25 per common share at the option of the holder. At each date of issuance, the fair market value of the common stock was $2.00 per share. Therefore, each investor received a beneficial conversion feature of $.75 per common share. The Company recorded this difference as an "imputed" dividend totaling $3,266,250 during the three months ended June 30, 1998. (See Note 5. below regarding a second closing of Series E Convertible Preferred Stock.) 3. Basic and Diluted Loss Per Share As required, the Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," ("FAS No. 128") for the year ended December 31, 1997. FAS No. 128 changes the method used to calculate earnings per share and requires the restatement of all prior periods reported. Under FAS No. 128, the Company is required to present basic and diluted earnings per share if applicable. Basic and diluted earnings per share are determined based on the weighted average number of shares outstanding during the period. Diluted earnings per share also includes potentially dilutive securities such as options and warrants outstanding and securities convertible into common stock. Both the basic and diluted loss per share for the three and six months ended June 30, 1998 and 1997 are based on the weighted average number of shares of common stock outstanding during the periods. Since potentially dilutive securities have not been included in the calculation of the diluted loss per share for both periods as their affect is antidilutive, there is no difference between the basic and diluted loss per share calculations. 8 4. 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, cash equivalents and short-term investments as of June 30, 1998 is sufficient to meet its anticipated capital requirements until the second quarter of 1999. Substantial additional capital resources will be required to fund continuing expenditures related to the Company's research, development, manufacturing and business development activities. If adequate funds are not available, the Company will be required to significantly curtail its operating plans and may have to sell or license out significant portions of the Company's technology or potential products. 5. Series E Convertible Preferred Stock On April 24, 1998, the Company closed on a private placement with a small group of institutional and accredited investors of 39,312.5 shares of the Company's Series E Convertible Preferred Stock ("Series E Stock") priced at $100 per share, with warrants to purchase an aggregate of 2,358,750 shares of common stock. The Company received approximately $3.93 million, less approximately $146,000 in estimated expenses. On May 15, 1998, the Company closed on a subsequent private placement with a small group of institutional and accredited investors of 15,125 shares of Series E Stock, with warrants to purchase an aggregate of 907,500 shares of common stock, on the same terms as the initial closing. The Company received approximately $1.51 million, less expenses of approximately $20,000. Each share of Series E Stock is convertible at any time at the election of the holder into 80 shares of common stock at a conversion price of $1.25 per share, subject to certain antidilution adjustments. No underwriters were engaged by the Company in connection with such issuance and, accordingly, no underwriting discounts were paid. The offering is exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and met the requirements of Rule 506 of Regulation D promulgated under the Securities Act. The Company has agreed to register the shares of common stock underlying the Series E Stock and the warrants with the Securities and Exchange Commission within 90 to 120 days after the closing. Each share of Series E Stock also received two common stock warrants. One warrant is exercisable at any time for 40 shares of common stock at an exercise price of $2.50 per share, and expires approximately 18 months after the close of the offering; the other warrant is exercisable at any time for 20 shares of common stock at an exercise price of $5.00 per share, and expires approximately 36 months after the close of the offering. In addition, an 18 month warrant to acquire 200,000 common shares exercisable at $2.50 per share and a 36 month warrant to acquire 100,000 common shares exercisable at $5.00 per share has been issued as a finder and document review fee paid to a lead investor. In connection with the above private placement, the Company issued 26,420 shares of its Series F Convertible Preferred Stock in exchange for the same number of shares of outstanding Series D Convertible Preferred Stock. The Company's Series F Convertible Preferred Stock is equivalent to the Company's Series E Stock with regard to liquidation preferences. All other terms of the Company's Series F Convertible Preferred Stock remain the same as the Company's Series D Convertible Preferred Stock. 