-----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, Udfefu+CjNAm792RGiG7hEXl1/WGv2qycqvfIOets5zxPQEiYBmkGGQFD8zKZHm/ kNtsXeVP1hl4J3oohCH5qA== /in/edgar/work/0000898430-00-003349/0000898430-00-003349.txt : 20001114 0000898430-00-003349.hdr.sgml : 20001114 ACCESSION NUMBER: 0000898430-00-003349 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTEIN POLYMER TECHNOLOGIES INC CENTRAL INDEX KEY: 0000858155 STANDARD INDUSTRIAL CLASSIFICATION: [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: 759867 BUSINESS ADDRESS: STREET 1: 10655 SORRENTO VALLEY RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195586064 MAIL ADDRESS: STREET 1: 10655 SORRENTO VALLEY ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 10QSB 1 0001.txt FORM 10-QSB ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [_] 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 Identification No.) incorporation or organization) 10655 Sorrento Valley Road, San Diego, CA 92121 (Address of principal executive offices) (858) 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 November 13, 2000, 18,528,750 shares of common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes___ No X --- ================================================================================ 1 PROTEIN POLYMER TECHNOLOGIES, INC. FORM 10-QSB INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed Balance Sheets - September 30, 2000 and December 31, 1999.............................................. 3 Condensed Statements of Operations - For the Three Months and Nine Months ended September 30, 2000 and 1999 and the period July 6, 1988 (inception) to September 30, 2000....................... 4 Condensed Statements of Cash Flows - For the Nine Months ended September 30, 2000 and 1999 and the period July 6, 1988 (inception) to September 30, 2000....................... 5 Notes to Condensed Financial Statements.................................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................................. 14 Signature........................................................................ 15
2 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Balance Sheets
September 30, December 31, 2000 1999 ------------------------------------------- Assets (unaudited) Current assets: Cash and cash equivalents $ 958,676 $ 155,692 Other current assets 57,030 49,266 ------------------------------------------- Total current assets 1,015,706 204,958 Deposits 56,977 36,177 Notes receivable from officers 140,000 140,000 Equipment and leasehold improvements, net 276,449 360,005 ------------------------------------------- $ 1,489,132 $ 741,140 =========================================== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 195,183 $ 385,932 Accrued employee benefits 60,656 84,335 Other accrued expenses 43,989 17,118 Current portion capital lease obligations 45,484 79,593 Deferred revenue 333,333 - Deferred rent 111,002 95,973 ------------------------------------------- Total current liabilities 789,647 662,951 Long-term portion deferred revenue 416,667 - Long-term portion capital lease obligations - 25,088 Stockholders' equity: Convertible Preferred Stock, $.01 par value, 5,000,000 shares authorized, 84,077 and 91,065 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively; liquidation preference - $8,407,700 at September 30, 2000 8,062,272 8,761,072 Common stock, $.01 par value, 40,000,000 shares authorized, 18,528,750 and 13,443,510 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively 185,299 134,447 Additional paid-in capital 31,405,057 28,403,077 Deficit accumulated during development stage (39,369,810) (37,245,495) ------------------------------------------- Total stockholders' equity 282,818 53,101 ------------------------------------------- $ 1,489,132 $ 741,140 ===========================================
See accompanying notes. 3 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Statements of Operations (unaudited)
For the period July 6, 1988 (inception) to Three months ended Nine months ended Sept. 30, September 30, September 30, 2000 1999 2000 1999 2000 -------------------------------------------------------------------------------------------------- Revenues: Contract revenue $ 103,333 $ 2,320 $ 593,240 $ 2,320 $ 4,950,525 Interest income 22,543 10,017 68,194 29,575 1,188,466 Product and other income - 14,111 3,011 50,627 687,328 --------------------------------------- -------------------------------------- ------------------- Total revenues 125,876 26,448 664,445 82,522 6,826,319 Expenses: Research and development 579,041 498,614 1,775,779 1,946,693 26,529,860 Selling, general and administrative 273,537 285,309 1,012,981 1,170,726 15,717,884 --------------------------------------- -------------------------------------- ------------------- Total expenses 852,578 783,923 2,788,760 3,117,419 42,247,744 --------------------------------------- -------------------------------------- ------------------- Net loss (726,702) (757,475) (2,124,315) (3,034,897) (35,421,425) Undeclared, imputed and/or paid dividends on preferred stock 69,220 69,220 207,659 207,659 5,447,313 --------------------------------------- -------------------------------------- ------------------- Net loss applicable to common shareholders $ (795,922) $ (826,695) $ (2,331,974) $ (3,242,556) $ (40,868,738) ======================================= ====================================== =================== Basic and diluted net loss per common share $ (0.04) $ (0.06) $ (0.13) $ (0.26) ======================================= ====================================== Shares used in computing basic and diluted net loss per common share 18,503,655 13,367,249 17,404,729 12,280,147 ==============================================================================