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, CERTAIN STATEMENTS OR REFERENCES IN THIS QUARTERLY REPORT ON FORM 10-QSB CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS. WHILE THESE STATEMENTS REPRESENT MANAGEMENT'S CURRENT JUDGEMENT AND EXPECTATIONS FOR THE COMPANY, SUCH RISKS AND UNCERTAINTIES COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS SUGGESTED HEREIN; FURTHER, THE COMPANY IS NOT OBLIGATED TO PUBLICLY COMMENT SPECIFICALLY ON THOSE DIFFERENCES. RISKS ASSOCIATED WITH THE COMPANY'S ACTIVITIES INCLUDE SCIENTIFIC AND PRODUCT DEVELOPMENT UNCERTAINTIES, COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS, COMPETITIVE PRODUCTS AND APPROACHES, ATTAINING COLLABORATIVE PARTNERSHIP INTEREST AND FUNDING, PATENT PROTECTION UNCERTAINTIES, REGULATORY TESTING AND APPROVALS, AND MANUFACTURING SCALE-UP AND REQUIRED QUALIFICATIONS. THE READER IS ENCOURAGED TO REFER TO THE COMPANY'S 1997 ANNUAL REPORT AND FORM 10-KSB, AS WELL AS OTHER RECENT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, TO ASCERTAIN THE RISKS ASSOCIATED WITH THESE STATEMENTS. General Overview Protein Polymer Technologies, Inc. develops high performance biomaterials designed to improve medical and surgical outcomes. From its inception in 1988, the Company has been a pioneer in protein design and synthesis, and as a result has achieved an exceptional proprietary position in protein-based materials technology. The Company's biocompatible polymers have been genetically engineered to enable cell growth, promote the regeneration of tissue, bond to natural and synthetic surfaces, and resorb into tissue at controlled rates. Targeted applications include soft tissue augmentation, tissue adhesives and sealants, tissue engineering and wound healing, and localized drug delivery. The Company has also developed technology that can efficiently modify and improve the surface properties of more traditional implantable materials used in a variety of applications. The Company has been unprofitable to date, and has an accumulated deficit of $30,077,215. 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. Ethicon terminated the relationship in December 1997, which adversely affected the Company. The Company does not currently have any agreements under which it would receive continuing contract research and milestone payments. The Company's strategy with most of its programs is to enter into collaborative development agreements with major medical product marketing and distribution companies. Although these relationships, to the extent any are consummated, may provide significant near- term revenues in the form of up-front licensing fees, research and development reimbursements and milestone payments, the Company expects to continue incurring operating losses for several more years. In April and May 1998, the Company received approximately $5.3 million, net of estimated expenses, from the sale of its Series E Convertible Preferred Stock to a small group of accredited and institutional investors, consisting of 54,437.5 shares at $100 per share. Each share converts at any time at the holder's option into 80 shares of common stock at $1.25 per common share. Accompanying the sale of the Series E Convertible Preferred Stock was a warrant to purchase 40 shares of common stock at $2.50 a share, expiring 18 months after the close of the private placement, and a second warrant to purchase 20 shares of common stock at $5.00 per share. 10 In early January 1997, the Company received $4.8 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. Results of Operations The Company received no contract research revenue for the three months ended June 30, 1998, compared to $96,000 revenue for the same period in 1997. For the six month period ended June 30, 1998, these revenues were $50,000, compared to $233,000 for the same period in 1997. The revenue primarily consisted of contractual payments from Ethicon related to the Company's surgical adhesives and sealants program, along with smaller payments from certain materials evaluation agreements. Interest income was $40,000 for the three months ended June 30, 1998, versus $59,000 for the same period in 1997. For the six month period ended June 30, 1998, interest income was $49,000, compared to $122,000 for the same period in 1997. The decrease in income resulted from the differences in timing related to the receipt of additional cash from the sale of stock in private placements during April and May 1998 versus January 1997. For the three months ended June 30, 1998 and 1997, sales from the Company's ProNectin(R) F product line were $6,000 and $15,000, respectively. For the six month periods ended June 30, 1998 and 1997, these product sales were consistent at $34,000. The decreases were due to the elimination of promotional expenditures and the cessation of direct marketing for the entire product line, redirecting those resources into preclinical and regulatory efforts. Cost of sales was $1,000 for the three months ended June 30, 1998, compared to $6,000 for the same period in 1997. For the six month period ended June 30, 1998, this expense was $4,000, compared to $18,000 for the same period in 1997. The decreases related to changes in the mix of product sold, and a reduction in total revenues. Royalty expenses paid to Telios Pharmaceuticals, Inc. were $6,000 for each of the three months ended June 30, 1998 and 1997, and $13,000 for each of the six month periods ended June 30, 1998 and 1997. A $10,000 annual royalty was paid to Stanford University during the six month period ended June 30, 1997, but no such payment was made in the corresponding of 1998 because the relevant patents had expired. Research and development expenses for the three months ended June 30, 1998 were $1,064,000, compared to $777,000 for the same period in 1997, a 37% increase. For the six month period ended June 30, 1998, these expenses were $1,917,000, compared to $1,416,000 for the same period in 1997, a 35% increase. These increases were primarily attributable to expanded efforts related to the Company's soft tissue augmentation programs, as well as preparation for clinical Good Manufacturing Practices ("GMP") materials manufacturing and testing capabilities, as required by the Food and Drug Administration for clinical trials testing. 