See accompanying notes. 4 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Statements of Cash Flows (unaudited)
For the period July 6, 1988 Nine months ended (inception) to September 30, Sept. 30, 2000 1999 2000 ------------------------------------------------------------ Operating activities Net loss $ (2,124,315) $ (3,034,897) $ (35,427,344) Adjustments to reconcile net loss to net cash used for operating activities: Stock issued for compensation and interest - 18,000 128,815 Interest expense associated with issuance of warrant - 2,700 2,700 Depreciation and amortization 119,709 214,736 2,012,547 Write-off of purchased technology - - 503,500 Deferred revenue 750,000 - 750,000 Deferred rent 15,029 - 111,002 Changes in assets and liabilities: Deposits (20,800) (800) (56,977) Notes receivable from officers - 1,000 (140,000) Other current assets (7,763) 17,254 (57,029) Accounts payable (190,749) (407,051) 195,183 Accrued employee benefits (23,679) (138,209) 60,656 Other accrued expenses 26,871 16,233 43,989 ------------------------------------------------------------ Net cash used for operating activities (1,455,697) (3,311,034) (31,872,958) Investing activities Purchase of technology - - (570,000) Purchase of equipment and improvements (36,154) (26,100) (1,846,968) Purchases of short-term investments - - (16,161,667) Sales of short-term investments - - 16,161,667 ------------------------------------------------------------ Net cash provided by (used for) investing activities $ (36,154) $ (26,100) $ (2,416,968)
See accompanying notes. 5 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Condensed Statements of Cash Flows, continued (unaudited)
For the period July 6, 1988 Nine months ended (inception) to September 30, Sept. 30, 2000 1999 2000 ------------------------------------------------------------ Financing activities Net proceeds from exercise of options and warrants, and sale of common stock $ 2,354,032 $ 939,754 $ 19,891,698 Net proceeds from issuance and conversion of preferred stock - 2,074,595 14,290,160 Net proceeds from convertible notes and detachable warrants - - 1,068,457 Payment on capital lease obligations (59,197) (62,443) (243,286) Payment on note payable - (150,000) (242,750) Proceeds from note payable - 150,000 484,323 ------------------------------------------------------------- Net cash provided by financing activities 2,294,835 2,951,906 35,248,602 ------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 802,984 (385,228) 958,676 Cash and cash equivalents at beginning of period 155,692 1,383,148 - ------------------------------------------------------------- Cash and cash equivalents at end of period $ 958,676 $ 997,920 $ 958,676 ============================================================= Supplemental disclosures of cash flow information Equipment purchased by capital leases $ - $ - $ 288,772 Interest paid 6,124 16,592 111,787 Imputed dividend on Series E stock - - 3,266,250 Conversion of Series D preferred stock to common stock - - 2,142,332 Conversion of Series E preferred stock to common stock 698,800 913,750 514,950 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. 6 PROTEIN POLYMER TECHNOLOGIES, INC. (A Development Stage Company) Notes to Condensed Financial Statements (unaudited) September 30, 2000 1. Basis of Presentation The condensed financial statements of Protein Polymer Technologies, Inc. (the "Company") for the three months and for the nine months ended September 30, 2000 and 1999 are unaudited. These financial statements reflect all adjustments, consisting of only normal recurring adjustments which, in the opinion of management, are necessary to state fairly the financial position at September 30, 2000 and the results of operations for the three months and the nine months ended September 30, 2000 and 1999. The results of operations for the nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the year ended December 31, 2000. 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 on Form 10-KSB for the year ended December 31, 1999, 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 loss figures used for this calculation recognize accumulated dividends on the Company's Series D and Series F Preferred Stock. Such dividends are payable when declared by the Board of Directors in cash or common stock. 3. Basic and Diluted Loss Per Share In accordance with 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 include 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 months and the nine months ended September 30, 2000 and 1999 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. 4. Revenue and Expense Recognition License fees and research and development contract revenues are recorded as earned based on the performance requirements of the contracts. If the research and development activities are not successful, the Company is not obligated to refund payments previously received. Milestone payments are recorded as revenue when received as they have not been refundable and the Company has no future performance obligations. Payments received in advance of amounts earned are recorded as deferred revenue. Research and development costs are expensed as incurred. 7 5. Note Receivable with Officer A loan for $140,000, secured by a pledge of stock, was made to an officer of the Company on April 16, 1997, solely to meet tax obligations arising from the exercise of a stock option. Interest accrues at the annual rate of 8% on the unpaid principal balance. In July 1999, the loan term was extended until April 2005. 6. Exercise and Exchange of Series G Warrants During February 2000, holders of warrants issued in connection with the sale of Series G Preferred Stock exercised their warrants to purchase common stock which were due to expire in September, 2000. The exercise price was $0.50 per share. As an inducement to exercise the warrant early, the Company offered each holder a new one year warrant for a similar number of shares at an exercise price of $1.50 per share. As a result the Company raised $2.1 million (less expenses). The newly issued warrants will expire on the last day of February 2001. 7. Femcare Agreements On January 26, 2000, PPTI and Femcare Ltd. ("Femcare"), headquartered in Nottingham, Great Britain, executed three related agreements involving the grant of a license to Femcare to register and market PPTI's urethral bulking agent for the treatment of female stress urinary incontinence in Europe and Australia. In addition to the License and Development Agreement, PPTI agreed in a separate Supply Agreement to provide final product to Femcare, and if unable to do so, agreed to make the manufacturing methods and materials available to Femcare as specified in a separate Escrow agreement. In addition to agreeing to purchase the final product from PPTI for a defined percentage of the revenues received by Femcare from the sale of the incontinence product, Femcare paid PPTI an up front license fee of $1 million in two installments and agreed to pay PPTI a royalty on revenues received from the sale of the incontinence product. The agreements specify the performance benchmarks and timelines for each party, the definition of yearly minimum royalties and minimum product purchases, and the methods and procedures for determining product manufacturing requirements. The license grant from PPTI to Femcare is for the greater of 20 years or the date upon which the last patent included within the license grant for the territories covered expires, subject to meeting various sales requirements, and is exclusive in the territories covered, subject to certain conditions being maintained. The parties agreed to cooperate extensively in the clinical testing and the registration of the product with the appropriate governmental authorities. These activities are scheduled to take place over a period of approximately three years. Accordingly, the Company has recorded the $1 million up front payment as deferred revenue, and is recognizing it as license revenue ratably over a period of three years. In the nine months ended September 30, 2000, the Company recognized approximately $250,000 of revenue related to this agreement. -------- 8. Sale of In Vitro Cell Culture Business to Sanyo Chemical Industries, Ltd. On February 18, 2000, PPTI and Sanyo Chemical Industries, Ltd. ("Sanyo") of Kyoto, Japan, executed an agreement involving the grant of a royalty-free license to Sanyo for exclusive worldwide rights to make and sell ProNectin(R) F and ProNectin(R) L and derivative products for in vitro cell culture and related applications. PPTI received net proceeds of $284,000 from Sanyo for the issuance of the license, including assignment of the ProNectin(R) and SmartPlastic(R) trademarks and transfer of remaining product inventory. The agreement remains in effect until the last patent included within the license grant expires. 8 9. Liquidity The Company believes its existing available cash and cash equivalents as of September 30, 2000, plus contractual amounts receivable, is sufficient to meet its anticipated capital requirements until January 2001. Substantial additional capital resources will be required to fund continuing expenditures related to the Company's research, development, clinical trials, and product marketing 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. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements Certain statements contained or incorporated by reference 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 which may cause actual results, performance or achievements of the company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Such risks and uncertainties include, among others, history of operating losses, raising adequate capital for continuing operations, early stage of product development, scientific and technical uncertainties, competitive products and approaches, reliance upon collaborative partnership agreements and funding, regulatory testing and approvals, patent protection uncertainties and manufacturing scale-up and required qualifications. While these statements represent management's current judgment and expectations for the company, such risks and uncertainties could cause actual results to differ materially from any future results suggested herein. The company undertakes no obligation to release publicly the results of any revisions to these forward-looking statements to reflect events or circumstances arising after the date hereof. General Overview Incorporated in 1988, Protein Polymer Technologies, Inc. has concentrated its research and development efforts on establishing a scientific and technical leadership position in the production and development 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 September 