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 June 30, 1998 were $424,000, as compared to $561,000 for the same period in 1997, a 24% decrease. For the six month period ended June 30, 1998, these expenses were $926,000, compared to $990,000 for the same period in 1997, a 6% decrease. These decreases were primarily due to reduced legal and investor relations expenses. The Company expects its selling, general and administrative expenses will increase as support for its research and development efforts require and to the extent additional capital is raised. 11 For the three months ended June 30, 1998, the Company recorded a net loss applicable to common shareholders of $4,786,000, or $.46 per share, compared to a loss of $1,303,000, or $.14 per share for the same period in 1997. For the six month period ended June 30, 1998, the net loss applicable to common shareholders was $6,133,000, or $.59 per share, compared to a loss of $2,302,000, or $.25 per share for the same period in 1997. Included in the net loss figures for each of the three and six month periods of 1998 and 1997 were undeclared, imputed and/or paid dividends related to the Company's preferred stock. Imputed, non-cash dividends of $3,266,000 were included in the three and six month periods ended June 30, 1998, to record the difference between the conversion price of preferred stock and the fair market value of the common stock on the preferred stock issuance date. (See Note 2. of the financial statements, above.) 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, establish and maintain collaborative partnerships, manage research and development, manufacturing, preclinical and clinical product testing and commercialization expenditures, achieve regulatory compliance and seek various regulatory approvals, complete 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 June 30, 1998, the Company had cash, cash equivalents and short-term investments of $3,992,000 as compared to $1,300,000 at December 31, 1997. As of June 30, 1998, the Company had working capital of $3,400,000, compared to $697,000 at December 31, 1997. In April and May 1998, the Company received a total of approximately $5.3 million from the private placement of its Series E Convertible Preferred Stock. The Company had long-term debt obligations as of June 30, 1998 of $149,000 in the form of capital lease obligations, versus $190,000 as of December 31, 1997. For the six months ending June 30, 1998, the Company's expenditures for capital equipment and leasehold improvements totaled $99,000, compared with $237,000 for the same period last year. The Company is expecting to increase its capital expenditures in the next two quarters (to the extent additional capital is obtained), as the Company improves existing manufacturing space to become clinical GMP capable for human clinical testing and materials scale-up requirements. The Company may enter into additional capital lease arrangements, if available or under appropriate terms and timing. The Company believes its existing available cash, cash equivalents and short- term investments as of June 30, 1998 will be sufficient to meet its anticipated capital requirements until the second quarter of 1999. Substantial additional capital resources will be required to fund continuing expenditures related to the Company's research, development, manufacturing and business development activities. The Company believes there may be a number of alternatives to meet the continuing capital requirements of its operations. These include collaborative agreements that could generate significant up-front licensing fees, research and development reimbursements and milestone payments, as well as public or private financings, such as the possible exercise of existing public and private warrants for the Company's common stock. However, there can be no assurance that the requisite fundings will be consummated in the necessary time frames needed for continuing operations 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 sell or license out significant portions of the Company's technology or potential products. 12 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on May 19, 1998. Proposals voted upon and the results of voting were as follows: (1) Proposal to approve an amendment to the Company's 1992 Stock Option Plan to increase the number of shares reserved for issuance under the Plan by 500,000 shares. Votes for: 7,126,937 Votes against: 105,950 Abstentions: 24,825 (2) Proposal to approve ratification of Ernst & Young, LLP as independent auditors for the fiscal year ending December 31, 1998. Votes for: 7,231,262 Votes against: 5,950 Abstentions: 20,500 Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: Exhibit Number Description _______ ___________ 10.34 First Amendment to Stockholder Protection Agreement dated April 24, 1998, between the Company and Continental Stock Transfer & Trust Company as rights agent. 