30, 2000 has an accumulated deficit of $39,370,000. The Company's product candidates for surgical repair, augmentation and regeneration of human tissues are in various stages of research and development. Its more advanced programs are in the areas of bulking agents for soft tissue augmentation, particularly for use in urethral tissue for the treatment of female stress incontinence and in dermal tissue for cosmetic and reconstructive procedures. The Company currently is devoting the majority of its resources to the development and registration of these products, with the greatest emphasis on the incontinence product. In December 1999, the Company initiated human clinical testing of its urethral bulking agent for the treatment of female stress urinary incontinence. The August 1999 approval by the U.S. Food and Drug Administration ("FDA") of the Company's Investigational Device Exemption ("IDE") 9 allows PPTI to test the safety and effectiveness of the incontinence product in women over the age of 40 who have become incontinent due to the shifting of their bladder or the weakening of the muscle at its base that controls the flow of urine, or both problems combined. The Company estimates that more than 2.5 million women begin to experience stress urinary incontinence in the United States each year. In most untreated cases, the problem becomes progressively more pronounced. Due to limited efficacy or invasiveness of current treatments, only a small proportion of the women experiencing stress urinary incontinence are clinically treated, relying instead on pads and plugs and the like that only address the symptoms. In contrast, PPTI's product is injected, typically in an outpatient procedure, into urethral tissue at the base of the bladder forming a solid implant that provides support to the muscles controlling the flow of urine. The Company believes that its product will prove to be easy for the physician to use, offer enduring effectiveness, and avoid most of the other limitations of urethral bulking products on the market or in development. In January 2000, PPTI established a strategic alliance with Femcare, Ltd. for the commercialization of the incontinence product in Europe and Australia. In the agreement, Femcare is responsible for clinical testing, regulatory approval, and product sales and marketing within these territories, and PPTI is responsible for product manufacturing. Contingent on successful clinical trials commercialization of the product in Europe is expected to begin more than a year before approval for marketing the product in the United States can be obtained. See also "Femcare Agreements" in the Notes to the Financial Statements. PPTI also is in discussions with several companies regarding the establishment of strategic alliances for commercializing the incontinence product in the United States and other markets outside the Femcare territories. In October, the Company submitted an IDE to the FDA to obtain approval to begin human clinical testing of its dermal bulking agent for use in cosmetic and reconstructive surgery applications for the correction of dermal contour deficiencies (facial lines, wrinkles, scars, etc.). In 1998, there were 2.8 million cosmetic facial procedures performed in the U.S. according to the American Academy of Cosmetic Surgery. The apparent reason most people, both male and female, have such procedures done is to improve their self-image. A popular procedures in the last decade has been the injection of bovine collagen, used to correct dermal "contour deficiencies" (frown lines, worry lines, wrinkles, crow's feet, facial scars, marionette lines, etc.). Today, several other materials are used in a similar manner. The procedure appeals to people because it provides a noticeable benefit with little recovery time and minimal risk of adverse effects. All that is required is a relatively short visit to the physician's office, usually with little delay in the resumption of normal activities. However, the acceptance of these products has been less than expected, probably due primarily to the reported short term durability of the cosmetic effect. PPTI is developing an injectable dermal augmentation product for the treatment of contour deficiencies due to aging and environmental exposure, disease such as acne and cancer, and surgery. Similar to its urinary incontinence product, the dermal product is based on one of the Company's patented silk-elastin polymers. Once injected into the skin and following physician manipulation for cosmetic effect, the solution irreversibly transforms into a pliable hydrogel, which the Company believes will yield a more pleasing and longer lasting cosmetic effect. PPTI's dermal augmentation product has completed preclinical testing and an Investigational Device Exemption (IDE) has been submitted to the FDA for approval to begin human clinical testing. Prior feasibility studies in animals have shown the product to be effective for contour correction, easy to use, biocompatible, non-immunogenic, resistant to migration, and more durable than products currently available. In addition, the tissue augmentation materials and technology underlying the incontinence and the dermal products have the potential to be effective and desirable in a number of other clinical applications. PPTI began studies to identify its most promising biomaterial formulations for use in these soft tissue augmentation products in 1996, devoted increasing resources through 1997, 1998 10 and 1999, and at present is focused primarily on completing human clinical testing of the incontinence product and initiating clinical testing of its dermal product. 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 February 2000, the Company licensed the rights for the manufacture and sale of these products for use in in vitro cell culture, including the transfer of all existing inventory, to a third party. See also "Sale of In Vitro Cell Culture Business to Sanyo Chemical Industries, Ltd." in the Notes to the Financial Statements. The Company's other advanced product technology is in the area of tissue adhesives and sealants. Currently the Company's research and development in this area is focused on the repair of spinal discs for the treatment of lower back pain. 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 through up-front licensing fees, research and development reimbursements and milestone payments, the Company expects to continue incurring operating losses for the next several years. As of September 30, 2000, the Company had cash and cash equivalents totaling $959,000. The Company believes its available cash and cash equivalents and future contractual R&D payments would be sufficient to meet its anticipated capital requirements through January 2001. The Company will continue to attempt to raise additional funds for continuing operations through private or public offerings and collaborative agreements. See "Liquidity and Capital Resources" below for additional information and a description of the associated risks. To the extent sufficient resources are available, the Company continues to research the use of its protein polymers for other tissue repair and medical device applications, principally for use in tissue engineering matrices and drug delivery devices. PPTI is aggressively pursuing domestic and international patent protection for its technology, making claim to an extensive range of recombinantly prepared structural and functional proteins, methods for preparing synthetic repetitive DNA, methods for the production and purification of protein polymers, end-use products incorporating such materials and methods for their use. To date, the United States Patent and Trademark Office ("USPTO") has issued 19 patents to the Company, four of which have been issued in 2000. In addition, PPTI has filed corresponding patent applications in other relevant commercial jurisdictions. Results of Operations The Company received $103,000 in contract and licensing revenue for the three months ended September 30, 2000 and $593,000 for the nine months ended September 30, 2000 as compared to $2,000 contract and licensing revenue for the three months and nine months ended September 30, 2000. The increase in contract and licensing revenue primarily represents the amortized portion of an up front license payment of $1 million (being recognized ratably over a period of three years) from Femcare Ltd. for the commercial rights to PPTI's incontinence product in Europe and Australia, payments from Sanyo Chemical Industries Ltd. for the comprehensive license to PPTI's in vitro cell culture business and existing product inventory, and R&D payments from Perkin-Elmer for a development project. The lack of revenue in 1999 reflects primarily the termination of research and development reimbursements from various operating entities of the Johnson & Johnson Company, including Ethicon, Inc. Interest income was $23,000 for the three months and $68,000 for the nine months ended September 30, 2000 versus $10,000 and $30,000 for the same periods in 1999. 11 The Company received no sales and licensing revenues from the Company's ProNectin(R) and SmartPlastic(R) products for the three months and $3,000 for the nine months ended September 30, 2000 as compared to $14,000 and $51,000 respectively for the same periods in 1999. The Company incurred no cost of sales nor royalty payments for the three months or the nine months ended September 30, 2000, compared to no royalty expenses for the three month period and $12,000 for the nine month period ended September 30, 1999. The decline in all of these items was due to the sale of this business to Sanyo Chemical Industries, Ltd. in February 2000. Research and development expenses for the three months ended September 30, 2000 were $579,000 and $1,776,000 for the nine months ended September 30, 2000, compared to $499,000 and $1,947,000 respectively for the same periods in 1999. The decrease for the nine month period was primarily attributable to downsizing reductions in personnel and expenditures implemented in June 1999, and completion of external contracts and consulting services related to the Company's soft tissue augmentation program, including preclinical testing and preparation of the Investigational Device Exemption approved by the Food and Drug Administration ("FDA") in 1999 granting permission to begin human clinical testing. The increase in the three month period reflects increased costs incurred in clinical testing. The Company expects, in general, that its research and development, human clinical testing, and manufacturing expenses will increase over time if its incontinence product and other products in development successfully progress and additional capital is obtained. Selling, general and administrative expenses for the three months ended September 30, 2000 were $274,000, as compared to $285,000 for the same period in 1999, and were $1,013,000 for the nine months ended September 30, 2000 as compared to $1,171,000 