27 Financial Data Schedule b. Reports on Form 8-K On May 1, 1998, Protein Polymer Technologies, Inc. filed a Current Report on Form 8-K with the Commission. In Item 5. of the Report the Company reported an initial private placement on April 24, 1998 of 39,312.5 shares of the Company's Series E Convertible Preferred Stock and warrants to purchase an aggregate of 2,358,750 shares of common stock. Included in Item 7. of the Report were unaudited pro forma condensed balance sheets to give effect to the Series E Convertible Preferred Stock private placement. 13 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: August 13, 1998 By: /s/ J. Thomas Parmeter _________________ __________________________________ J. Thomas Parmeter Chairman of the Board, Chief Executive Officer, President Date: August 13, 1998 By: /s/ Aron P. Stern _________________ __________________________________ Aron P. Stern Vice President, Finance and Administration and Chief Financial Officer 14 EXHIBIT INDEX Exhibit Sequentially Number Description Numbered Page ________ ___________________________________________ _____________ 10.34 First Amendment to Stockholder Protection 16 Agreement dated April 24, 1998, between the Company and Continental Stock Transfer & Trust Company as rights agent. 27 Financial Data Schedule 19 15 EX-10.34 2 1ST AMENDMENT TO STOCKHOLDER PROTECTION AGREEMENT EXHIBIT 10.34 FIRST AMENDMENT TO STOCKHOLDER PROTECTION AGREEMENT THIS FIRST AMENDMENT TO STOCKHOLDER PROTECTION AGREEMENT (this "Agreement") is entered into as of the 24th day of April, 1998 by and between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware Corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, as Rights Agent (the "Rights Agent"). RECITALS: A. Pursuant to Section 4.4 of that certain Stockholder Protection Agreement dated as of August 22, 1997 (the "Stockholder Protection Agreement") by and between the Company and the Rights Agent, prior to the Separation Time, the Company may supplement or amend any provision of the Stockholder Protection Agreement in any respect without the approval of any holders of Rights. Capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Stockholder Protection Agreement. B. The Rights Agent has agreed pursuant to Section 4.4 of the Stockholder Protection Agreement to execute any supplement or amendment to the Stockholder Protection Agreement upon delivery of a certificate (the "Officer's Certificate") from an appropriate officer of the Company stating that the proposed supplement or amendment is in compliance with such Section. C. The Company has delivered an Officer's Certificate to the Rights Agent with respect to this Amendment. NOW THEREFORE, in consideration of the foregoing facts and such other good and valuable consideration, the receipt and adequacy of which are hereby acknowledge, the Company and Rights Agent hereby agree as follows: 16 AGREEMENT Section 1. MODIFICATION OF STOCKHOLDER PROTECTION AGREEMENT. The definition of "Minority Investor" in Section 1.1(m) of the Stockholder Protection Agreement is hereby amended in its entirety to read as follows: "'Minority Investor' shall mean any Person (together with such Minority Investor's Affiliates and Associates) who, with the express written approval of the Board of Directors of the Company, acquires aggregate Beneficial Ownership of the 15% or more but less than or equal to that percentage expressly approved in writing by the Company, as approved by its Board of Directors, but in no event greater than 35% of the outstanding Common Stock of the Company." Section 2. MISCELLANEOUS PROVISIONS (a) Descriptive Headings. Descriptive headings appear herein for convenience of reference only and shall not control or affect the meaning or construction of any provisions hereof. (b) Governing Law. This Amendment shall be construed, interpreted and applied in accordance with the internal laws of the State of New York without giving effect to doctrines relatin to conflicts of laws. (c) Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument. (d) Stockholder Protection Agreement References. As of the date hereof any references to "this Agreement" in the Stockholder Protection Agreement or any other agreement, document or instrument related hereto shall mean that Stockholder Protection Agreement as modified by this Amendment. 17 IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first above written. Company: PROTEIN POLYMER TECHNOLOGIES, INC. /s/ J. Thomas Parmeter __________________________________ J. Thomas Parmeter, President & Chief Executive Officer Rights Agent: CONTINENTAL STOCK TRANSFER & TRUST COMPANY /s/ William F. Seegraber __________________________________ Name: William F. Seegraber Title: Vice President 18 EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS 6-MOS DEC-31-1998 DEC-31-1998 APR-01-1998 JAN-01-1998 JUN-30-1998 JUN-30-1998 3,098,774 3,098,774 893,180 893,180 2,566 2,566 0 0 0 0 4,030,650 4,030,650 1,975,276 1,975,276 (1,285,464) (1,285,464) 4,904,439 4,904,439 630,649 630,649 0 0 0 0 7,945,216 7,945,216 26,256,735 26,256,735 (30,077,215) (30,077,215) 4,904,439 4,904,439 5,506 34,295 45,415 132,860 1,213 4,373 7,463 16,873 1,481,211 2,828,988 0 0 6,958 14,453 (4,786,153) (6,132,957) 0 0 (4,786,153) (6,132,957) 0 0 0 0 0 0 (4,786,153) (6,132,957) (0.46) (0.59) (0.46) (0.59)
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