for the same period in 1999. These decreases were due primarily to the downsizing in 1999, and to a one year sublease of a portion of the Company's laboratory to a third party. The Company expects its selling, general and administrative expenses remain largely unchanged in the near term, but will increase in the future as support for its research and development and manufacturing efforts may require and to the extent additional capital is obtained. For the three months ended September 30, 2000, the Company recorded a net loss applicable to common shareholders of $796,000 or $0.04 per share compared to a loss of $827,000 or $0.06 per share for the same period in 1999. For the nine months ended September 30, 2000, the Company recorded a net loss applicable to common shareholders of $2,332,000, or $0.13 per share compared to a loss of $3,243,000, or $0.26 per share for the same period in 1999. Also included in each of the three month periods of 2000 and 1999 was $69,000, respectively, for undeclared dividends related to the Company's preferred stock, and for the nine month periods, the undeclared dividends were $208,000 for each 1999 and 2000. In general, there can be significant fluctuation in revenue from quarter to quarter due to variability in outside contract and licensing payments. In general, the Company expects to incur increasing operating losses in the future (to the extent additional capital is obtained), due primarily to increases in the Company's soft tissue augmentation program's 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. To date the Company believes that inflation and changing prices have not had a material effect on its continuing operations, although increasing utility costs may have some impact in future periods. Liquidity and Capital Resources As of September 30, 2000, the Company had cash and cash equivalents of $959,000 as compared to $156,000 at December 31, 1999. As of September 30, 2000, the Company had working capital 12 of $226,000 as compared to ($458,000) at December 31, 1999. The differences are due primarily to the completion in January 2000 of the strategic alliance with Femcare, Ltd., and in February 2000 from the sale of the in vitro cell culture business to Sanyo Chemical Industries, Ltd., and the receipt of $2,100,000 from the exercise of common stock warrants granted in association with the Series G Convertible Preferred Stock. The substantial difference between cash and working capital as of September 30, 2000 is partially due to $333,000 of deferred revenue remaining to be recognized in the remainder of 2000. The Company had no long-term debt obligations as of September 30, 2000, versus $25,000 of capital lease obligations as of December 31, 1999. For the nine months ending September 30, 2000, the Company's expenditures for capital equipment and leasehold improvements totaled $36,154 compared with $26,100 for the same period last year. The Company is expecting to increase its capital expenditures in the next few quarters (to the extent additional capital is obtained), as the Company improves existing space to expand capacity to meet materials manufacturing requirements for clinical testing. The Company may enter into additional capital lease arrangements if available at appropriate rates and terms. The Company believes its existing available cash and cash equivalents, in combination with anticipated contract research payments and revenues received from the transfer of clinical testing materials, will be sufficient to meet its anticipated capital requirements until January 2001. 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 meeting the continuing capital requirements of its operations, including additional collaborative agreements and public or private financings. The Company is currently in discussions at various stages with several potential collaborative partners that, based on the results of various in vitro and in vivo product performance evaluations, could result in generating revenues in the form of license fees, milestone payments or research and development reimbursements. However, there can be no assurance that any of these 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. 13 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: Exhibit Number Description ------ ----------- 27 Financial Data Schedule. b. Reports on Form 8-K None. 14 SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROTEIN POLYMER TECHNOLOGIES, INC. Date November 13, 2000 By /s/ J. Thomas Parmeter ----------------- ----------------------- J. Thomas Parmeter Chairman of the Board, Chief Executive Officer, President Date November 13, 2000 By /s/ Janis Y. Neves ----------------- ------------------- Janis Y. Neves Director of Finance, Controller and Assistant Secretary 15 EXHIBIT INDEX Exhibit Sequentially Number Description Numbered Page ------ ----------- ------------- 27 Financial Data Schedule. 16 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 3-MOS 9-MOS DEC-31-2000 DEC-31-2000 JUL-01-2000 JAN-01-2000 SEP-30-2000 SEP-30-2000 958,676 958,676 0 0 57,030 57,030 0 0 0 0 1,015,706 1,015,706 2,135,739 2,135,739 1,859,291 1,859,291 1,489,132 1,489,132 789,647 789,647 0 0 0 0 8,062,272 8,062,272 31,590,356 31,590,356 (39,369,810) (39,369,810) 1,489,132 1,489,132 0 3,011 125,876 664,445 4 4 0 0 852,578 2,788,760 0 0 1,441 6,124 (726,702) (2,124,315) 0 0 (726,702) (2,124,315) 0 0 0 0 0 0 (726,702) (2,124,315) (0.04) (0.13) (0.04) (0.13)
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